- Fourth-quarter revenue from continuing operations of $68.9 million; full year, $288.0 million;
- Fourth-quarter GAAP EPS from continuing operations of $(0.08); full year, $0.05;
- Fourth-quarter adjusted EBITDA from continuing operations (see below) of $5.2 million; full year, $31.4 million;
- Company issues fiscal 2017 financial guidance; and
- KeyW announces it has entered into a definitive agreement to acquire Sotera Defense Solutions (see separate press release issued today and associated presentation on the KeyW Investors web page).
HANOVER, Md., March 08, 2017 (GLOBE NEWSWIRE) — The KeyW Holding Corporation (NASDAQ:KEYW), a leading total solutions provider solving the Intelligence, Cyber, and Counterterrorism Communities’ toughest challenges, today announced fourth-quarter and fiscal year 2016 financial results.
“In 2016, we set out to build a solid foundation for growth in 2017 and beyond. The pivot strategy we laid out in our 2015 year-end call last February and our Analyst Day in April called for divesting our commercial cyber solutions and SETA businesses, as well as the transformation of our business development (BD) function and other key operational changes,” said Bill Weber, KeyW’s president and chief executive officer. “I said that by the end of 2016, KeyW would be a different company than it was at the time. Importantly, we have achieved that fundamental transformation. We entered 2017 as a streamlined, much stronger, and healthier end-to-end, pure-play solutions provider serving primarily the Intelligence community (IC). We showed impressive growth across several of our business sectors, including cyber operations, affordable Intelligence, Surveillance and Reconnaissance (ISR), advanced cyber training and analytics.
“I’m especially pleased with progress we’ve made in BD, particularly with bid volume and a better-than-expected win rate. Fourth-quarter funding actions totaled $80.4 million and $313 million for full-year 2016. During 2016, we made great progress in building a best-in-class BD function that integrated our corporate BD team and our operations personnel into a cohesive unit. Contract award value1 totaled approximately $460 million, well above one times revenue in 2016, and the bids we’ve submitted and continue to submit are laying the groundwork for organic revenue growth in 2017 and 2018. In addition, our pipeline of new business now is sustainable at more than $8 billion, with an increasing portion of that qualified,” continued Weber. “Our BD team submitted bids totaling more than $1.2 billion in 2016, and expects to submit bids this year totaling three to four times forecasted 2017 revenue. One major area of focus in 2017 will be to broaden the reach of our higher-end capabilities beyond our current IC customer base to a wider range of IC and related clients. These skill sets include cyber training and advanced engineering. In short, we expect that KeyW’s transformation will continue to gain footing in 2017 in terms of new customer wins, increased organization efficiency and enhanced corporate culture.
“As separately announced, we are extremely excited about our definitive agreement to acquire Sotera Defense Solutions. We believe the transaction accelerates the growth plan we’ve been communicating since early 2016. The acquisition will provide new and enhanced access to agencies within the IC; add significant scale, creating a unique, IC-focused solutions provider; add new and complementary capabilities; provide access to a larger portfolio of prime contracts and IDIQ vehicles; yield highly achievable cost synergies; and generate an enhanced cash flow profile and be accretive to EPS,” added Weber. “We expect the transaction to close early in the second quarter, and look forward to a smooth integration.”
Fourth-Quarter 2016 Results from Continuing Operations
Revenue declined by 4.8% from the fourth quarter of 2015 to $68.9 million, which excludes $2.7 million of SETA revenue from the same period last year. Decreased year-over-year fourth-quarter 2016 revenue (excluding fourth-quarter 2015 SETA revenue) resulted primarily from the completion of two large solutions contracts earlier in 2016 as well as revenue from a product-based transaction entered in to in the fourth quarter of 2016 but expected to be recognized in 2017. Including 2015 SETA revenue, revenue decreased by 8.2% on a quarter-over-quarter basis. Partially offsetting this decline was growth in KeyW’s airborne ISR business, higher advanced geospatial intelligence products and solutions sales and increased revenue from other solutions contracts.
Gross margin for the fourth quarter of 2016 was 30.0% and 28.5% for the same period in 2015. Gross margin improved 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 loss for the fourth quarter of 2016 was $0.5 million, or -0.8% of revenue compared with operating income of $3.7 million, or 4.9% of revenue, for the fourth quarter of 2015. The year-over-year decrease in operating income and margin resulted from higher indirect costs, partially offset by increased gross margin. The increase in indirect expenses was driven by higher BD costs and additional general and administrative expenses.
KeyW reported GAAP net loss from continuing operations of $3.1 million, or $0.08 per diluted share, for the fourth quarter of 2016, largely because of the factors affecting operating income. GAAP net loss (including loss on discontinued operations related to the company’s former Commercial Cyber Solutions segment) was $3.2 million, or $0.08 per diluted share, for the fourth quarter.
Adjusted EBITDA from continuing operations was $5.2 million, or 7.5% of revenue, for the fourth quarter of 2016, versus $8.2 million, or 11.0% of revenue, in the prior-year period. Fourth quarter 2016 adjusted EBITDA from continuing operations declined year-over-year primarily because of the factors affecting operating income.
Full Year 2016 Results from Continuing Operations
Full-year 2016 revenue was $288.0 million compared with full-year revenue for 2015 of $ 297.9 million, a decrease of 3.3%. Excluding the contribution of the divested SETA business from both periods, revenue was essentially flat on a year-over-year basis. Net income from continuing operations for 2016 was $1.9 million compared with a net loss from continuing operations of $29.9 million in 2015. Fully diluted GAAP net income per share from continuing operations in 2016 was $0.05 compared with fully diluted GAAP loss per share from continuing operations of $0.77 in 2015. 2016 GAAP loss per diluted share included a $19.6 million ($0.51 per share) non-cash charge taken in the second quarter to establish a valuation allowance for deferred tax assets in future periods. Adjusted EBITDA from continuing operations for 2016 was $31.4 million, or 10.9% of revenue. Cash flow from operations for full year 2016 was $23.1 million.
“We look forward to 2017 as being a year of growth and stable margin performance. A number of key product sales we were driving to recognize in late 2016 have moved into 2017, including several significant product-based ISR solutions transactions. Also encouraging is that our recompete exposure in 2017 is significantly lower than previous years—fully 77% of our revenue guidance midpoint is in existing backlog. Only 10% is dependent on our winning contract recompetes. We will also continue to focus on generating organizational efficiencies and winning new solutions contracts that leverage our unique product portfolio.
“We’re also optimistic about early indications in the new federal budgetary and procurement climate that align with KeyW’s core capabilities in cyber, advanced engineering and other areas. A new, businesslike approach to federal contracting, as well as regulatory and corporate tax relief, would benefit nimble government solutions companies like us,” concluded Weber.
Excluding the impact of the Sotera transaction, for the full year 2017, KeyW expects revenue to be in the range of $300 million to $320 million, which represents organic growth of approximately 7% at the midpoint. Full-year adjusted EBITDA margin expectations continue to be in the range of 10% to 12%, unchanged from preliminary guidance issued on January 26, 2017.
As previously announced, a conference call has been scheduled to discuss these results today at 5:00 p.m. EST. At that time, management will review the company’s fourth quarter and full-year 2016 financial results and the details of the planned Sotera acquisition announced today, followed by a question-and-answer session.
Interested parties will be able to connect to our webcast via the Investor Relations page on our website, on March 8, 2017. 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 56194282.
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 Relations page of our website at approximately the same time as the webcast replay.
1 “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.
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