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KEYW Reports Q4 and 2013 Financial Results

ANOVER, Md., Feb. 4, 2014 (GLOBE NEWSWIRE) — The KEYW Holding Corporation (Nasdaq:KEYW) announces full year revenue for 2013 of $298.7 million versus full year revenue for 2012 of $243.5 million, an increase of 23%. Net loss for 2013 was $10.6 million versus net income of $1.0 million in 2012. Net loss for 2013 included a one-time $4.8 million after tax litigation settlement charge. Fully diluted GAAP loss per share in 2013 was $0.29. Excluding the litigation settlement charge, our loss per share would have been $0.16 for 2013 as compared to fully diluted GAAP earnings per share of $0.03 in 2012. Amortization associated with acquisition related intangibles further reduced 2013 earnings per share by $0.40. Adjusted EBITDA (as described below) for 2013 was $27.2 million, or 9.1% of 2013 revenue.

For the fourth quarter of 2013, revenue was $68.8 million and fully diluted loss per share was $0.01. Fourth quarter adjusted EBITDA was $7.0 million in the fourth quarter of 2013, or 10.2% of revenue, versus $10.4 million in the fourth quarter of 2012, or 14% of revenue. During the fourth quarter, KEYW received $110 million in funding actions and ended the year with 1,068 employees.

By reporting segment, KEYW’s Government segment generated $38.3 million in adjusted EBITDA during the full year 2013, or 13.2% of Government revenue, versus $32.2 million in the full year 2012, or 13.4% of revenue. Adjusted EBITDA was a loss of $11.1 million in KEYW’s Commercial Cyber Solutions segment in the full year 2013 versus positive adjusted EBITDA of $0.7 million in the full year 2012. For the fourth quarter of 2013, KEYW’s Government segment generated $11.0 million in adjusted EBITDA, or 16.8% of Government revenue, versus $9.7 million in the fourth quarter 2012, or 13.6% of Government revenue. Adjusted EBITDA was a loss of $4.0 million in KEYW’s Commercial Cyber Solutions segment in the fourth quarter of 2013 versus positive adjusted EBITDA of $0.7 in the fourth quarter 2012.

“KEYW made significant progress in 2013 with the official launch of Hexis Cyber Solutions, Inc. and commercial release of the HawkEye G product in the fourth quarter of 2013. We are converting our beta customers into commercial customers and have built a substantial pipeline of near-term customers. We made a significant investment in commercial infrastructure in 2013 thus impacting EBITDA.” commented Len Moodispaw, CEO and President of KEYW Corporation. “In the Government business, KEYW was awarded several new large contract vehicles in 2013, but there is no doubt the impacts of sequestration and the government shutdown took a toll on the company. Our government customers now have a budget in place that addresses sequestration and we expect to begin seeing a return to a more normal environment in 2014.”

As mentioned, revenue for the fourth quarter of 2013 was $68.8 million, a decrease of 7% versus the fourth quarter of 2012. The decrease was driven by the impact of sequestration and the fourth quarter 2013 government shutdown.   Fully diluted GAAP loss per share in the fourth quarter of 2013 was $0.01. Amortization of acquisition related intangibles reduced fourth quarter earnings per share by approximately $0.09 per share.

In the fourth quarter of 2013, management evaluated KEYW’s segment disclosure as a result of the increasing importance of our commercial cybersecurity group and the changing mix of our government contracting business. Based on this evaluation, we are changing our reporting segments from the previously identified Services and Integrated Solutions segments to Government and Commercial Cyber Solutions segments. The Commercial Cyber Solutions group had been part of Integrated Solutions, beginning with the acquisition of Sensage, Inc. in the fourth quarter of 2012.

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  Three     
  months  months     
  ended  ended  Year ended  Year ended 
  December December  December  December 
   31, 2013 31, 2012 31, 2013 31, 2012
  (Unaudited and in thousands)
Net (Loss) Income $(510) $180 $(10,634) $1,015
Depreciation 1,698 1,229 6,009 4,369
Intangible Amortization 5,663 6,804 24,658 21,411
Public Offering, Acquisition and 
Other Nonrecurring (Benefits) Costs
(164) 552 6,913 938
Stock Compensation Amortization  1,418 956 5,731 3,024
Interest Expense 832 1,017 3,508 2,307
Tax Benefit (1,925) (338) (9,005) (86)
Adjusted EBITDA $7,012 $10,400 $27,180 $32,978
(In thousands, except share and per share amounts)
  Three months  Three months     
  ended  ended  Year ended  Year ended 
  December 31,  December 31,  December 31,  December 31, 
  2013 2012 2013 2012
Government Solutions $65,482 $70,962 $288,909 $240,245
Commercial Cyber Solutions 3,346 3,275 9,823 3,275
Total 68,828 74,237 298,732 243,520
Costs of Revenues        
Government Solutions 42,866 47,245 197,380 159,180
Commercial Cyber Solutions 540 547 1,840 547
Total 43,406 47,792 199,220 159,727
Gross Profit        
Government Solutions 22,616 23,717 91,529 81,065
Commercial Cyber Solutions 2,806 2,728 7,983 2,728
Total 25,422 26,445 99,512 83,793
Operating Expenses        
Operating expenses 21,296 18,775 84,701 59,189
Intangible amortization expense 5,663 6,804 24,658 21,411
Total 26,959 25,579 109,359 80,600
Operating (Loss) Income (1,537) 866 (9,847) 3,193
Non-Operating Expense, net 898 1,024 9,792 2,264
(Loss) Income before Income Taxes (2,435) (158) (19,639) 929
Income Tax Benefit, net (1,925) (338) (9,005) (86)
Net (Loss) Income $(510) $180 $(10,634) $1,015
Weighted Average Common Shares Outstanding        
Basic 36,824,514 35,725,283 36,618,919 28,239,945
Diluted 36,824,514 38,836,329 36,618,919 31,152,924
(Loss) Earnings per Share        
Basic $(0.01) $0.01 $(0.29) $0.04
Diluted $(0.01) $0.00 $(0.29) $0.03
(In thousands, except per share amounts)
  December 31,  December 31, 
  2013 2012
Current assets:    
Cash and cash equivalents $2,480 $5,639
Receivables 51,198 58,482
Inventories, net 11,305 8,739
Prepaid expenses 2,009 1,880
Income tax receivable 96
Deferred tax asset, current 2,556 3,149
Total current assets 69,548 77,985
Property and equipment, net 26,826 23,860
Goodwill 297,484 290,861
Other intangibles, net 29,343 53,799
Deferred tax assets 17,483 13,608
Other assets 3,038 2,562
TOTAL ASSETS $443,722 $462,675
Current liabilities:    
Revolver $22,000 $21,000
Accounts payable 8,004 7,254
Accrued expenses 1,495 5,488
Accrued salaries & wages 11,948 17,770
Term note – current portion 7,000 5,688
Deferred revenue 2,745 2,905
Deferred income taxes 1,423 1,429
Total current liabilities 54,615 61,534
Long-term liabilities:    
Term note – non-current portion 56,000 63,000
Non-current deferred tax liabilities 25,578 29,700
Other non-current liabilities 7,292 7,413
TOTAL LIABILITIES 143,485 161,647
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, 36,925,730 and 36,135,542 shares issued and outstanding 37 36
Additional paid-in capital 302,557 292,715
Retained earnings (2,357) 8,277
Total stockholders’ equity 300,237 301,028
(In thousands)
  Year ended  Year ended 
  December 31,  December 31, 
  2013 2012
Net (loss) income $(10,634) $1,015
Adjustments to reconcile net (loss) income to net cash provided by operating activities:    
Stock compensation 5,731 3,024
Depreciation/Amortization 30,667 25,780
Loss on disposal of equipment 20 87
Non-cash impact of TI earn-out reduction (146)
Windfall tax benefit from option exercise (219) (140)
Deferred taxes (7,191) (1,864)
Decrease (increase) in balance sheet items:    
Receivables 7,587 (8,546)
Inventory (1,989) (1,313)
Prepaid expenses (114) 910
Income tax receivable 96 (69)
Accounts payable 184 (298)
Accrued expenses (8,395) (2,429)
Other balance sheet changes (477) (2,128)
Net cash provided by operating activities 15,120 14,029
Cash flows from investing activities:    
Acquisitions, net of cash acquired (6,751) (131,392)
Purchase of property and equipment (6,236) (9,174)
Capitalized software development costs (2,716) (1,547)
Proceeds from sale of equipment 28
Net cash used in investing activities (15,675) (142,113)
Cash flows from financing activities:    
Proceeds from stock issuances 94,451
Proceeds from term note 70,000
Proceeds from revolver 60,000 51,500
Repayment of debt (64,688) (81,312)
Repurchase of stock (2,948)
Windfall tax benefit from option exercise 219 140
Proceeds from option and warrant exercises 1,865 598
Net cash (used in) provided by financing activities (2,604) 132,429
Net increase (decrease) in cash and cash equivalents (3,159) 4,345
Cash and cash equivalents at beginning of period 5,639 1,294
Cash and cash equivalents at end of period $2,480 $5,639

Pro Forma Revenue

The tables below summarize the unaudited pro forma statement of operations for the three and twelve months ended December 31, 2012, assuming the Poole and Sensage acquisitions had been completed on January 1, 2012. Pro forma income statements are not presented for 2013 as there have been no material acquisitions during the year ended December 31, 2013. These pro forma statements do not include any adjustments that may have resulted from synergies between the acquisitions, eliminations of intercompany transactions or from amortization of intangibles other than during the period the acquired entities were part of the Company. The 2012 activity for Poole and Sensage represents the financial activity in 2012 prior to acquisition. Activity for the Rsignia, Dilijent and IDEAL acquisitions are not included for any period presented due to their immateriality individually and in aggregate.

  For Three Months ended December 31, 2012  
   (In Thousands and Unaudited)  
  Sensage KEYW Total  
Revenue $197 $74,237 $74,434  
  For Year ended December 31, 2012
  (In Thousands and Unaudited)
  Poole Sensage KEYW Total
Revenue $42,321 $6,820 $243,520 $292,661

A conference call has been scheduled to discuss these results on February 4, 2014 at 5:00 p.m. (EST). At that time, Management will review the Company’s fourth quarter and full year 2013 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 February 4, 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 43264451.

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