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KIT digital Reports First Quarter 2010 Results

Revenue up 80% to Record $17.4 Million, Driving Operating EBITDA of $3.0 Million or $0.21 per Share

Prague, Czech Republic(17 May 2010)

KIT digital, Inc. (NASDAQ: KITD), the leading global provider of on-demand software solutions for managing and monetizing Internet Protocol (IP)-based video assets, reported financial results for the first quarter ended March 31, 2010.

Revenue in the first quarter of 2010 increased 8% to a record $17.4 million from $16.1 million in the previous quarter, and increased 80% from $9.6 million in the same quarter a year ago. The company's revenues are primarily comprised of software license and maintenance fees, software set-up fees, and technical integration and creative service charges.

For the first quarter of 2010, after recognizing the impact of GAAP accounting standard ASC 815-40, net loss was $18.4 million or $(1.33) per basic and diluted share, compared to a net loss in the previous quarter of $15.6 million or $(1.50) per basic and diluted share, and a net income in the first quarter of 2009 of $8.4 million or $1.96 per basic share and $1.88 per diluted share (please see the discussion about important accounting standard in the section, "About ASC 815-40 Accounting Standard," below).

Under the terms of the ASC 815-40 standard (which was introduced in 2009), increases in the trading price of the company's common stock during a given financial quarter result in the recognition of a non-cash derivative expense due to an increase in the booked value of the company's outstanding warrants. The company recently entered into agreements to repurchase and cancel the large majority of its outstanding warrants, which is expected to eliminate most of this accounting effect going forward, starting with the current second quarter.

Net loss for the first quarter 2010 included a derivative expense of $11.4 million resulting from the application of the ASC 815-40 accounting standard; $2.2 million in non-cash charges, including $552,000 in stock-based compensation; $6.6 million in restructuring and integration expenses primarily related to employee termination, acquisition-related facility closing costs, debt cancellation fees, and other costs directly related to the reorganization and integration of acquired companies and $1.2 million in merger and acquisitions expenses, including legal and auditing fees, and fees to investment banking advisory and intermediaries.

Operating EBITDA, a non-GAAP metric which management uses as a proxy for operating cash-flow, was $3.0 million or $0.21 per basic share in the first quarter of 2010, which decreased from $3.2 million or $0.31 per basic share in the previous quarter and increased from $198,000 or $0.05 per basic share in the first quarter of 2009. The company defines operating EBITDA as earnings before derivative income/loss; non-cash stock based compensation; acquisition-related restructuring costs and integration expenses; impairment of property and equipment; direct merger and acquisition expenses; and depreciation and amortization (see important discussion of operating EBITDA in "About the Presentation of Operating EBITDA," below).

Cash and cash equivalents at March 31, 2010 totaled $37.8 million, as compared to $6.8 million at December 31, 2009. The increase was primarily due to the issuance of common stock during the first quarter, offset by payments related to the acquisition of Multicast Media Technologies, including the extinguishment of Multicast's notes payable.

KIT digital currently has approximately 23.1 million common shares outstanding, with approximately $67 million in cash on the balance sheet. These figures are pro forma of our April equity offering, the repurchase of outstanding warrants, a "restructuring reserve" for previous acquisitions, and the cash and shares paid as consideration for the recently announced acquisition of Benchmark Broadcast Systems.

Management employs a natural hedge by matching as much as possible currencies of client revenues with currencies of associated client delivery costs and as such does not believe there is material currency-related risk in the business.

Q1 2010 Selected Client Wins, By Region

Europe, Middle East & Africa (EMEA):

Rosemary Conley, the leading UK health and fitness experts, selected KIT digital to build its unique rosemaryconely.tv platform, which included videos about healthy eating, fitness and weight loss, and provides a forum for members to discuss and rate content.

MGt, the leading UK provider of payment and billing service for global telecommunications, media, technology, entertainment and retail markets, entered into a strategic partnership with KIT digital to provide IPTV platform services as a value added service to MGt clients.

Asia-Pacific:

Yellow Pages, Australia's number one provider of directories and local search services, selected KIT digital to deliver a complete online video solution for its premium listings services.

Credit Union of Australia, one of the region's leading member-owned financial institutions, selected KIT digital to design and implement an overall digital strategy and online channel planning.

The Americas:

Telecom Argentina, Argentina's largest telecommunications carrier, chose KIT digital´s VX-one to support the first and most advanced online video-on-demand store in the country. Telecom Argentina will be first to stream long-format Hollywood and Latin American movies over-the-top to its broadband user base, and will use next generation adaptive streaming technologies directly through IPTV-capable set-top boxes, Web browsers, game consoles and internet enabled TV sets throughout its network.

Tribeca Film Festival, one of the world's leading film festivals, chose VX-one to implement Tribeca Film Festival Virtual, a state-of-the-art platform that features a year round virtual and interactive full-length movie experience online, as well as offers premium content and live events that occurred during the festival.

Amnesty International, a grassroots activist organization with more than 1.8 million members worldwide, selected KIT digital to integrate a donation system with its video players over a secure server, which represented an important innovation in the sector.

YUM! Brands, the world's largest restaurant company, built upon its long-term relationship with KIT digital by utilizing VX-one its investor relations activities with video-based communications.

Habitat for Humanity, an international non-profit housing organization, is now leveraging VX-one and the power of video to increase donations for people in need.

Management Commentary
"Q1 marked our sixth quarter of sequential revenue growth on a U.S. dollar basis, and our twelfth straight quarter of sequential revenue growth on a nominal currency basis," said the company's chairman and CEO, Kaleil Isaza Tuzman. "These results continue to demonstrate the significant operating leverage in our business model. Our financial and operational accomplishments during the first quarter represented a better than anticipated start toward achieving our 2010 operating plan objectives."

"Through the recent elimination of warrants and by front-loading over $4 million in the form of a 'restructuring reserve' related to prior acquisitions, we can move away from reporting operating cash-flow and move towards a more traditional cash EPS metric later this year. We are particularly pleased to put the non-cash derivative accounting issue -- which has unnecessarily and negatively distorted our financial results -- behind us for future quarters."

"It's also important to note that our strong Q1 financial performance bucked the usual Q1 negative seasonality caused by reduced digital media consumption industry-wide relative to the holiday season and the last quarter of each year. Our operating cash-flow margin dipped slightly on a sequential quarter basis, but substantially less than would be normally expected in Q1 given the higher-than-normal proportion of high-margin usage fees in Q4. This superlative performance was a result of our continued aggressive focus on revenue growth, coupled with cost control discipline."

"As we stand nearly halfway through the year," continued Isaza Tuzman, "we appear well on track to exceed our financial targets for fiscal 2010, on both a revenue and operating margin basis. We are also making important strides in rationalizing our operations and consolidating our technology platform, VX-one."

Gavin Campion, president of KIT digital, commented: "We realized strong new contract growth in Q1, including many upsells and are continuing to see this in our current quarter -- particularly with large mobile and fixed-line network operators. We are also taking advantage of cross-selling opportunities to the client bases of previously acquired companies--as we will continue to do with Singapore-based Benchmark, the acquisition of which we announced earlier this morning. In answer to a couple of investors' questions, we have not seen any slow-down in IP video-related expenditures in Europe as a result of the Greek fiscal crisis."

"We are encouraged to see contract wins in every vertical we attack and in all of the regions of the world," added Campion. "Our recent new client wins reflect our '3-screen' device and network-agnostic approach, as well the expanded breadth of functionality available through our VX-one platform. We remain committed to extending our industry leadership position by going from our current estimated 15-20% global market share to 50%+ over the next couple of years, by complementing strong organic growth with highly selective, accretive acquisitions."

About KIT digital, Inc. 

KIT digital (NASDAQ: KITD) is a leading, global provider of on-demand, Internet Protocol (IP)-based video asset management systems (VAMS). KIT VX-one, the company's end-to-end software platform, enables enterprise clients to acquire, manage and distribute video assets across the three screens of today's world: the personal computer, mobile device, and IPTV-enabled television set. The application of VX ranges from commercial video distribution to internal corporate deployments, including corporate communications, human resources, training, security and surveillance. KIT digital's client base includes more than 1,000 customers across 30+ countries, including The Associated Press, Best Buy, Bristol-Myers Squibb, Disney-ABC, FedEx, General Motors, Google, Hewlett-Packard, Home Depot, IMG Worldwide, Intel, News Corp, Telefonica, the U.S. Department of Defense, Verizon, and Vodafone. KIT digital is headquartered in Prague, and maintains principal offices in Atlanta, Cairo, Cologne, Dubai, Melbourne (Australia), London, New York, Stockholm and Toronto. For additional information, visit www.kitd.com or follow the company on Twitter at www.twitter.com/KITdigital.