KeyW Corporation
Aug 4, 2011

KEYW Reports Q2 2011 Financial Results

HANOVER, Md., Aug. 4, 2011 (GLOBE NEWSWIRE) -- The KEYW Holding Corporation (Nasdaq:KEYW) announces Q2 2011 revenue of $44.9 million. This revenue represents strong growth both in year-over-year, and sequential comparisons. Highlights of the quarter include EBITDA that increased to 8.6%, organic growth of approximately 18% (excluding our Air Force services), and total employees of 824, with approximately 80% cleared at the highest level.   

Our Q2 2011 revenue, as compared to revenue of $27.9 million in Q2 2010, represents an increase of approximately 61%. Net Income for Q2 2011 was approximately $49,000 compared to approximately $4,900,000 in Q2 2010 (which included an acquisition related adjustment of $5.6 million, net of taxes). Earnings Per Share (EPS) were $0.00 (diluted) for Q2 2011 versus EPS for Q2 2010 of $0.23 (diluted). Non-cash charges of approximately $2.5 million related to both intangible amortization from our acquisitions and stock compensation reduced our Q2 2011 (diluted) EPS by approximately $0.11.

The main drivers for the year-over-year revenue increase were the acquisitions that occurred subsequent to June 30, 2010, including Sycamore, Everest, JKA and FASI offset by decreases in our Air Force services and products revenue. These acquisitions accounted for $18.3 million of the revenue increase. Organically, our services business (excluding our Air Force services) grew at approximately 18% year-over-year as a result of adding additional headcount through the expansion of our prime contract vehicles. Overall gross margin declined slightly quarter over quarter, due to lower product sales and margins partially offset by improved services margins. Services gross margin increased both as a percentage of revenue and in dollars, in the quarter ended June 30, 2011, as compared with the quarter ended June 30, 2010. The services margin increased by 3.1 percentage points for the quarter ended June 30, 2011 as compared with the quarter ended June 30, 2010. 

"Today is the third anniversary of KEYW's start of operations," commented Leonard Moodispaw, President and CEO of KEYW.  "In those three years, we have grown from our initial 60 people, to over 820 employees. Our revenue in 2008 was $8 million, and today we are on track to deliver over $200 million of revenue in 2011. We have expanded our focus from the signals domain of intelligence, when we started, to a broad and integrated intelligence platform that supports multiple intelligence domains (INTS), while remained centered throughout on the cyber superiority mission that is so critical to our national security. We have transformed ourselves from a private start-up company to a public company, noted by customers and investors as a rare pure-play in cyber and intelligence. Most importantly we are doing critical work for our Country that is saving lives. The range of opportunities in cyber and intelligence are abundant and demand continual improvement and innovation, so that we can grow faster and do more."

Adjusted EBITDA for Q2 2011 was $3.9 million. As a percentage of revenue, Adjusted EBITDA margin was 8.6% in Q2 2011, which is an increase from 7.95% in Q1 2011. We expect this increasing trend to continue for the balance of 2011. Adjusted EBITDA, as defined by KEYW, is a non-GAAP measure that is calculated as GAAP net income plus other non-recurring expense, interest expense, income taxes, stock compensation, depreciation, and amortization. We have provided Adjusted EBITDA because we use the measurement internally to evaluate performance and we believe it is a commonly used measure of financial performance in comparable companies. It is provided to help investors evaluate companies on a consistent basis, as well as to enhance an understanding of our operating results. In addition, our board of directors and management use Adjusted EBITDA:

Adjusted EBITDA is not a recognized term under U.S. GAAP and does not purport to be an alternative to net income as a measure of operating performance or the cash flows from operating activities as a measure of liquidity. Please refer to the table below that reconciles GAAP net income to Adjusted EBITDA.

         
  Six Months
Ended
June 30, 2011
Six Months
Ended
June 30, 2010
Three Months
Ended
June 30, 2011
Three Months
Ended
June 30, 2010
 (in thousands)(in thousands)(in thousands)(in thousands)
         
         
Net Income $112 $5,340 $49 $4,907
Depreciation 527 323 272 188
Amortization 4,533 2,761 2,465 1,905
Stock Amortization 1,498 556 742 299
Acquisition accounting (1) 218 1,270 162 612
Interest expense (income), net 221 672 198 504
Non-recurring acquisition accounting (2) -- (9,650) -- (9,450)
Taxes 71 3,803 (16) 3,646
         
Adjusted EBITDA $7,180 $5,075 $3,872 $2,611
         
         
(1)  Includes costs associated with our Initial Public Offering, acquisitions, and financing costs.
(2)  Includes The Analysis Group earn-out adjustments and Leading Edge Design purchase price refunds.

In addition to these traditional financial metrics, we believe that our total number of employees and our total number of Staffed Positions, which includes personnel provided under subcontract to us for performance on our contracts, provides investors with insight into our business and growth. At June 30, 2011, we had 824 employees and the total number of Staffed Positions in our Services business increased from Q1 2011, to 753 Services Staffed Positions.

The KEYW Holding Corporation Financial Highlights
Condensed Consolidated Statements of Operations
(in thousands except share and per share amounts)
         
 Three months
ended
June 30, 2011
Three months
ended
June 30, 2010
Six months
ended
June 30, 2011
Six months
ended
June 30, 2010
Revenues (Unaudited) (Unaudited) (Unaudited) (Unaudited)
         
Services $42,558 $23,834 $81,184 $42,699
Products 2,340 4,082 5,375 6,960
Total 44,898 27,916 86,559 49,659
         
Costs of Revenues        
Services 30,277 17,682 57,636 31,134
Products 1,584 2,148 3,646 3,937
Total 31,861 19,830 61,282 35,071
         
Gross Profit        
Services 12,281 6,152 23,548 11,565
Products 756 1,934 1,729 3,023
Total 13,037 8,086 25,277 14,588
         
Operating Expenses        
Operating expenses 10,333 6,529 20,330 11,619
 Intangible amortization expense 2,465 1,905 4,533 2,761
Total 12,798 8,434 24,863 14,380
         
Operating Income (Loss) 239 (348) 414 208
         
Non-Operating Expense (Income), net 206 (8,901) 228 (8,935)
         
Income before Income Taxes 33 8,553 186 9,143
         
Income Tax Benefit (Expense), net 16 (3,646) (74) (3,803)
         
Net Income $49 $4,907 $112 $5,340
         
Weighted Average Common Shares Outstanding        
Basic 26,058,260 15,494,067 25,832,176 14,990,118
Diluted 29,301,790 21,564,747 29,243,975 21,294,058
         
Earnings per Share        
Basic $0.00 $0.32 $0.00 $0.36
Diluted $0.00 $0.23 $0.00 $0.25
 
Condensed Consolidated Balance Sheet 
(in thousands except share amounts)
     
  June 30, 2011 December 31, 2010
  (Unaudited)  
ASSETS    
Current assets:    
Cash and cash equivalents $3,503 $5,795
Receivables 39,665 30,406
Inventories 6,852 5,183
Prepaid expenses 4,678 1,950
Income tax receivable -- 55
Deferred tax asset, current 1,475 1,475
Total current assets 56,173 44,864
     
Property and equipment, net 3,358 3,306
Goodwill 153,353 130,374
Other intangibles, net 23,798 22,716
Deferred tax asset 3,772 3,772
Other assets 209 232
TOTAL ASSETS$240,663 $205,264
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities:    
Accounts payable $6,711 $6,292
Accrued expenses 5,740 5,847
Accrued salaries & wages 4,902 5,442
Revolver 29,000 --
Deferred income taxes 578 578
Total current liabilities 46,931 18,159
     
Long-term liabilities:    
Non-current deferred tax liability 11,869 11,869
Other non-current liabilities 145 125
TOTAL LIABILITIES 58,945 30,153
     
Commitments and contingencies    
     
Stockholders' equity:    
Preferred stock, $0.001 par value; 5 million shares authorized, none issued  -- --
Common stock, $0.001 par value; 100 million shares authorized, 26,168,243 and 25,554,533 shares issued and outstanding 26 26
Additional paid-in capital 174,853 168,358
Retained earnings 6,839 6,727
Total stockholders' equity 181,718 175,111
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$240,663 $205,264
 
Condensed Consolidated Statements of Cash Flows
(in thousands)
     
 Six months ended
June 30, 2011
Six months ended
June 30, 2010
  (Unaudited) (Unaudited)
Net income $112 $5,340
Adjustments to reconcile net income to net cash used in operating activities:    
Stock compensation 1,498 556
Depreciation/Amortization 5,060 3,082
Loss on disposal of equipment -- 10
Non-cash interest expense -- 283
Non-cash impact of TAG earn-out reduction -- (9,250)
Deferred taxes (223) 3,897
Changes in operating assets and liabilities:    
Receivables (4,044) (9,105)
Inventory (1,669) (629)
Prepaid expenses (2,623) (336)
Accounts payable 253 720
Accrued expenses (4,611) 2,997
Other balance sheet changes 304 (118)
Net cash used in operating activities (5,943) (2,553)
     
Cash flows from investing activities:    
Acquisitions, net of cash acquired (25,460) (27,629)
Purchase of property and equipment (479) (1,191)
Proceeds from the sale of equipment-- 128
Net cash used in investing activities(25,939)(28,692)
     
Cash flows from financing activities:    
Proceeds from term note -- 4,000
Proceeds from revolver, net 29,000 9,500
Proceeds from subordinated debt -- 8,250
Proceeds from option and warrant exercises 590 4,500
Net cash provided by financing activities 29,590 26,250
     
Net decrease in cash and cash equivalents (2,292) (4,995)
Cash and cash equivalents at beginning of period 5,795 7,333
Cash and cash equivalents at end of period$3,503 $2,338
     
Supplemental disclosure of cash flow information:    
Cash paid for interest $144 $149
Cash paid for taxes $93 $18

KEYW has scheduled a conference call to discuss these results today, August 4, 2011, at 5:00 p.m. (EDT). Interested parties will be able to connect to our Webcast via the Investor page on our website, http://investors.keywcorp.com.  Interested parties may also listen to the conference call by calling 1-877-853-5645. The International Dial-In access number will be 1-408-940-3868.

An archive of the Webcast will be available on our webpage following the call. In addition, a dial-up replay of the call will be available at approximately 7:00 p.m. (EDT) on August 4, 2011, and will remain available through September 4, 2011. To access the dial-up replay, call 1-800-642-1687, Conference ID 78775716. In addition, a podcast of our conference call will be available for download from our Investors page of our website at approximately the same time as the dial-up replay. International callers may access the replay by calling 1-706-645-9291, with the same Conference ID.

About KEYW: KEYW provides agile cyber superiority and cybersecurity solutions, primarily for U.S. Government intelligence and defense customers. We create our solutions by combining our services and expertise with hardware, software, and proprietary technology to meet our customers' requirements. For more information contact KEYW Corporation, 1334 Ashton Road, Hanover, Maryland 21076; Phone 443-270-5300; Fax 443-270-5301; E-mail investors@keywcorp.com, or on the Web at www.keywcorp.com.

Forward-Looking Statements: Statements made in this press release that are not historical facts constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include but are not limited to statements about our future expectations, plans and prospects, and other statements containing the words "estimates," "believes," "anticipates," "plans," "expects," "will," "potential," and similar expressions, including statements regarding expectations for our 2011 total revenue and our Adjusted EBITDA margins for the remainder of 2011 provide insight into our business and growth. Our actual results, performance or achievements or industry results may differ materially from those expressed or implied in these forward-looking statements. These statements involve numerous risks and uncertainties, including but not limited to those risk factors set forth in our Annual Report on Form 10-K, dated and filed March 29, 2011 with the Securities and Exchange Commission (SEC) as required under the Securities Act of 1934, and other filings that we make with the SEC from time to time. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements. KEYW is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

CONTACT: Ed Jaehne

         Chief Strategy Officer

         443-270-5300