KeyW Announces Merger Agreement With Jacobs

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:

  • 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.
  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 )
Depreciation 2,159     1,812     6,108     5,282  
Intangible Amortization 2,944     3,029     9,076     9,088  
Acquisition Costs and Other Nonrecurring Costs 5     51     2,366     83  
Stock Compensation Amortization 1,090     1,751     4,389     5,052  
Interest Expense 2,582     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 amortization 54,252     51,889     154,474     143,519  
Gross Profit 23,848     24,043     68,344     65,778  
               
Operating expenses 17,962     14,879     48,597     41,694  
Intangible amortization expense 1,766     1,881     5,373     5,943  
Net Operating Income 4,120     7,283     14,374     18,141  
               
Reconciliation of Net Operating Income to Adjusted EBITDA:              
               
Depreciation 1,546     1,181     4,265     4,007  
Intangible Amortization 1,766     1,881     5,373     5,943  
Acquisition Costs and Other Nonrecurring Costs 5     51     1,212     83  
Stock Compensation Amortization 1,090     1,751     4,389     5,052  
Other Non-operating Income 20     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 amortization 1,189     586     3,159     1,651  
Gross Profit 1,809     2,451     5,142     6,057  
               
Operating expenses 10,296     10,288     32,490     28,131  
Intangible amortization expense 1,178     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:              
               
Depreciation 613     631     1,843     1,275  
Intangible Amortization 1,178     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 Solutions 2,998     3,037     8,301     7,708  
Total 81,098     78,969     231,119     217,005  
Costs of Revenues, excluding amortization              
Government Solutions 54,252     51,889     154,474     143,519  
Commercial Cyber Solutions 1,189     586     3,159     1,651  
Total 55,441     52,475     157,633     145,170  
Gross Profit              
Government Solutions 23,848     24,043     68,344     65,778  
Commercial Cyber Solutions 1,809     2,451     5,142     6,057  
Total 25,657     26,494     73,486     71,835  
Operating Expenses              
Operating expenses 28,258     25,167     81,087     69,825  
Intangible amortization expense 2,944     3,029     9,076     9,088  
Total 31,202     28,196     90,163     78,913  
Operating Loss (5,545 )   (1,702 )   (16,677 )   (7,078 )
Non-Operating Expense, net 2,562     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              
Basic 39,144,935     37,571,677     38,339,646     37,394,789  
Diluted 39,144,935     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  
Receivables 53,520     56,961  
Inventories, net 18,872     14,861  
Prepaid expenses 2,994     3,139  
Income tax receivable 3,984     3,951  
Deferred tax asset, current     2,878  
Total current assets 104,341     121,391  
       
Property and equipment, net 35,915     29,341  
Goodwill 312,725     295,984  
Other intangibles, net 15,704     21,109  
Other assets 4,074     5,208  
TOTAL ASSETS $ 472,759     $ 473,033  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 12,531     $ 10,266  
Accrued expenses 8,752     7,009  
Accrued salaries and wages 15,602     11,648  
Deferred revenue 2,597     4,488  
Total current liabilities 39,482     33,411  
Long-term liabilities:      
Convertible senior notes, net of discount 128,180     124,338  
Non-current deferred tax liability 27,752     7,885  
Other non-current liabilities 11,717     6,619  
TOTAL LIABILITIES 207,131     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 outstanding 40     38  
Additional paid-in capital 326,591     315,963  
Accumulated deficit (61,003 )   (15,221 )
Total stockholders’ equity 265,628     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 compensation 4,389     5,052  
Depreciation and amortization expense 15,184     14,370  
Amortization of discount on convertible debt 3,842     967  
Loss on disposal of long-lived assets 1,186      
Windfall tax benefit from option exercise     (382 )
Deferred taxes 21,464     (258 )
Changes in operating assets and liabilities:      
Receivables 6,171     3,257  
Inventories, net (4,048 )   (4,863 )
Prepaid expenses 176     (67 )
Income taxes, net (33 )   (4,251 )
Accounts payable 2,265     2,943  
Accrued expenses 8,125     2,393  
Other 1,140     406  
Net cash provided by operating activities 14,079     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, net 4,623     385  
Net cash provided by financing activities 4,623     40,418  
Net (decrease) increase in cash and cash equivalents (14,630 )   44,694  
Cash and cash equivalents at beginning of period 39,601     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 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