KeyW Corporation
Nov 2, 2016

KEYW Reports Third-Quarter 2016 Financial Results

HANOVER, Md., Nov. 02, 2016 (GLOBE NEWSWIRE) -- The KEYW Holding Corporation (Nasdaq:KEYW), a leading total solutions provider for the Intelligence, Cyber and Counterterrorism Communities' toughest challenges, today announced third-quarter 2016 financial results.

"During the third quarter, KEYW gained significant momentum from new business awards, with wins totaling $275 million in contract value, including all options. Importantly, the approximately $450 million in total contract value to the company from wins thus far in 2016 represents approximately 73% of total dollars in bids we submitted. We expect to see incremental revenue from these awards beginning in early 2017, after completing contract transitions and start-up activities in the fourth quarter of 2016," said Bill Weber, KEYW's president and chief executive officer. "Our third-quarter financial results were solid, with revenue and adjusted EBITDA margins from continuing operations in line with our forecasts. In addition, KEYW was profitable on a GAAP basis in the third quarter of 2016 after the divestiture of the Hexis and SETA businesses. I'm pleased to say that the strategic initiatives we've outlined to the investment community are progressing well."

Third-Quarter 2016 Results from Continuing Operations

Revenue declined by 3.7% from the third quarter of 2015 to $72.1 million, which excludes $3.2 million of SETA revenue from the same period last year. The decrease in year-over-year third-quarter 2016 revenue (excluding second-quarter 2015 SETA revenue) was largely the result of the conclusion of two large solutions contracts and delays in the follow-on efforts. Including 2015 SETA revenue, revenue decreased by 7.7% on a quarter-over-quarter basis. Partially offsetting this decline was growth in KEYW's airborne Intelligence, Surveillance and Reconnaissance (ISR) business, higher advanced geospatial intelligence products and solutions sales and increased revenue from other solutions contracts.

Gross margin for the third quarter of 2016 was 33.0% compared with 32.6% sequentially and 30.5% for the same period in 2015. Gross margin improved sequentially and year-over-year primarily as the result of a change in revenue mix toward higher-margin airborne ISR services revenue and advanced geospatial intelligence products and solutions sales.

Operating income for the third quarter of 2016 was $4.2 million, or 5.9% of revenue, compared with $3.3 million, or 4.2% of revenue, for the third quarter of 2015. The year-over-year increase in operating income and margin resulted from the higher gross margin and a reduction of indirect costs, partially offset by increased business development and research and development (R&D) costs.

KEYW reported GAAP net income from continuing operations of $3.5 million, or $0.09 per diluted share, for the third quarter of 2016, largely because of the factors affecting operating income, and a tax benefit of $1.9 million compared with a tax expense of $7.9 million in the third quarter of 2015. The company expects to record a full-year effective tax provision for continuing operations of approximately $2.2 million. GAAP net income (including loss on discontinued operations related to the company's former Commercial Cyber Solutions segment) was $2.5 million, or $0.06 per diluted share, for the third quarter.

Adjusted EBITDA was $8.4 million, or 11.6% of revenue, for the third quarter of 2016, versus $7.7 million, or 9.9% of revenue, in the prior-year period. Third quarter 2016 adjusted EBITDA improved year-over-year primarily because of the factors affecting operating income. Nine-month cash flow from operations at September 30, 2016 was $13.6 million.

Financial Outlook

For the full year 2016, KEYW expects revenue from continuing operations to be in the range of $290 million to $300 million, which includes approximately $2.5 million of revenue in the first quarter from KEYW's divested SETA business, and is unchanged from guidance provided last quarter. Full-year adjusted EBITDA margin expectations continue to be in the range of 10% to 13%, also unchanged from previous guidance. (Year-to-date adjusted EBITDA margin is 12.0%.)

"We continue to see tangible progress in our turnaround efforts as we approach the end of 2016. We're on track with our strategic plan to expand our presence as a pure-play, end-to-end products and solutions provider to the Intelligence, Cyber Communities and Counterterrorism communities.," said Weber. "Investments we're making in business development and expansion of our R&D programs are showing positive results. Our airborne ISR business revenue and advanced geospatial intelligence products and solutions sales are encouraging. We believe these areas will provide a key avenue of growth for additional solutions revenue in 2017 and beyond," concluded Weber.

"Contract award value" equals the ceiling value of single-award contracts where KEYW was named as the winning competitive bidder, and includes the stated value of all priced option periods. No value is ascribed to multiple-award IDIQ contracts.

THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
    
 Three months ended September 30, Nine months ended September 30,
 2016 2015 2016 2015
 (Unaudited) (Unaudited) (Unaudited) (Unaudited)
        
Revenues$72,111  $78,100  $219,099  $222,818 
Costs of Revenues, excluding amortization48,312  54,252  148,576  154,474 
Gross Profit23,799  23,848  70,523  68,344 
Operating Expenses       
Operating expenses18,031  18,774  51,815  50,521 
Intangible amortization expense1,528  1,766  4,463  5,373 
Total19,559  20,540  56,278  55,894 
Operating Income4,240  3,308  14,245  12,450 
Non-Operating Expense, net2,612  2,561  6,776  7,655 
Earnings before Income Taxes from Continuing Operations1,628  747  7,469  4,795 
Income Tax (Benefit) Expense, net on Continuing Operations(1,876) 7,876  2,491  32,800 
Net Income (Loss) from Continuing Operations3,504  (7,129) 4,978  (28,005)
Loss before Income Taxes from Discontinued Operations(1,044) (8,854) (27,990) (28,702)
Income Tax Benefit, net on Discontinued Operations(4) (7,979) (494) (11,180)
Loss on Discontinued Operations(1,040) (875) (27,496) (17,522)
Net Income (Loss)$2,464  $(8,004) $(22,518) $(45,527)
        
Weighted Average Common Shares Outstanding       
Basic40,955,372  39,144,935  40,367,963  38,339,646 
Diluted41,305,545  39,144,935  40,930,999  38,339,646 
        
Basic net earnings (loss) per share:       
Continuing operations$0.09  $(0.18) $0.12  $(0.73)
Discontinued operations(0.03) (0.02) (0.68) (0.46)
Basic net earnings (loss) per share$0.06  $(0.20) $(0.56) $(1.19)
        
Diluted net earnings (loss) per share:       
Continuing operations$0.09  $(0.18) $0.12  $(0.73)
Discontinued operations(0.03) (0.02) (0.67) (0.46)
Diluted net earnings (loss) per share$0.06  $(0.20) $(0.55) $(1.19)


THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets
(In thousands, except share and par value per share amounts)
    
 September 30, 2016 December 31, 2015
 (Unaudited)  
ASSETS   
Current assets:   
Cash and cash equivalents$42,505  $21,227 
Receivables47,472  53,111 
Inventories, net15,680  15,616 
Prepaid expenses1,815  1,538 
Income tax receivable345  302 
Assets of discontinued operations3,072  7,765 
Total current assets110,889  99,559 
    
Property and equipment, net32,060  28,750 
Goodwill290,772  297,223 
Other intangibles, net9,521  10,957 
Other assets1,462  1,508 
Non-current assets of discontinued operations  15,408 
TOTAL ASSETS$444,704  $453,405 
LIABILITIES AND SHAREHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$8,536  $10,299 
Accrued expenses10,167  9,345 
Accrued salaries and wages15,639  8,916 
Deferred income taxes965  964 
Liabilities of discontinued operations2,620  7,084 
Total current liabilities37,927  36,608 
Long-term liabilities:   
Convertible senior notes, net of discount130,888  126,188 
Non-current deferred tax liability29,513  26,890 
Other non-current liabilities11,462  11,894 
TOTAL LIABILITIES209,790  201,580 
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, 40,975,827 and 39,940,667 shares issued and outstanding41  40 
Additional paid-in capital332,651  327,045 
Accumulated deficit(97,778) (75,260)
Total stockholders' equity234,914  251,825 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$444,704  $453,405 


THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 Nine months ended September 30,
 2016 2015
 (Unaudited) (Unaudited)
Net loss$(22,518) $(45,527)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Stock compensation2,172  4,389 
Depreciation and amortization expense10,460  15,184 
Impairment of Commercial Cyber Solutions goodwill6,980   
Amortization of discount on convertible debt4,700  3,842 
(Gain) loss on disposal of assets(3,447) 1,186 
Loss on sale of assets held for sale3,568   
Write-off of deferred financing costs340   
Deferred taxes1,974  21,464 
Changes in operating assets and liabilities:   
Receivables11,113  6,171 
Inventories, net(1,165) (4,298)
Prepaid expenses(1,224) 176 
Accounts payable(3,071) 2,265 
Accrued expenses3,417  8,125 
Other340  1,277 
Net cash provided by operating activities13,639  14,254 
Cash flows from investing activities:   
Acquisitions, net of cash acquired(2,504) (20,766)
Purchases of property and equipment(8,388) (12,741)
Proceeds from sale of assets16,226   
Net cash provided (used in) by investing activities5,334  (33,507)
Cash flows from financing activities:   
Proceeds from option and warrant exercises, net2,305  4,623 
Net cash provided by financing activities2,305  4,623 
Net increase (decrease) in cash and cash equivalents21,278  (14,930)
Cash and cash equivalents at beginning of period21,227  39,601 
Cash and cash equivalents at end of period$42,505  $24,971 
Supplemental disclosure of cash flow information:   
Cash paid for interest$3,858  $3,850 
Cash paid for taxes$89  $97 

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 U.S. 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. KEYW's 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. Investors are encouraged to evaluate these adjustments and the reasons we consider them appropriate. In addition, our board of directors and management use adjusted EBITDA:


THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
ADJUSTED EBITDA RECONCILIATION TABLE
(in thousands)
    
 Three months ended September 30, Nine months ended September 30,
 2016 2015 2016 2015
 (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net income (loss) from continuing operations$3,504  $(7,129) $4,978  $(28,005)
Depreciation1,495  1,547  4,981  4,265 
Intangible Amortization1,528  1,766  4,463  5,373 
Restructuring, Acquisition and Other Nonrecurring Costs79  4  1,921  1,213 
Gain on SETA Divestiture Net of Transaction Costs    (2,966)  
Stock Compensation Amortization1,025  1,090  2,172  4,389 
Interest Expense2,615  2,582  8,194  7,691 
Tax Expense(1,876) 7,876  2,491  32,800 
Adjusted EBITDA$8,370  $7,736  $26,234  $27,726 

Earnings Conference Call and Webcast

KEYW senior management will host a conference call and webcast today at 5:00 p.m. EDT to review the company's third quarter 2016 financial results, followed by a question-and-answer session.

Individual investors and KEYW employees can connect to the Webcast via the Investor website beginning at 5 p.m. EDT today. We encourage institutional investors and analysts to listen to the session by calling 1-877-853-5645. The international dial-in access number is +1-408-940-3868. The conference ID for the event is 96629147.

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 Investor website at approximately the same time as the webcast replay.

About KEYW

KEYW is a total solutions provider for the Intelligence, Cyber and Counterterrorism Communities' toughest challenges. We support the collection, processing, analysis and dissemination of information across the full spectrum of their missions. We employ and challenge more than 1,000 of the most talented professionals in the industry with solving such complex problems as preventing cyber threats, transforming data into intelligence and combating global terrorism. For more information, contact KEYW Corporation, 7740 Milestone Parkway, Suite 400, Hanover, Maryland 21076; Phone 443-733-1600; Fax 443-733-1601; 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; statements about expected incremental revenue from 2016 contract awards; our full-year 2016 revenue and adjusted EBITDA estimates under the heading "Financial Outlook" in this press release; statements regarding implementation of our strategic plan and initiatives; 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 15, 2016 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	
Investor Relations
443.733.1600

Heather Williams
Corporate Media Relations 
443.733.1613