- First-quarter revenue from continuing operations of $68.3 million;
- GAAP EPS from continuing operations of $(0.08);
- First-quarter adjusted EBITDA from continuing operations of $4.5 million, 6.5% of revenue; and
- Company reaffirms FY2017 KeyW guidance and issues updated fiscal 2017 financial guidance to include completed acquisition of Sotera Defense Solutions on April 4, 2017.
HANOVER, Md., May 03, 2017 (GLOBE NEWSWIRE) — The KeyW Holding Corporation (NASDAQ:KEYW), a pure-play national security solutions provider for the Intelligence, Cyber and Counterterrorism Communities’ toughest challenges, today announced first-quarter 2017 financial and operating results.
“As expected, KeyW delivered consistent sequential performance in the first quarter of 2017. We expect revenues to ramp up throughout 2017, driven primarily by increased affordable Intelligence, Surveillance and Reconnaissance (ISR) and advanced cyber training and analytics sales in the second half of the year. In addition, we’ll benefit from Sotera‘s revenue contribution immediately,” said Bill Weber, KeyW’s president and chief executive officer. “As part of KeyW’s strategy to secure our base of business and reduce our recompete risk, we confirmed the extension of one of our largest legacy solutions programs to September 2019, totaling approximately $45 million of retained annual revenue. In addition, year-to-date as of April 30, Sotera has won more than $130 million of new solutions revenue. We anticipate the collective contribution from these activities to add significantly to combined revenue in the second half of 2017. The key takeaway is that we expect the convergence of several additional revenue sources to enable us to meet or exceed the revenue midpoint of the combined company that we offer in our updated guidance. As the integration of our two organizations progresses, we expect to finish 2017 as a stronger combined company serving our customers’ mission-critical needs.
“A month into the integration process, I’m encouraged by the synergies we’re beginning to realize at all the common touchpoints of the two companies. We’re on track to generate the cost synergies we outlined as a major benefit of the combination of our two organizations. Even more compelling is the power of our two business development (BD) engines: We’re seeing that uniting the people and processes of KeyW’s and Sotera’s BD teams should yield significant benefits in terms of capture, bid and proposal activity and, ultimately, win rates on needle-moving new solutions opportunities. These add to the other benefits of the combination we’ve outlined in previous press releases and conference calls.”
First-Quarter 2017 Results from Continuing Operations
Revenue declined by 4.1% from the first quarter of 2016 to $68.3 million, which excludes $2.5 million of SETA revenue from the same period last year. The year-over-year decline in first-quarter revenue (excluding first-quarter 2016 SETA revenue) resulted primarily from the completion of certain higher-margin solutions contracts totaling $3.9 million in the first quarter of 2016, which will not materially impact year-over-year comparisons on a quarterly basis going forward. The decline was partially offset by higher airborne ISR revenue. Including the 2016 SETA contribution, revenue decreased by 7.3% on a quarter-over-quarter basis.
Gross margin for the first quarter of 2017 was 29.8% and was 31.0% for the same period in 2016. Gross margin declined year-over-year primarily as the result of the completion of the higher-margin solutions contracts as well as lower contract margins on a large follow-on solutions program.
Operating loss for the first quarter of 2017 was $1.3 million, or -1.9% of revenue, compared with operating income of $4.9 million, or 6.7% of revenue, for the first quarter of 2016. The year-over-year decrease in operating income and margin resulted from lower gross margin, higher acquisition and related expenses, increased stock compensation costs and higher BD expenses.
KeyW reported GAAP net loss from continuing operations of $3.9 million, or $0.08 per diluted share, for the first quarter of 2017, largely because of the factors affecting operating loss. There were no discontinued operations in the first quarter of 2017.
Adjusted EBITDA from continuing operations was $4.5 million, or 6.5% of revenue, for the first quarter of 2017, versus $8.5 million, or 11.5% of revenue, in the prior-year period. First-quarter 2017 adjusted EBITDA from continuing operations declined year-over-year primarily because of the factors affecting operating income.
“KeyW enters the second quarter of 2017 continuing our planned evolution with the addition of Sotera. We expect the benefits of greater scale throughout the business will provide a more competitive cost model and drive additional growth. We are also excited about the unique value to our customers and the financial rationale of the deal, including the substantial tax attributes associated with the transaction,” said Weber. “Our mandate is unwavering: The new KeyW must step up our game, deliver on our stated promises and leverage the strengths of these two great companies to produce an enterprise that is far greater than the sum of its parts. In setting our guidance for 2017, we carefully considered our forecasting, given the moving parts inherently associated with closing KeyW’s largest-ever acquisition; the overall procurement environment; the uncertainties of the federal budget process; and trends within our customer base.
“We are now even better positioned in a highly desirable market, with a diversified portfolio that spans the IC and adjacent customer sets. We are also able to build on our existing product and solutions model to widen our targets and capabilities in the intelligence, cyber and counterterrorism communities. We followed Sotera with great interest for some time and believe that our combined capabilities, culture and customer commitment will help drive KeyW’s growth and deliver increased shareholder value.”
Based on the combined company’s current contract backlog and management’s estimate of future tasking and contract awards, KeyW is issuing guidance for full fiscal year 2017 to include the acquisition of Sotera. The table below represents management’s current expectations about future financial performance based on information available at this time.
|2017 Estimated Revenue
|KeyW:||$300 million – $320 million|
|Sotera:||$155 million – $165 million*|
|Combined:||$455 million – $485 million||10%−11%|
|*Sotera figures represent partial-year estimates—Q2 through Q4’2017|
As previously announced, a conference call has been scheduled to discuss these results today at 5:00 p.m. EDT. At that time, management will review the company’s first-quarter 2017 financial results, followed by a question-and-answer session.
Interested parties will be able to connect to the webcast via the Investor Relations page on our website, http://investors.keywcorp.com, on May 3, 2017. We encourage people to register for an email reminder about the webcast through the Events and Presentations link, also found on the Investor Relations page of our website. Interested parties may also listen to the conference 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 10664250.
An archive of the webcast will be available on our website following the call. In addition, a podcast of our conference call will be available for download from our Investor Relations page of our website at approximately the same time as the webcast replay.
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.
Director, Corporate Communications
Vice President, Investor Relations and Treasury