Money McBags promised to get to his breakdown of KITD’s transformational acquisition of ioko the other day, and he apologizes for the delay, but he got busy with some other shit (that other shit mainly being the recently released NSFW Kate Bosworth nude pics), so you’ll have to forgive him for not getting to it sooner.  That said, since the deal, the stock has traded the fuck off in a move that makes less sense to Money McBags than WGO’s valuation (which is finally falling from its cockposterous levels), string theory, or country music.  Money McBags spent a great deal of time on Thursday on the phone, the twitter, and over email trying to get to the bottom of the nonsensical sell off (and to the bottom of this as well) while updating his readers on WTF was happening, so he is going through a bit of KITD overload.  But he did promise this analysis so below are Money McBags’ thoughts on the deal:

1.  It was a good fucking price.  Money McBags was nervous as fuck that based on the last couple of deals KITD would have to pay north of 2x revenues in this acquisition and that would have led to KITD doing what they do best, raising more equity.  Luckily, they were able to buy $54MM in revenue for $79.4MM when including the purchase price, cash and working cap on ioko’s balance sheet, and incentive payouts.  So ~1.5x revenues is a pretty jizztastic price and according to CEO Kaleil Tuzman on his “for analysts only” phone call Thursday afternoon, KITD wasn’t even the highest bidder.  That’s right, ioko chose KITD because they thought KITD was simply a better long-term strategic fit than others including having more sales synergies, being able to reach more geographies, and having better food in their cafeteria.

2.  You down with OTT? Yeah you know KITD.  So what ioko brings to the table is what is referred to as “over the top” functionality which isn’t just a shitty arm wrestling movie, but also “allows premium video services delivered over the Internet to be formatted for and presented on televisions and other connected devices, as well as its closed network IPTV solutions.”  And that is where KITD is going with their cockriffic “Lens to Lens” strategy (which Money McBags hopes isn’t just a one hit wonder like the “Soul II Soul” strategy).  As CEO Tuzman said:  “We are going towards OTT and we are going towards social media and we are able to combine those two worlds I think very effectively” and that seems to be the key to this deal.

ioku has the AT&T U-Verse business, has the UK’s Hulu in SeeSaw (though Money McBags isn’t sure he would brag about having the UK’s version of Hulu since Hulu is likely to turn in to a giant boo boo, but whatever), and Europe’s Netflix in LoveFilm (and some films that Money McBags love include Rushmore, Dr. Strangelove, and anything from Faye Reagan’s box set).  Here is the fucking point and this is absolutely critical to understanding why this stock has more potential than Jennifer Lawrence, people are increasingly using video across a number of different devices and getting that video in increasingly non-traditional ways and as more videos get sent and bandwidth pipes get more clogged than Jewels Jade‘s rectum in a Whitezilla video, the lower cost delivery technologies are going to prevail and KITD is the leader in this low cost fucking delivery (it’s a bit like the shift from cassettes to CDs or full bush to brazillian waxes).  Seriously, you don’t really need to know shit else here (but if you want to know something else, feel free to know that scientists finally answered Molyneux’s questions, and Nicole Trunfio is hot).

3.  IP continues to grow and well, it’s still earlier in the adoption cycle than the Papadapolis‘ in September of 1983.  This is from the call: “We believe that within five to ten years, really every mid or large-sized corporation, not just media and broadcasters, which has been the focus of this call because of the nature of the acquisition, will have some sort of IP-based video content management system in place maybe for an internal use even for security and surveillance or human resources or communications, but video is becoming a key means of communication just like audio did 60 or 70 years ago.”  So in the immortal words of Money McBags, jizzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.

4.  Dilution was minimal (and please read that again).  KITD is only including 1.5MM shares in the deal which will give them 40.8MM shares when all is said and done and leave them with $40MM of cash on the balance sheet to throw another party at NAB in Vegas only this time at the Spearmint Rhino (and readers, please pour some out for Rick’s Las Vegas.  It was the right move for RICK, but still a shame).  And Money McBags will assume Kaleil was giving the award winning When Genius Prevailed a shout out when he said: “despite the fact that we have been teased at times around kind of our willingness to dilute, I want to remind shareholders that management has a significant stake in the business,” because no one has teased him more than Money McBags who coined the phrase “You can’t spell dilution without KITD. Ok, you can, but lets pretend it is a silent K.”  That said, this looks to be much better than Money McBags had guessed.

5.  They don’t have to deal with any regulatory institutions over anti-trust issues (and you know who Money McBags anti-trusts?  Lloyd Blankfein, Dick Chaney, and Smurfs).  The reason the deal was delayed was because KITD had to navigate the anti-trust and regulatory waters and they seem to have done it with much aplomb in finally buying this “plum of a company” (Kaleil’s words, not Money McBags’).

6.  If you missed this on the award winning When Genius Prevailed, then Money McBags is sorry for you, but he felt he needed to repost it just in case.  It has nothing to do with KITD, but it is a very pressing matter.

7.  No more M&A (but hopefully they will deliver some lens to lens T&A).  This is actually great fucking news and it is good that KITD is acknowledging that now with ~50% of their self-defined market (and for the record Money McBags has 100% of the financial dick joke market, so fuck you all very much), they need to concentrate on putting everything together.  It’s all about management execution now and well, if management fucks this up, Money McBags will be all for their execution (figuratively of course because Money McBags is a man of peace, especially this piece).  The point is, KITD is now going to focus on organic growth and when their restructuring charges are done in Q4, they will start showing the kind of numbers that make investors giddy.

8.  Not everything was hunky dory as their upper management seems more bloated than Bunny De La Cruz‘s fupa after a triple creampie (and only click the link if you must).  At least 4 of ioko’s senior managers will join KITD’s senior management team (and no offense. but this Scott Sahadi guy from ioko looks like he is 25 years late for the Miami Vice extras casting call, for fucksake, if his shirt were unbuttoned anymore, his sphincter would be showing.  Come on Scott, you’re running a fucking company and not getting ready to go meet Jack Tripper at the Reagle Beagle, so button the fuck up) along with every other CEO/CFO/CTO/C3P0 from companies they have acquired over the past couple of years.  KITD is at a conference in Vegas and on the call, Kaleil said: “I think we had something on the order of 20 team members from around the Company in senior positions people were able to meet and we are hoping that many of you will have the chance to meet leaders across the business going forward.”  Bringing 20 senior managers to a conference in Vegas is more like the start of a Sabrina Deep Fan Bang than it is a way to run a company.  Too many senior managers can be a fucking nightmare and this organization is getting more top heavy than Christina Hendricks, so it may be challenging for Kaleil or Alex Blum or Gavin Campion or whoever the fuck is in charge of the day to day to actually run the company.

Shit, go to the KITD website and you’ll see 31 executives listed.  Thirty fucking one.  That either makes KITD a Fudgie the Whale away from being the Baskin-Robbins of small cap stocks (and yeah Fudgie the Whale is Carvels’ and not Baskin-Robbins, but work with Money McBags here) or on the verge of having too many mohels and not enough schlongs (and Money McBags prefers that phrase to the un-PC too many chiefs and not enough indians, because Money Mcbags believes in being PC).

9.  Guidance was inline and that means the company is cheaper than a tattered Dick Pole rookie card.  Ok, let’s forget about Q1 which is going to be flat to sequentially up with Q4 2010, because nobody gives a fuck about what KITD did in the last three months as long as they didn’t blow anything up because short-term performance is less relevant than a pimple on Rosie Huntington Whiteley‘s ass.

For the full year 2010, KITD thinks they will have ~$210MM in revenue when they layer in all of the acquisitions.  But if you take the $137.5MM initial guidance and add in all of their transactions, you get to ~$235MM in run rate revenue at the end of 2011.  So slap a 30% growth rate on that, a 23% EBITDA margin (which they hope to get up to 30% in the next 18-24 months, so um, jizzzzzzz), and you get the tasty $69MM of EBITDA that Money McBags has been talking about for 2012.  After the cockdickulous sell off, KITD now has a market value of ~$425MM with their 40.8MM shares and with $40MM in cash, that means they are trading at ~5.5x 2012 EV/EBITDA (and they were at ~6.5x EV/EBITDA right after the deal, so um, huh?).  No really.  Those are the fucking numbers, unless you think EBITDA margins are going to tick up faster and then the multiple gets even stupider than Network TV.

So this stock should have rocketed the fuck up but instead it sold off as if it had a bad case of monkeypox.  It makes absolutely no sense to Money McBags and KITD’s management team was so incensed with the drop on Thursday that they sent an email to analysts (but not to regular investors, because, fuck you small guys who put your hard earned income into KITD) and held a couple of invite only conference calls that were so exclusive, it took Money McBags less that 10 seconds to get the dial-in information (but then again Money McBags does have 100% market share of the financial dick joke market, so people make sure he is taken care of).

Anyway, on the calls and the email, Kaleil Tuzman one by one refuted the issues the shorts were throwing around and added a fuckton more color (like a mauve) to the acquisition.  Money McBags thought Kaleil absolutely killed it, and you all know Money McBags would tell you if he thought Kaleil was off point.  Anyway, here are the main issues Kaleial debunked:

1.  ioko does not change the mix of software vs. services vs. maintenance vs. whatever revenues KITD currently has.  There may have been some confusion about this when Kaleil was talking about it from the customer’s perspective, but at the end of the day, shit doesn’t change.  So jizzzz.

2.  Yes, ioko’s revenue has been flatter than Keira Knightley for some time, but those numbers include some do shit legacy healthcare business in run off that KITD not only doesn’t give a shit about, but is not in any of KITD’s numbers.  The ioko business has been growing 25% with the market (but um, note to Kaleil, Money McBags thought the market was growing 30%, so hmmm) and KITD will help them up that rate and grow in the all important telco and MSO segments.  So double jizzzzz.

3.  Kaleil was not reason the Mermaid Bar shut down at Harvard’s PSK Club, but either way, the Mount Holyoke girls involved were definitely over 18 and knew the difference between Keats and Yeats (which of course is one letter).

4.  ioko was not KITD’s third or fourth choice, nor were they even sloppy seconds.  KITD targeted ioko all along and just couldn’t say shit because there were other bidders and they didn’t want to jeopardize the deal.  Money McBags has heard from many investors who were pissed off because they felt misled by Kaleil that KITD didn’t buy The Platform, Deltarte, or Elle Basey, but it is what it is.  Sure Kaleil could have handled this a bit better, but negotiations can be tricky and he didn’t want to give out too much information.  That said, he was at times perhaps purposely playing along too much with rumors, but what is done is done.  So um, blue ball no jizzzzz.

Money McBags really doesn’t know what else to say and has no idea what the shorts are thinking because either they think this company is a complete fraud and going to zero (which is always a possibility but Money McBags thinks that possibility is no larger for KITD than any other non-Chinese and non-ZAGG public company) or they are using different numbers than Money McBags.  Shit, lets say KITD somehow fucks up all of the integration and they don’t grow revenue at all.  So revenue will be ~$230MM in 2012 and say EBITDA margins get cut in half just to totally assfuck this business.  In that scenario, KITD would have ~$26MM in EBITDA and would be trading at ~15x EV/EBITDA and in that case, sure, you wouldn’t really pay more than 10x for the business and maybe the stock could drop to ~$7.50, but really?  No really?  The odds of the company not growing and EBITDA being cut in half are about the same odds of Josef Fritzl being named Father of the Century, and to make any real money on this as a short, that is the scenario you have to believe which is completely cockposterous.

The story is the same.  IP video is 5% of the overall video market and should be 100%.  KITD is the enterprise leader in this.  More and more people and companies are consuming online and mobile video, so not only should IP take share from digital, but the market overall is growing quickly.  KITD is trading at ~5.5x EV/EBITDA despite the above statements, so there is more of a disconnect between KITD’s valuation and potential performance than there is between Indonesian politician Mr Arifinto’s beliefs and his practices.  Money McBags bought after the deal and even though KITD is a big enough position for him that has basically sucked a fatty over the last year (we have to be honest here, this stock has worked less than Mayim Bialik at the Bunny Ranch this year, but patience is a virtue), he is likely gong to buy more because the story just makes too much fucking sense and this stock has the potential to climb up in to at least the mid $20s in the next couple of years with what Money McBags believes to be minimal downside.

That said, Money McBags does have some questions for CEO Kaleil Tuzman (some of them he posed after earnings and is reposting) and hopefully Kaleil will come back and answer them now that he can’t piss off the market anymore.

1.   On your earnings call you talked about how your IP solution is making the current digital video hardware and firmware (and yes, you said hard.  Huhuhuhuh) almost obsolete.  So why is the market growing only 30% (or 25% according to what you pegged ioko growth as)?  What is causing the adoption rate not to accelerate as online video grows and your solution is cheaper?

2.  After earnings when your stock cratered, you sent out an email to select investors (and Money McBags was on that list and still would like the ok from you print your email and Money McBags’ response because the readers of the award winning When Genius Prevailed would clearly be interested to see the difference between how you handle the street and how Money McBags does) and now after the deal, you sent out another email only to analysts (and Money McBags was not on your distribution list for that, so really?  Money McBags thought we shared a moment) and hosted at least two conference calls for large investors.

Can you explain this strategy and why you don’t disseminate this information to retail investors who support your stock?  Money McBags’ email was blowing up all day on Thursday with regular people who have no contact with you or the company anxiously looking for answers (and Money McBags does find it funny that anyone would come to him looking for answers unless the answersre 69, on a trapeze, and up the butt), so why not throw them a bone?

3.  You mentioned wanting to ease back from talking with the Street and potentially hiring an IR person.  You know Money McBags is not just in the market for a job, but he knows your company and can handle the Street, so should he send his resume to Gavin Campion or can we assume the job is his?  And if so, Money McBags demands a foosball table, free soft drinks, and his own administrative assistant.  Plus Money McBags would fit right in with the awesome names already on the KITD management team such as Daniel Goodfellow, Richard Craig-McTouchyFeely, and the vixenly Elin Askfelt (and Money McBags would certainly ask if that could be felt).

4.  When are you going to be the lens to lens backbone for spankwire.com, pornhub, and the tubes of the world because those fuckers deliver some content?

5.  Why are you fucking around and trying to build a brand?  No really, what is the fucking point?  You are going to be half of the market so why waste dollars on letting people know you’re better than the competition when the competition is like a He PingPing nut hair compared to KITD’s full 1980s Ron Jeremy cockstache?  That said, if you really are dead set on marketing, this seems to be an effective campaign.

6.  Since you now have experience in putting rumors to rest, do you have advice for Money McBags on how to deal with the persistent rumors that: 1. He is soon to be shutting down and leaving the award winning When Genius Prevailed.  2.  The award winning When Genius Prevailed is either written by more than one person or Money McBags is not human because just one regular person alone could not possibly put up all of this original content, analysis, dick jokes and boob picks every day by himself.   3. He was the real inspiration for Carly Simon’s song “you’re so vain.”

7.  Can you talk in regular non-techie English for the average retail investor about what OTT means and how you are taking over this segment?  Who else is doing this and why can you do it better?

8.  Be honest here, did you really just read all ~3,200 words of this?

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