KeyW Corporation
Nov 3, 2011

KEYW Reports Q3 2011 Financial Results

HANOVER, Md., Nov. 3, 2011 (GLOBE NEWSWIRE) -- The KEYW Holding Corporation (Nasdaq:KEYW) announces Q3 2011 revenue of $54.0 million, an increase of 86% versus Q3 2010. We increased Research and Development (R&D) spending to $900,000, while delivering Net Income of $105,000. Our Adjusted EBITDA (as described below) increased to $5.4 million or 10.1% of revenue for the quarter and Cash from Operations increased by $10.0 million from Q2 2011. In addition, KEYW was awarded new work totaling over $80.0 million in contract value.

"With Q3 2011, KEYW has now completed its first year as a public company," commented Leonard Moodispaw, CEO and President of KEYW Corporation. "During this year we completed an additional 5 acquisitions and doubled our employee count, while maintaining our percentage of highly cleared employees at approximately 80%. We have successfully combined these acquisitions into an integrated intelligence platform that is growing and winning new business on a regular basis. Integrating these acquisitions into a unified, agile performance engine has been a high priority and is now substantially complete. While you will see us continue to make strategic acquisitions, you will also see us increase the rate of investment in ideas and technology to fuel organic innovation."

Our Q3 2011 revenue of $54.0 million compares to revenue of $29.0 million in Q3 2010, an increase of approximately 86%. On a pro forma basis, revenue for the three months ended September 30, 2011 was $57.5 million, an increase of 9% from Q3 2010. Because of the successful integration of our acquisitions into a common unified performance platform, we rely on pro forma growth to provide the most useful metric for organic growth. Please see below for a reconciliation of pro forma revenue to GAAP revenue. Net Income for Q3 2011 was approximately $105,000 or $0.00 Earnings Per Share (EPS) (diluted). Stock compensation expense and intangible amortization reduced EPS by approximately $0.09 (diluted), after tax.  By contrast, in Q3 2010 we reported net income of $4.4 million, or EPS of $0.24 (diluted). This was largely driven by approximately $8.8 million of pre-tax non-operating income due to an acquisition related adjustment, with a positive after-tax impact on EPS of approximately $0.29 (diluted). 

Revenue for the nine months ended September 30, 2011 increased on a year-over-year basis by $61.9 million, or 78.7%, as compared to the nine months ended September 30, 2010. This has been largely driven by our strategic acquisitions. On a pro forma basis for the nine months ended September 30, 2011, revenue was $164.3 million, an increase of $16.8 million, or 11.4% from the nine months ended September 30, 2010.

Gross margins for Q3 2011 were 28.1% as compared to 29.1% for Q3 2010. This decrease is localized to specific factors operating during the quarter and does not reflect a continuing trend.  

Spending in R&D activities increased during the quarter to approximately $900,000, which is significantly higher, on a running basis, than prior quarters. This trend will continue as we increase the rate of investment in technology differentiators for our business. 

Adjusted EBITDA for Q3 2011 was $5.43 million, or 10.1% of revenue, as compared with the same period of 2010, when our Adjusted EBITDA was $2.6 million or 8.9% of revenue. 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, and depreciation and amortization. We have provided Adjusted EBITDA because we use the measurement internally to evaluate performance. Our Board of Directors and management use Adjusted EBITDA:

-       As a measure of operating performance;

-       To determine a significant portion of management's incentive compensation;

-       For planning purposes, including the preparation of our annual operating budget; and

-       To evaluate the effectiveness of our business strategies.

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.

 

 Nine months endedNine months endedThree months endedThree months ended
 September 30, 2011September 30, 2010September 30, 2011September 30, 2010
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
  (In thousands) (In thousands) (In thousands) (In thousands)
         
Net Income $ 218 $ 9,748 $ 105 $ 4,408
         
Depreciation  1,139  534  612  213
         
Amortization  8,106  4,454  3,573  1,693
         
Acquisition, Debt and IPO costs  449  1,646  232  376
         
Stock amortization cost  2,169  1,086  671  530
         
TAGG earn-out and LEDS  adjustment  
 ----
 
 (18,350)
 
 ----
 
 (8,700)
         
Interest expense, net  543  1,677  322  1,005
         
Taxes  (15)  6,866  (90)  3,063
         
Adjusted EBITDA $ 12,609 $ 7,661 $ 5,425 $ 2,588
         

In addition to these traditional financial metrics, we use 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, for insight into our business and growth. At September 30, 2011, we had 805 employees and the total number of Staffed Positions in our Services business, as determined by total hours delivered, decreased to 732 from 753 as reported for Q2 2011. The decrease in Staffed Positions is due in part to reductions in our Air Force services business, seasonally high levels of leave, and the increased rate of R&D.




 

 

The KEYW Holding Corporation Financial Highlights
Condensed Consolidated Statements of Operations
(in thousands except share and per share amounts)
     
 Three months endedThree months endedNine months endedNine months ended
 September 30, 2011September 30, 2010September 30, 2011September 30, 2010
Revenues (Unaudited) (Unaudited) (Unaudited) (Unaudited)
         
 Services $ 40,793 $ 25,227 $ 121,978 $ 67,926
 Products  13,164  3,765  18,538  10,725
 Total  53,957  28,992  140,516  78,651
         
Costs of Revenues        
 Services  30,180  18,243  87,816  49,377
 Products  8,628  2,317  12,273  6,254
 Total  38,808  20,560  100,089  55,631
         
Gross Profit        
 Services  10,613  6,984  34,162  18,549
 Products  4,536  1,448  6,265  4,471
 Total  15,149  8,432  40,427  23,020
         
Operating Expenses        
 Operating expenses  11,231  7,028  31,561  18,648
 Intangible amortization  expense  
 3,573
 
 1,693
 
 8,106
 
 4,454
 Total  14,804  8,721  39,667  23,102
         
Operating Income (Loss)  345  (289)  760  (82)
         
Non-Operating Expense (Income), net  
 330
 
 (7,760)
 
 557
 
 (16,696)
         
Income before Income Taxes  15  7,471  203  16,614
         
Income Tax (Benefit) Expense, net  
 (90)
 
 3,063
 
 (15)
 
 6,866
         
Net Income $ 105 $ 4,408 $ 218 $ 9,748
         
Weighted Average Common Shares Outstanding        
Basic 26,169,829 15,531,332 25,944,264 15,174,140
Diluted 29,061,409 18,443,699 29,140,838 18,176,841
         
Earnings per Share        
Basic $ 0.00 $ 0.28 $ 0.01 $ 0.64
Diluted $ 0.00 $ 0.24 $ 0.01 $ 0.54
         

 

Condensed Consolidated Balance Sheets
(in thousands except share amounts)
     
  September 30, December 31,
  2011 2010
  (Unaudited)  
 ASSETS    
Current assets:    
 Cash and cash equivalents  $ 2,381  $ 5,795
 Receivables  41,037  30,406
 Inventories  6,726  5,183
 Prepaid expenses  2,663  1,950
 Income tax receivable  27  55
 Deferred tax asset, current  1,475  1,475
 Total current assets  54,309  44,864
     
Property and equipment, net  8,097  3,306
Goodwill  160,155  130,374
Other intangibles, net  42,211  22,716
Deferred tax asset  3,772  3,772
Other assets  211  232
TOTAL ASSETS $ 268,755 $ 205,264
     
 LIABILITIES AND SHAREHOLDERS'  EQUITY    
Current liabilities:    
 Accounts payable  $ 5,127 $ 6,292
 Accrued expenses  3,275  5,847
 Accrued salaries & wages  9,451  5,442
 Revolver  49,000  --
 Deferred income taxes  1,303  578
 Total current liabilities  68,156  18,159
     
Long-term liabilities:    
 Non-current deferred tax liability  17,869  11,869
 Other non-current liabilities  132  125
TOTAL LIABILITIES  86,157  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, 26,182,134 and 25,554,533  shares issued and outstanding  
 
 26
 
 
 26
 Additional paid-in capital  175,627  168,358
 Retained earnings  6,945  6,727
 Total stockholders' equity  182,598  175,111
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 
 $ 268,755
 
 $ 205,264
     

 

Condensed Consolidated Statements of Cash Flows
(in thousands)
   
 Nine months ended September 30, 2011Nine months ended September 30, 2010
  (Unaudited) (Unaudited)
Net income  $ 218  $ 9,748
Adjustments to reconcile net income to net cash used in operating activities:    
Stock compensation  2,169   1,068
Depreciation/Amortization  9,245   4,988
Loss on disposal of equipment  --  10
Non-cash interest expense  --   1,006
Non-cash impact of TAGG earn-out reduction  --  (17,750)
Deferred taxes  (561)  7,049
Changes in operating assets and liabilities:    
Receivables  (2,193)   (6,333)
Inventory  (1,388)   (301)
Prepaid expenses  1,112   (542)
Accounts payable  (1,849)   (1,284)
Accrued expenses  (2,965)   2,114
Other balance sheet changes  272   (126)
Net cash provided by (used in) operating activities  
 4,060
 
  (353)
     
Cash flows from investing activities:    
Acquisitions, net of cash acquired  (55,213)   (27,629)
Purchase of property and equipment  (1,954)   (1,470)
Proceeds from the sale of equipment  --  128
Net cash used in investing activities  (57,167)  (28,971)
     
Cash flows from financing activities:    
Proceeds from revolver, net  49,000   10,500
Proceeds from subordinated debt  --   8,250
Proceeds from option and warrant exercises  693   4,500
Net cash provided by financing activities  49,693   23,250
     
Net decrease in cash and cash equivalents  (3,414)   (6,074)
Cash and cash equivalents at beginning of period  5,795   7,333
Cash and cash equivalents at end of period  $ 2,381  $ 1,259
     
Supplemental disclosure of cash flow information:    
Cash paid for interest  $ 342  $ 250
Cash paid for taxes  $ 93  $ 67
     

Pro Forma Revenue Reconciliation

Management reviews the growth rate of the Company based on pro-forma revenue numbers for the combined business units. Given the integration of these business units within the Company, it is difficult to segregate revenues based on historically acquired entities. Accordingly, we have included unaudited pro-forma revenue tables to cover both the three and nine month periods ended September 30, 2011 and 2010. The respective tables included below assume that the particular acquisitions occurred at the beginning of each period presented. The activity for a given acquisition in any of the tables is for historical performance of that entity prior to acquisition by KEYW. All activity post-acquisition is included in the KEYW reported revenue figures which are on a GAAP basis. The total pro forma revenue in the tables below is a Non-GAAP measurement which includes KEYW's reported revenues and the revenues of acquisitions prior to being acquired by KEYW.  

We have acquired seven businesses or operating entities since January 1, 2010 including The Analysis Group, LLC ("TAGG") on February 22, 2010, Insight Information Technology, LLC ("IIT") on March 15, 2010, Sycamore.US, Inc. ("Sycamore") on November 29, 2010, Everest Technology Solutions, Inc. ("Everest") on December 10, 2010, JKA Technologies, Inc. ("JKA") on March 31, 2011, Forbes Analytic Software, Inc. ("FASI") on May 2, 2011 and Flight Landata, Inc. ("FLD") on August 5, 2011. 

The table below summarizes the unaudited pro forma revenue for the first nine months of 2011, assuming these acquisitions had been completed on the first day of the year. The 2011 activity for JKA, FASI and FLD includes the financial activity in 2011 prior to acquisition.

 For Nine Months ended September 30, 2011 (In thousands)
 JKAFASIFLDKEYWTotal Pro
Forma
Revenue  $ 2,600  $ 3,903 $ 17,282 $ 140,516  $ 164,301

The table below summarizes the unaudited pro forma revenue for the third quarter of 2011, assuming this acquisition had been completed on the first day of the period. The activity for FLD is for the period prior to August 5, 2011.

 For Three Months ended September 30, 2011 (In thousands)
 FLDKEYWTotal Pro
Forma
Revenue  $ 3,565  $ 53,957  $ 57,522

The table below summarizes the unaudited pro forma revenue for the first nine months of 2010, assuming these acquisitions had been completed on the first day of the year. The 2010 activity for TAGG and Insight includes the financial activity in 2010 prior to acquisition. 

 

 For Nine Months ended September 30, 2010 (In thousands)
 TAGGIITSycamoreEverestJKAFASIFLDKEYWTotal Pro
Forma
Revenue $ 3,854  $ 1,066  $ 16,499  $ 15,117  $ 9,436  $ 7,728  $ 15,199  $ 78,651  $ 147,550

The table below summarizes the unaudited pro forma income statement for the third quarter of 2010, assuming these acquisitions had been completed on the first day of the period.

 

 For Three Months ended September 30, 2010 (In thousands)
 SycamoreEverestJKAFASIFLDKEYWTotal Pro
Forma
Revenue  $ 5,853  $ 5,560  $ 3,256  $ 2,819  $ 6,225  $ 28,992  $ 52,705

Full pro-forma financial statements are included in Footnote 2 to our financial statements included in our Form 10-Q for the period ended September 30, 2011 filed on November 3, 2011.


KEYW has scheduled a conference call to discuss these results today, November 3, 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 November 3, 2011, and will remain available through December 3, 2011. To access the dial-up replay, call 1-855-859-2056, Conference ID 14732544. 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 1-404-537-3406, 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 our expected rates of Research and Development spending, and statements regarding our expectations for growth in our Staffed Positions 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