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KEYW Reports First Quarter 2014 Financial Results

HANOVER, Md., May 1, 2014 (GLOBE NEWSWIRE) — The KEYW Holding Corporation (Nasdaq:KEYW) announces Q1 2014 revenue of $63.8 million, a decrease of 18% versus Q1 2013. GAAP loss per share was $0.08 in Q1 2014 versus a GAAP loss per share of $0.06 in Q1 2013. Adjusted EBITDA for Q1 2014 was $2.4 million, or 4% of Q1 2014 revenue, as compared to $6.8 million in adjusted EBITDA for Q1 2013, or 9% of Q1 2013 revenue. Although consolidated adjusted EBITDA margin for Q1 2014 declined versus last year, adjusted EBITDA margin for KEYW’s Government Solutions segment in Q1 2014 was a solid 14% as compared to 11% in Q1 2013. In Q1 2014, KEYW was awarded new funding actions of $72.1 million and ended the quarter with 1,081 employees.

“As we discussed on our Analyst Day webcast in March, our first quarter performance was impacted by the lingering effects of sequestration and weather disruptions in the greater DC area. However, the government business has begun to improve as evidenced by $9 million of new funding being added to our largest prime contract and the recent announcement of a new $8 million prime contract for open source data analysis and management,” commented Len Moodispaw, CEO and President of KEYW. “We also continue to see positive growth in the business development metrics for the commercial business with increases in both pilot discussions and qualified opportunities. Despite a slow start to the year, I expect to see continued improvement across both segments over the course of the rest of the year.”

In KEYW’s Government Solutions segment, revenue decreased 19% in Q1 2014 to $61.3 million with the largest drivers of the decrease attributed to sequestration-related cuts and severe Q1 2014 weather in the DC area. However, Q1 2014 gross margin improved versus last year from 30% to 32% due primarily to a mix shift away from lower-margin subcontractor revenue. An improved mix of higher gross margin revenue and cost reductions in the Government Solutions segment increased the EBITDA margin for the Government Solutions segment from 11% in Q1 2013 to 14% in Q1 2014.

Revenue in KEYW’s Commercial Cyber Solutions segment increased 24% in Q1 2014 versus last year from $2.0 million to $2.5 million. Bookings in Q1 2014 were $3.5 million. Operating expense in Q1 2014 increased to $8.5 million from $3.2 million in Q1 2013 due to additional investment in the infrastructure of the segment. These investments include substantial increases to the sales and customer support teams and growth in the engineering department.

Adjusted EBITDA, as defined by KEYW, is a non-GAAP measure that is calculated as GAAP net income plus other non-recurring expense, interest expense, income taxes, stock compensation, depreciation, and amortization. We have provided Adjusted EBITDA because we use the measurement internally to evaluate performance and we believe it is a commonly used measure of financial performance in comparable companies. It is provided to help investors evaluate companies on a consistent basis, as well as to enhance an understanding of our operating results. 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.

Adjusted EBITDA is not a recognized term under U.S. GAAP and does not purport to be an alternative to net income as a measure of operating performance or the cash flows from operating activities as a measure of liquidity. Please refer to the table below that reconciles GAAP net income to Adjusted EBITDA.

  Three months  Three months
  ended ended
  March 31, 2014 March 31, 2013
  (Unaudited and in thousands)
Net (Loss) Income $ (3,076) $ (2,262)
Depreciation 1,554 1,345
Intangible Amortization 3,125 6,921
Acquisition and Other Nonrecurring Costs 2 144 (1)
Stock Compensation Amortization 1,624 1,287
Interest Expense 858 914
Tax Benefit (1,669) (1,536)
Adjusted EBITDA  $ 2,418  $ 6,813
(1) Includes non-cash gain associated with the write-down of the earn-out from the National Semiconductor asset purchase.
(In thousands, except share and per share amounts)
  Three months  Three months 
  ended ended
  March 31, 2014 March 31, 2013
 Government Solutions  $ 61,308  $ 75,855
 Commercial Cyber Solutions 2,499 2,017
 Total 63,807 77,872
Costs of Revenues, excluding amortization    
 Government Solutions 41,769 53,354
 Commercial Cyber Solutions 546 456
 Total 42,315 53,810
Gross Profit    
 Government Solutions 19,539 22,501
 Commercial Cyber Solutions 1,953 1,561
 Total 21,492 24,062
Operating Expenses    
 Operating expenses 22,255 20,233
 Intangible amortization expense 3,125 6,921
 Total 25,380 27,154
Operating Loss (3,888) (3,092)
Non-Operating Expense, net 857 706
Loss before Income Taxes (4,745) (3,798)
Income Tax Benefit, net (1,669) (1,536)
Net Loss $ (3,076) $ (2,262)
Weighted Average Common Shares Outstanding    
Basic 37,154,579 36,378,929
Diluted 37,154,579 36,378,929
Loss per Share    
Basic $ (0.08) $ (0.06)
Diluted $ (0.08) $ (0.06)
(In thousands, except per share amounts)
  March 31, December 31, 
  2014 2013
ASSETS (Unaudited)  
Current assets:    
Cash and cash equivalents  $ 64  $ 2,480
Receivables 49,068 51,198
Inventories, net 12,940 11,305
Prepaid expenses 2,234 2,009
Income tax receivable 4,166 4,133
Deferred tax asset, current 1,133 1,133
Total current assets 69,605 72,258
Property and equipment, net 26,767 26,826
Goodwill 297,484 297,484
Other intangibles, net 26,218 29,343
Other assets 3,071 3,038
TOTAL ASSETS  $ 423,145  $ 428,949
Current liabilities:    
Revolver  $ 24,000  $ 22,000
Accounts payable 7,293 8,004
Accrued expenses 5,422 5,628
Accrued salaries & wages 9,665 11,948
Term note – current portion 7,000 7,000
Deferred revenue 3,320 2,745
Total current liabilities 56,700 57,325
Long-term liabilities:    
Term note – non-current portion 54,250 56,000
Non-current deferred tax liabilities 5,819 8,095
Other non-current liabilities 7,103 7,292
TOTAL LIABILITIES 123,872 128,712
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, 37,403,338 and 36,925,730 shares issued and outstanding 37 37
Additional paid-in capital 304,669 302,557
Retained earnings (5,433) (2,357)
Total stockholders’ equity 299,273 300,237
(In thousands)
  Three months  Three months 
  ended March 31,  ended March 31, 
  2014 2013
  (Unaudited) (Unaudited)
Net loss $ (3,076) $ (2,262)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:    
Stock compensation 1,624 1,287
Depreciation/Amortization 4,679 8,266
Non-cash impact of TI earn-out reduction (146)
Windfall tax benefit from option exercise (421)
Deferred taxes (2,276) (721)
Changes in operating assets and liabilities:    
Receivables 2,130 (947)
Inventories, net (1,635) 70
Prepaid expenses (225) (63)
Income tax, net 574 (407)
Accounts payable (711) 1,675
Accrued expenses (2,289) (6,647)
Other balance sheet changes (34) 37
Net cash (used in) provided by operating activities (1,660) 142
Cash flows from investing activities:    
Acquisitions, net of cash acquired (6,725)
Purchases of property and equipment (1,494) (2,108)
Capitalized software development costs (1,273)
Net cash used in investing activities (1,494) (10,106)
Cash flows from financing activities:    
Proceeds from revolver, net 2,000 8,000
Repayment of debt (1,750) (1,313)
Windfall tax benefit from option exercise 420
Proceeds from option and warrant exercises 68 705
Net cash provided by financing activities 738 7,392
Net decrease in cash and cash equivalents (2,416) (2,572)
Cash and cash equivalents at beginning of period 2,480 5,639
Cash and cash equivalents at end of period  $ 64  $ 3,067

A conference call has been scheduled to discuss these results on May 1, 2014 at 5:00 p.m. (EST). At that time, Management will review the Company’s first quarter 2014 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, on May 1, 2014. 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 30049686.

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 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

Investor Contact:
Mark Zindler
Vice President, Investor Relations and Treasury