KeyW Corporation
Nov 9, 2015

KEYW Reports 2015 Third Quarter Financial Results

HANOVER, Md., Nov. 09, 2015 (GLOBE NEWSWIRE) -- The KEYW Holding Corporation (Nasdaq:KEYW), a leading provider of cybersecurity and cyber superiority solutions, announced third quarter 2015 financial results.

The Company reported third quarter 2015 revenue grew by 2.7% to $81.1 million as compared to $79.0 million in the third quarter 2014, driven by growth in its Government Solutions business.  The Company reported a GAAP net loss per diluted share of $0.20 in the third quarter as compared to a GAAP loss of $0.08 per diluted share in the prior year period.

Adjusted EBITDA (as described below) was $0.7 million for the third quarter of 2015 versus $5.0 million in the prior year period; this primarily reflects normalizing operating costs associated with our aviation services business, costs associated with the investment in our new Advanced Cyber Research and Training Center, and timing of certain orders in our government products business.  During third quarter 2015, KEYW received $50 million in funding actions and ended the quarter with 1,184 employees.  Cash flow from operations was $9.7 million in the third quarter.

Bill Weber, CEO and President of KEYW, commented, "After about a month on the job, I am encouraged and enthusiastic about the possibilities for KEYW.  Given the technologies and the people in both our government and commercial businesses, we clearly have a market opportunity like few others in our industry.   Having said that, KEYW's commitment is to deliver not only to our customers, but to our shareholders as well, and it's my expectation that we will be accountable for both as a leadership team.   We have begun the work of defining the strategy for KEYW to put us on a growth trajectory going forward. That cannot happen soon enough, and I am sure we will encounter challenges.  While I believe the future is bright for KEYW, my commitment is to communicate as much as possible about both the challenges and the successes we experience as a company as we progress."

Government Solutions

Government Solutions segment revenue in the third quarter of 2015 was $78.1 million, an increase of 2.9% over the prior year period.  The largest drivers of the increase were related to increased government product sales and the 2015 acquisitions of Milestone Intelligence Group and Ponte Technologies, which were partially offset by lower revenue on certain services contracts.

Government Solutions gross margin in the third quarter of 2015 was 30.5%, a decrease from 31.7% in the prior year.  The slight decrease in gross margin relates to certain services contract rate reductions and lower sales of higher margin products on a year-over-year basis. Adjusted EBITDA margin in the Government Solutions segment for the third quarter of 2015 was 10.9% as compared to 16.1% in the second quarter of the prior year.  The decrease in EBITDA margin relates primarily to increased costs of deployed aircraft operations, costs associated with the opening of our new Advanced Cyber Research and Training Center, and the previously mentioned lower gross margin.

Commercial Cyber Solutions

Third quarter 2015 Commercial segment revenue was $3.0 million, up 19.1% sequentially compared to the second quarter of 2015 and essentially flat from the prior year period.  The sequential increase in revenue in the third quarter was driven by higher HawkEye G product revenue.  Commercial bookings for the quarter were $4.4 million.

The Company reported a third quarter adjusted EBITDA loss in the Commercial segment of $7.9 million, as compared to a loss of $7.2 million in the third quarter of the prior year, reflecting higher personnel and hardware costs associated with HawkEye G in cost of revenue.  Third quarter of 2015 operating expenses of $10.3 million were essentially flat with the prior year period and decreased roughly $0.9 million sequentially.

HawkEye G Deployments and Customer Update
As of November 9, 2015, the total number of HawkEye G installations has increased to 36, up from 30 at the last earnings call on August 10, 2015.  The total number of HawkEye G revenue generating customers increased to 18, up from 16 over the prior period, including the largest HawkEye G deal closed to date.

Financial Outlook

For the full year 2015, KEYW expects its Government Solutions segment revenue growth rate to be in the range of 4% to 6% 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 in the range of $13 to $15 million with an expected full year adjusted EBITDA loss in the range of $30 million to $32 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
September 30,
2015
 Three months
ended
 September 30,
2014
 Nine months
ended
September 30,
2015
 Nine months
ended
September 30,
2014
 (Unaudited and in thousands)
Net Loss$(8,004) $(3,022) $(45,782) $(7,828)
Depreciation2,159  1,812  6,108  5,282 
Intangible Amortization2,944  3,029  9,076  9,088 
Acquisition Costs and Other Nonrecurring Costs5  51  2,366  83 
Stock Compensation Amortization1,090  1,751  4,389  5,052 
Interest Expense2,582  4,348  7,691  6,426 
Tax (Benefit) Expense(103) (2,921) 21,450  (5,546)
Adjusted EBITDA$673  $5,048  $5,298  $12,557 


THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
Government Solutions Statements of Operations
 
 Three months
ended
September 30,
2015
 Three months
ended
 September 30,
2014
 Nine months
ended
September 30,
2015
 Nine months
ended
September 30,
2014
 (Unaudited and in thousands)
        
Revenues$78,100  $75,932  $222,818  $209,297 
Costs of Revenues, excluding amortization54,252  51,889  154,474  143,519 
Gross Profit23,848  24,043  68,344  65,778 
        
Operating expenses17,962  14,879  48,597  41,694 
Intangible amortization expense1,766  1,881  5,373  5,943 
Net Operating Income4,120  7,283  14,374  18,141 
        
Reconciliation of Net Operating Income to Adjusted EBITDA:       
        
Depreciation1,546  1,181  4,265  4,007 
Intangible Amortization1,766  1,881  5,373  5,943 
Acquisition Costs and Other Nonrecurring Costs5  51  1,212  83 
Stock Compensation Amortization1,090  1,751  4,389  5,052 
Other Non-operating Income20  107  36  130 
Segment Adjusted EBITDA$8,547  $12,254  $29,649  $33,356 


THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
Commercial Cyber Solutions Statements of Operations
 
 Three months
ended
September 30,
2015
 Three months
ended
 September 30,
2014
 Nine months
ended
September 30,
2015
 Nine months
ended
September 30,
2014
 (Unaudited and in thousands)
        
Revenues$2,998  $3,037  $8,301  $7,708 
Costs of Revenues, excluding amortization1,189  586  3,159  1,651 
Gross Profit1,809  2,451  5,142  6,057 
        
Operating expenses10,296  10,288  32,490  28,131 
Intangible amortization expense1,178  1,148  3,703  3,145 
Net Operating Loss(9,665) (8,985) (31,051) (25,219)
        
Reconciliation of Net Operating Loss to Adjusted EBITDA:       
        
Depreciation613  631  1,843  1,275 
Intangible Amortization1,178  1,148  3,703  3,145 
Acquisition Costs and Other Nonrecurring Costs    1,154   
Segment Adjusted EBITDA$(7,874) $(7,206) $(24,351) $(20,799)


THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
 
 Three months
ended
September 30,
2015
 Three months
ended
September 30,
2014
 Nine months
ended
September 30,
2015
 Nine months
ended
September 30,
2014
 (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues       
Government Solutions$78,100  $75,932  $222,818  $209,297 
Commercial Cyber Solutions2,998  3,037  8,301  7,708 
Total81,098  78,969  231,119  217,005 
Costs of Revenues, excluding amortization       
Government Solutions54,252  51,889  154,474  143,519 
Commercial Cyber Solutions1,189  586  3,159  1,651 
Total55,441  52,475  157,633  145,170 
Gross Profit       
Government Solutions23,848  24,043  68,344  65,778 
Commercial Cyber Solutions1,809  2,451  5,142  6,057 
Total25,657  26,494  73,486  71,835 
Operating Expenses       
Operating expenses28,258  25,167  81,087  69,825 
Intangible amortization expense2,944  3,029  9,076  9,088 
Total31,202  28,196  90,163  78,913 
Operating Loss(5,545) (1,702) (16,677) (7,078)
Non-Operating Expense, net2,562  4,241  7,655  6,296 
Loss before Income Taxes(8,107) (5,943) (24,332) (13,374)
Income Tax (Benefit) Expense, net(103) (2,921) 21,450  (5,546)
Net Loss$(8,004) $(3,022) $(45,782) $(7,828)
Weighted Average Common Shares Outstanding       
Basic39,144,935  37,571,677  38,339,646  37,394,789 
Diluted39,144,935  37,571,677  38,339,646  37,394,789 
Loss per Share       
Basic$(0.20) $(0.08) $(1.19) $(0.21)
Diluted$(0.20) $(0.08) $(1.19) $(0.21)


THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets
(In thousands, except share and par value per share amounts)
 
 September 30, 2015 December 31, 2014
 (Unaudited)  
ASSETS   
Current assets:   
Cash and cash equivalents$24,971  $39,601 
Receivables53,520  56,961 
Inventories, net18,872  14,861 
Prepaid expenses2,994  3,139 
Income tax receivable3,984  3,951 
Deferred tax asset, current  2,878 
Total current assets104,341  121,391 
    
Property and equipment, net35,915  29,341 
Goodwill312,725  295,984 
Other intangibles, net15,704  21,109 
Other assets4,074  5,208 
TOTAL ASSETS$472,759  $473,033 
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$12,531  $10,266 
Accrued expenses8,752  7,009 
Accrued salaries and wages15,602  11,648 
Deferred revenue2,597  4,488 
Total current liabilities39,482  33,411 
Long-term liabilities:   
Convertible senior notes, net of discount128,180  124,338 
Non-current deferred tax liability27,752  7,885 
Other non-current liabilities11,717  6,619 
TOTAL LIABILITIES207,131  172,253 
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, 39,784,165 and 37,601,474 shares issued and outstanding40  38 
Additional paid-in capital326,591  315,963 
Accumulated deficit(61,003) (15,221)
Total stockholders' equity265,628  300,780 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$472,759  $473,033 


THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 Nine months
ended
September 30,
2015
 Nine months
ended
September 30,
2014
 (Unaudited) (Unaudited)
Net loss$(45,782) $(7,828)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Stock compensation4,389  5,052 
Depreciation and amortization expense15,184  14,370 
Amortization of discount on convertible debt3,842  967 
Loss on disposal of long-lived assets1,186   
Windfall tax benefit from option exercise  (382)
Deferred taxes21,464  (258)
Changes in operating assets and liabilities:   
Receivables6,171  3,257 
Inventories, net(4,048) (4,863)
Prepaid expenses176  (67)
Income taxes, net(33) (4,251)
Accounts payable2,265  2,943 
Accrued expenses8,125  2,393 
Other1,140  406 
Net cash provided by operating activities14,079  13,715 
Cash flows from investing activities:   
Acquisitions, net of cash acquired(20,766) (2,940)
Purchases of property and equipment(12,152) (5,329)
Capitalized software development costs(414) (1,170)
Net cash used in investing activities(33,332) (9,439)
Cash flows from financing activities:   
Proceeds from issuance of convertible debt  149,500 
Purchase of convertible note hedges  (18,403)
Issuance cost of convertible senior notes and revolving credit facility  (6,446)
Proceeds from revolver, net  (22,000)
Repayment of term note  (63,000)
Windfall tax benefit from option exercise  382 
Proceeds from option and warrant exercises, net4,623  385 
Net cash provided by financing activities4,623  40,418 
Net (decrease) increase in cash and cash equivalents(14,630) 44,694 
Cash and cash equivalents at beginning of period39,601  2,480 
Cash and cash equivalents at end of period$24,971  $47,174 

A conference call has been scheduled to discuss these results on November 9, 2015 at 5:00 p.m. (EST). At that time, Management will review the Company's third 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 November 9, 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 59051390.

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, 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