KeyW Announces Merger Agreement With Jacobs

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:

  • 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.
               
               
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  (Unaudited and in thousands)
Net Loss $ (35,267 )   $ (1,730 )   $ (41,369 )   $ (4,806 )
Depreciation 2,004     1,916     3,948     3,471  
Intangible Amortization 3,062     2,934     6,132     6,059  
Acquisition Costs and Other Nonrecurring Costs 1,198     29     2,362     30  
Stock Compensation Amortization 2,110     1,678     3,299     3,302  
Interest Expense 2,566     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
 
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  (Unaudited and in thousands)
               
Revenues $ 75,869     $ 72,057     $ 144,717     $ 133,365  
Costs of Revenues, excluding amortization 51,615     49,861     100,222     91,630  
Gross Profit 24,254     22,196     44,495     41,735  
               
Operating expenses 15,416     13,103     30,634     26,815  
Intangible amortization expense 1,816     1,919     3,607     4,062  
Net Operating Income 7,022     7,174     10,254     10,858  
               
Reconciliation of Net Operating Income to Adjusted EBITDA:              
               
Depreciation 1,388     1,420     2,718     2,827  
Intangible Amortization 1,816     1,919     3,607     4,062  
Acquisition Costs and Other Nonrecurring Costs 50     29     1,208     30  
Stock Compensation Amortization 2,110     1,678     3,299     3,302  
Other Non-operating Income 16     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
 
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  (Unaudited and in thousands)
               
Revenues $ 2,518     $ 2,172     $ 5,304     $ 4,671  
Costs of Revenues, excluding amortization 986     519     1,970     1,065  
Gross Profit 1,532     1,653     3,334     3,606  
               
Operating expenses 11,210     9,299     22,195     17,842  
Intangible amortization expense 1,246     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:              
               
Depreciation 616     496     1,230     644  
Intangible Amortization 1,246     1,015     2,525     1,997  
Acquisition Costs and Other Nonrecurring Costs 1,148         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)
 
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  (Unaudited)   (Unaudited)   (Unaudited)    
Revenues              
Government Solutions $ 75,869     $ 72,057     $ 144,717     $ 133,365  
Commercial Cyber Solutions 2,518     2,172     5,304     4,671  
Total 78,387     74,229     150,021     138,036  
Costs of Revenues, excluding amortization              
Government Solutions 51,615     49,861     100,222     91,630  
Commercial Cyber Solutions 986     519     1,970     1,065  
Total 52,601     50,380     102,192     92,695  
Gross Profit              
Government Solutions 24,254     22,196     44,495     41,735  
Commercial Cyber Solutions 1,532     1,653     3,334     3,606  
Total 25,786     23,849     47,829     45,341  
Operating Expenses              
Operating expenses 26,626     22,402     52,829     44,657  
Intangible amortization expense 3,062     2,934     6,132     6,059  
Total 29,688     25,336     58,961     50,716  
Operating Loss (3,902 )   (1,487 )   (11,132 )   (5,375 )
Non-Operating Expense, net 2,550     1,198     5,093     2,055  
Loss before Income Taxes (6,452 )   (2,685 )   (16,225 )   (7,430 )
Income Tax Expense (Benefit), net 28,815     (955 )   25,144     (2,624 )
Net Loss $ (35,267 )   $ (1,730 )   $ (41,369 )   $ (4,806 )
               
Weighted Average Common Shares Outstanding              
Basic 38,243,184     37,467,264     37,935,621     37,309,516  
Diluted 38,243,184     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  
Receivables 58,090     56,961  
Inventories, net 18,505     14,861  
Prepaid expenses 2,847     3,139  
Income tax receivable 3,998     3,951  
Deferred tax asset, current     2,878  
Total current assets 101,994     121,391  
       
Property and equipment, net 30,293     29,341  
Goodwill 312,725     295,984  
Other intangibles, net 18,649     21,109  
Other assets 4,379     5,208  
TOTAL ASSETS $ 468,040     $ 473,033  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 10,938     $ 10,266  
Accrued expenses 8,734     7,009  
Accrued salaries and wages 15,458     11,648  
Deferred revenue 3,759     4,488  
Total current liabilities 38,889     33,411  
Long-term liabilities:      
Convertible senior notes, net of discount 126,886     124,338  
Non-current deferred tax liability 27,789     4,294  
Other non-current liabilities 6,432     6,619  
TOTAL LIABILITIES 199,996     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 outstanding 38     38  
Additional paid-in capital 324,596     319,554  
Accumulated deficit (56,590 )   (15,221 )
Total stockholders’ equity 268,044     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)
 
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  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 compensation 3,299     3,302  
Depreciation/Amortization 10,080     9,530  
Amortization of discount of convertible debt 2,548      
Loss on disposal of long-lived assets 1,148      
Windfall tax benefit from option exercise     (1,417 )
Deferred taxes 25,092     117  
Changes in balance sheet items:      
Receivables 1,600     (9,616 )
Inventory (3,680 )   (4,036 )
Prepaid expenses 323     (666 )
Income tax receivable (47 )   (1,474 )
Accounts payable 672     9,409  
Accrued expenses 3,838     177  
Other 836     163  
Net cash provided by operating activities 4,340     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, net 125     252  
Net cash provided by financing activities 125     6,169  
Net (decrease) increase in cash and cash equivalents (21,047 )   1,617  
Cash and cash equivalents at beginning of period 39,601     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 is an innovative national security solutions provider to the Intelligence, Cyber, and Counterterrorism communities. KeyW’s advanced technologies in cyber; intelligence, surveillance and reconnaissance; and analytics span the full spectrum of customer missions and enhanced capabilities. The company’s highly skilled workforce solves complex customer challenges such as preventing cyber threats, transforming data to actionable intelligence, and building and deploying sensor packages into any domain. For more information, please visit www.KeyWCorp.com and follow KeyW on Twitter @KeyWCorp.


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 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, including, but not limited to, express or implied statements concerning: our expectations regarding our future financial performance, including the potential impact of successful contract awards; our bid and proposal pipeline; our ability to achieve projected growth in certain of our business units and the expected timing of such growth; demand for our products, services and solutions serving the intelligence, cyber and counterterrorism communities; and performance of key contracts, including the timing of production related to certain of our contracts and product offerings. Factors that may cause our results to differ, potentially materially, from those expressed or implied in our forward-looking statements include, but are not limited to: risks to our business and financial results related to reductions and other spending constraints imposed on the U.S. Government, including as a result the Federal budget deficit and Federal government shut-downs; risks of adverse regulatory action or litigation; risks that changes, cutbacks or delays in spending by Intelligence Community (IC) customers, including the National Security Agency (NSA), the National Geospatial-Intelligence Agency (NGA), and other agencies within the IC, the Federal Bureau of Investigation, and the Department of Defense (DoD) may occur, which could cause delays or cancellations of key government contracts; risks of delays to or the cancellation of our projects as a result of protest actions submitted by our competitors; risks that changes may occur in Federal government (or other applicable) procurement laws, regulations, policies and budgets; risks related to changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reduction of expenditures to respond to the priorities of Congress and the Administration; and those risk factors set forth in our Annual Report on Form 10-K, dated and filed March 16, 2018 with the Securities and Exchange Commission (SEC), and other filings that we make with the SEC from time to time. Due to such uncertainties and risks, investors are cautioned not to place undue reliance on such forward-looking statements. We are under no obligation to (and expressly disclaims any such obligation to) update or alter our forward-looking statements whether as a result of new information, future events or otherwise.

Media Contact:
Karen Coker
Director, Corporate Communications
443.733.1613
communications@keywcorp.com

Investor Contact:
Mark Zindler
Vice President, Investor Relations and Treasury
703.880.9379
investors@keywcorp.com