KeyW Corporation
Aug 10, 2015

KEYW Reports 2015 Second Quarter Financial Results

HANOVER, Md., Aug. 10, 2015 (GLOBE NEWSWIRE) -- The KEYW Holding Corporation (Nasdaq:KEYW), a leading provider of cybersecurity and cyber superiority solutions, announced second quarter 2015 financial results.

The Company reported second quarter 2015 revenue grew by 5.6% to $78.4 million as compared to $74.2 million in the second quarter 2014, driven by growth primarily in its Government Solutions business. The Company reported a GAAP net loss per diluted share of $0.92 in the second quarter as compared to a GAAP loss of $0.05 per diluted share in the prior year period. Second quarter 2015 GAAP loss per diluted share included a $28.8 million non-cash charge to establish a valuation allowance for deferred tax assets in future periods. The valuation allowance contributed $0.75 to second quarter 2015 loss per share.

Adjusted EBITDA (as described below) was $4.5 million for the second quarter 2015 versus $5.1 million in the prior year period; this primarily reflects the Company's increased investment in capabilities and infrastructure for both its Government Solutions and Commercial Solutions businesses. During second quarter 2015, KEYW received $96 million in funding actions and ended the quarter with 1,179 employees. Cash flow from operations was $9.5 million in the second quarter.

Mark Willard, interim CEO of KEYW, commented, "KEYW experienced a strong rebound following first quarter results, however, the second quarter was clearly overshadowed by the retirement and loss of our founder, Len Moodispaw. Although Len will be missed, KEYW's Board is committed to selecting the ideal candidate to lead the next phase of KEYW's growth and fulfill the vision Len had for KEYW when he founded the Company."

Government Solutions

Mr. Willard continued, "We experienced strong government order flow in the second quarter, and our pipeline of submitted and pending proposals remains at an all-time high with proposals pending award just short of $400 million, in-process proposals totaling almost $600 million and total value of all 2015 and 2016 opportunities of almost $2 billion, the substantial majority of which are prime contract opportunities. Government Solutions adjusted EBITDA margin of 16.3% also remains solid."

Government Solutions segment revenue in second quarter 2015 was $75.9 million, an increase of 5.3% over the prior year period. The largest drivers of the increase were related to increased government product sales, the 2015 acquisitions of Milestone Intelligence Group and Ponte Technologies and the continued expansion of our government cyber training initiatives, which were partially offset by reductions to certain services contracts.

Government Solutions gross margin in the second quarter of 2015 was 32.0%, an increase from 30.8% in the prior year. The increase in margin as a percentage of revenue relates to increased government product sales, which generally have higher margins, partially offset by certain services contract rate reductions. Adjusted EBITDA margin in the Government Solutions segment was 16.3% as compared to 17.0% in the second quarter of the prior year.

Commercial Cyber Solutions

Mr. Willard commented, "The second quarter release of HawkEye G 3.0 yielded strong momentum in new pilot signings and pilot momentum has carried over into the third quarter. Customer reception has been consistently enthusiastic and while the sales cycles can still be lengthy, they are coming down, and interest in HawkEye G as a next-generation endpoint detection and automated response solution continues to increase." 

Second quarter 2015 Commercial segment revenue increased 15.9% to $2.5 million, as compared to $2.2 million in the prior year, and was down 9.6% sequentially compared to the first quarter of 2015. The sequential decrease in revenue in the second quarter was driven by a lower run rate in HawkEye AP product revenue.  Commercial bookings for the quarter were $2.2 million.

The Company reported a second quarter adjusted EBITDA loss in the Commercial segment of $7.9 million, as compared to a loss of $7.2 million in the second quarter of the prior year, reflecting enhanced capabilities and infrastructure investments in the areas of product development, marketing, and sales.

HawkEye G Deployments and Customer Update

As of August 10, 2015, the total number of HawkEye G installations has increased to 30, up from 23 at the last earnings call on May 7, 2015. The total number of HawkEye G revenue generating customers has increased to 16, up from 14 over the same time period.

Financial Outlook

For the full year 2015, KEYW expects its Government Solutions segment revenue growth rate to be in the range of 4% to 8% compared to 2014 revenue, with adjusted EBITDA margin expected in the range of 12% to 14%. In the Commercial segment, KEYW expects revenue to be approximately $15 million with an expected full year adjusted EBITDA loss in the range of $30 million to $34 million.

Adjusted EBITDA

Adjusted EBITDA, as defined by KEYW, is a financial measure that is not calculated in accordance with accounting principles generally accepted in the United States of America, or US GAAP. The adjusted EBITDA reconciliation tables below provide a reconciliation of this non-US GAAP financial measure to net income (loss), the most directly comparable financial measure calculated and presented in accordance with US GAAP. Adjusted EBITDA should not be considered as an alternative to net income, operating income or any other measure of financial performance calculated and presented in accordance with US GAAP. Our adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate adjusted EBITDA or similarly titled measures in the same manner as we do. We prepare adjusted EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. We encourage you to evaluate these adjustments and the reasons we consider them appropriate. In addition, our board of directors and management use adjusted EBITDA:

        
        
 Three months ended
June 30, 2015
 Three months ended
 June 30, 2014
 Six months ended
June 30, 2015
 Six months ended
June 30, 2014
 (Unaudited and in thousands)
Net Loss$(35,267) $(1,730) $(41,369) $(4,806)
Depreciation2,004  1,916  3,948  3,471 
Intangible Amortization3,062  2,934  6,132  6,059 
Acquisition Costs and Other Nonrecurring Costs1,198  29  2,362  30 
Stock Compensation Amortization2,110  1,678  3,299  3,302 
Interest Expense2,566  1,220  5,109  2,078 
Tax Expense (Benefit)28,815  (955) 25,144  (2,624)
Adjusted EBITDA$4,488  $5,092  $4,625  $7,510 


 
 
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
Government Solutions Statements of Operations
 
 Three months ended
June 30, 2015
 Three months ended
 June 30, 2014
 Six months ended
June 30, 2015
 Six months ended
June 30, 2014
 (Unaudited and in thousands)
        
Revenues$75,869  $72,057  $144,717  $133,365 
Costs of Revenues, excluding amortization51,615  49,861  100,222  91,630 
Gross Profit24,254  22,196  44,495  41,735 
        
Operating expenses15,416  13,103  30,634  26,815 
Intangible amortization expense1,816  1,919  3,607  4,062 
Net Operating Income7,022  7,174  10,254  10,858 
        
Reconciliation of Net Operating Income to Adjusted EBITDA:       
        
Depreciation1,388  1,420  2,718  2,827 
Intangible Amortization1,816  1,919  3,607  4,062 
Acquisition Costs and Other Nonrecurring Costs50  29  1,208  30 
Stock Compensation Amortization2,110  1,678  3,299  3,302 
Other Non-operating Income16  22  16  23 
Segment Adjusted EBITDA$12,402  $12,242  $21,102  $21,102 


 
 
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
Commercial Cyber Solutions Statements of Operations
 
 Three months ended
June 30, 2015
 Three months ended
 June 30, 2014
 Six months ended
June 30, 2015
 Six months ended
June 30, 2014
 (Unaudited and in thousands)
        
Revenues$2,518  $2,172  $5,304  $4,671 
Costs of Revenues, excluding amortization986  519  1,970  1,065 
Gross Profit1,532  1,653  3,334  3,606 
        
Operating expenses11,210  9,299  22,195  17,842 
Intangible amortization expense1,246  1,015  2,525  1,997 
Net Operating Loss(10,924) (8,661) (21,386) (16,233)
        
Reconciliation of Net Operating Loss to Adjusted EBITDA:       
        
Depreciation616  496  1,230  644 
Intangible Amortization1,246  1,015  2,525  1,997 
Acquisition Costs and Other Nonrecurring Costs1,148    1,154   
Segment Adjusted EBITDA$(7,914) $(7,150) $(16,477) $(13,592)


 
 
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
 
 Three months ended
June 30, 2015
 Three months ended
 June 30, 2014
 Six months ended
June 30, 2015
 Six months ended
June 30, 2014
 (Unaudited) (Unaudited) (Unaudited)  
Revenues       
Government Solutions$75,869  $72,057  $144,717  $133,365 
Commercial Cyber Solutions2,518  2,172  5,304  4,671 
Total78,387  74,229  150,021  138,036 
Costs of Revenues, excluding amortization       
Government Solutions51,615  49,861  100,222  91,630 
Commercial Cyber Solutions986  519  1,970  1,065 
Total52,601  50,380  102,192  92,695 
Gross Profit       
Government Solutions24,254  22,196  44,495  41,735 
Commercial Cyber Solutions1,532  1,653  3,334  3,606 
Total25,786  23,849  47,829  45,341 
Operating Expenses       
Operating expenses26,626  22,402  52,829  44,657 
Intangible amortization expense3,062  2,934  6,132  6,059 
Total29,688  25,336  58,961  50,716 
Operating Loss(3,902) (1,487) (11,132) (5,375)
Non-Operating Expense, net2,550  1,198  5,093  2,055 
Loss before Income Taxes(6,452) (2,685) (16,225) (7,430)
Income Tax Expense (Benefit), net28,815  (955) 25,144  (2,624)
Net Loss$(35,267) $(1,730) $(41,369) $(4,806)
        
Weighted Average Common Shares Outstanding       
Basic38,243,184  37,467,264  37,935,621  37,309,516 
Diluted38,243,184  37,467,264  37,935,621  37,309,516 
Loss per Share       
Basic$(0.92) $(0.05) $(1.09) $(0.13)
Diluted$(0.92) $(0.05) $(1.09) $(0.13)


 
 
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets
(In thousands, except share and par value per share amounts)
 
 June 30,
2015
 December 31,
2014
 (Unaudited)  
ASSETS   
Current assets:   
Cash and cash equivalents$18,554  $39,601 
Receivables58,090  56,961 
Inventories, net18,505  14,861 
Prepaid expenses2,847  3,139 
Income tax receivable3,998  3,951 
Deferred tax asset, current  2,878 
Total current assets101,994  121,391 
    
Property and equipment, net30,293  29,341 
Goodwill312,725  295,984 
Other intangibles, net18,649  21,109 
Other assets4,379  5,208 
TOTAL ASSETS$468,040  $473,033 
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$10,938  $10,266 
Accrued expenses8,734  7,009 
Accrued salaries and wages15,458  11,648 
Deferred revenue3,759  4,488 
Total current liabilities38,889  33,411 
Long-term liabilities:   
Convertible senior notes, net of discount126,886  124,338 
Non-current deferred tax liability27,789  4,294 
Other non-current liabilities6,432  6,619 
TOTAL LIABILITIES199,996  168,662 
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, 38,478,739 and 37,601,474 shares issued and outstanding38  38 
Additional paid-in capital324,596  319,554 
Accumulated deficit(56,590) (15,221)
Total stockholders' equity268,044  304,371 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$468,040  $473,033 


 
 
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 Six months ended
June 30, 2015
 Six months ended
June 30, 2014
 (Unaudited) (Unaudited)
Net loss$(41,369) $(4,806)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Stock compensation3,299  3,302 
Depreciation/Amortization10,080  9,530 
Amortization of discount of convertible debt2,548   
Loss on disposal of long-lived assets1,148   
Windfall tax benefit from option exercise  (1,417)
Deferred taxes25,092  117 
Changes in balance sheet items:   
Receivables1,600  (9,616)
Inventory(3,680) (4,036)
Prepaid expenses323  (666)
Income tax receivable(47) (1,474)
Accounts payable672  9,409 
Accrued expenses3,838  177 
Other836  163 
Net cash provided by operating activities4,340  683 
Cash flows from investing activities:   
Acquisitions, net of cash acquired(20,766) (580)
Purchase of property and equipment(4,746) (4,655)
Net cash used in investing activities(25,512) (5,235)
Cash flows from financing activities:   
Proceeds from revolver  8,000 
Repayment of debt  (3,500)
Windfall tax benefit from option exercise  1,417 
Proceeds from option and warrant exercises, net125  252 
Net cash provided by financing activities125  6,169 
Net (decrease) increase in cash and cash equivalents(21,047) 1,617 
Cash and cash equivalents at beginning of period39,601  2,480 
Cash and cash equivalents at end of period$18,554  $4,097 
 

A conference call has been scheduled to discuss these results on August 10, 2015 at 5:00 p.m. (EST). At that time, management will review the Company's second quarter 2015 financial results, followed by a question-and-answer session to further discuss the results.

Interested parties will be able to connect to our Webcast via the Investor page on our website, http://investors.keywcorp.com on August 10, 2015. We encourage people to register for an email reminder about the Webcast on the Event Calendar tab, also found on the Investors page of our website. 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. The conference ID for the event is 82914249.

An archive of the Webcast will be available on our webpage following the call. 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 webcast replay.

About KEYW

KEYW provides agile cyber superiority, cybersecurity, and geospatial intelligence solutions for US Government intelligence and defense customers and commercial enterprises. 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 The KEYW Holding Corporation, 7740 Milestone Parkway, Suite 400, Hanover, Maryland 21076; Phone 443-733-1600; Fax 443-733-1601; E-mail investors@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, statements regarding our Government Solutions segment's pipeline and proposal opportunities, statements regarding adoption (including pilot installations) and interest in our HawkEye G software product, our full year 2015 revenue, growth and adjusted EBITDA estimates under the heading "Financial Outlook" in this press release, and other statements containing the words "estimates," "believes," "anticipates," "plans," "expects," "will," "potential," "opportunities," and similar expressions. 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 9, 2015 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: Chris Donaghey
443-733-1600