- Third-quarter bookings total $273 million, or 2.2 times revenue;
- Third-quarter revenue from continuing operations of $122.4 million;
- GAAP EPS from continuing operations of $(0.08);
- Third-quarter adjusted EBITDA from continuing operations (see below) of $11.6 million, 9.5% of revenue; and
- Company updates fiscal 2017 financial guidance.
HANOVER, Md., Nov. 02, 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 third-quarter 2017 financial and operating results.
“KeyW’s third quarter produced solid bookings, and our pipeline remains robust; however, our financial results for the third quarter of 2017 fell short of expectations and that does not meet the standard I expect here at KeyW. Our third-quarter shortfall was primarily due to product and service solutions awards that moved out to the fourth quarter of 2017 as well as 2018,” said Bill Weber, KeyW’s president and chief executive officer.
“With strong bookings and cost reductions throughout the newly combined company, I believe we have put the pieces in place to improve our financial performance going forward. Going into 2018, KeyW revenue exposed to recompete risk is now negligible. Furthermore, I am excited about both the growth and high-margin potential of our product solutions business and the benefits of greater stability and predictability that the increasing mix of services solutions contracts brings to the portfolio,” continued Weber. “Looking ahead, we continue to expect to meet our target fiscal year 2017 bookings of greater than one times revenue. A number of these potential awards are in KeyW’s ‘sweet spots’ in the Intelligence Community (IC) and intelligence-focused DoD military commands.”
Weber added: “As the company has discussed previously, we are focused on generating strong cash flow and de-leveraging the balance sheet; to this end, we paid down approximately $12 million of debt during the third quarter of 2017. Finally, we anticipate the Sotera integration to be materially complete by year end. We have achieved greater operational efficiencies as well as compelling business development and revenue synergies going into 2018. We continue to expect our Sotera acquisition to be highly accretive to GAAP EPS in 2018. Sotera’s capabilities and contract vehicles give us increased confidence we will benefit strategically from the newly combined company.”
Business Development Highlights and Contract Awards
For the third quarter, bookings to backlog totaled approximately $273 million, or 2.2 times revenue. Trailing 12-month contract award values totaled $547 million, or 1.1 times revenue. The company reported having approximately $1.3 billion in proposals submitted and awaiting award.
KeyW’s third-quarter awards are consistent with the company’s focus on its core competencies in:
- Cyber Operations;
- Customer-centric Intelligence, Surveillance and Reconnaissance (ISR) solutions; and
- Mission-focused IT and intelligence analysis support of the most critical national security challenges.
Among the $273 million in bookings for the third quarter was a $136 million, two-year prime contract follow-on from an Intelligence Community customer. The company expects that this award—combined with other bookings in the third quarter of 2017—will create new revenue opportunities and significantly reduce the company’s recompete risk in 2018, providing a more secure foundation for our long-term growth targets.
Third-Quarter 2017 Results from Continuing Operations
Revenue increased by $50.3 million, or 69.8%, for the three months ended September 30, 2017, compared with the three months ended September 30, 2016. The increase is primarily attributable to contracts acquired through the acquisition of Sotera.
Operating income for the third quarter of 2017 was $2.4 million, or 2.0% of revenue, compared with operating income of $4.2 million, or 5.9% of revenue, for the third quarter of 2016. The decrease in operating income and margin resulted from higher operating expenses, primarily due to higher acquisition-related and other expenses and higher amortization expense. As expected, KeyW reported significantly lower sequential operating expenses, primarily due to greater operational efficiencies within the combined organization.
KeyW reported GAAP net loss from continuing operations of $4.2 million, or $0.08 per diluted share, for the third quarter of 2017, largely because of the factors affecting operating income. There were no discontinued operations in the third quarter of 2017.
Adjusted EBITDA from continuing operations was $11.6 million, or 9.5% of revenue, for the third quarter of 2017, versus $8.4 million, or 11.6% of revenue, in the prior-year period. Third-quarter 2017 adjusted EBITDA from continuing operations increased year-over-year primarily because of the additional revenue acquired in the Sotera acquisition, partially offset by the factors affecting operating income. Adjusted EBITDA margin decreased primarily because of the increased services solutions content of the additional revenue coupled with delays in product solutions revenues.
Additional Financial Metrics
KeyW reported total backlog at September 30, 2017, of $1.26 billion, of which $187.5 million was funded, compared with total backlog at June 30, 2017, of $1.11 billion, of which $178.8 million was funded.
Cash flow provided by operations for the nine months ended September 30, 2017, was $6.1 million, a decrease of $7.5 million compared with the same period in 2016. The decrease was primarily due to increased cash expenses related to the acquisition and integration of Sotera. Days sales outstanding (DSO) were 60 days, six days lower than the second quarter of 2017, which is in line with the company’s expected normalized range. Cash and cash equivalents at September 30, 2017, totaled $17.3 million. KeyW paid down $11.7 million of debt during the third quarter of 2017. At September 30, 2017, the company was in compliance with all of its debt covenants under the 2017 Credit Agreement.
2017 Financial Outlook
Mainly as a result of lower-than-expected product solutions sales and delayed start-ups of certain services solutions contracts in the third quarter of 2017, KeyW is updating its fiscal 2017 guidance, based on the company’s financial results for the first nine months of 2017 and its current outlook for the remainder of 2017. The table below summarizes the company’s fiscal year 2017 guidance:
|Updated Fiscal 2017 Guidance||Prior Fiscal 2017 Guidance|
|Revenue||$435 million – $445 million||$455 million – $485 million|
|Adjusted EBITDA margin||8.0% – 9.0%||10.0% – 11.0%|
“During the third quarter, we announced a major change to our executive leadership team with the promotion of Kirk Herdman to lead our combined efforts in Corporate Strategy and Business Development. Kirk has a keen understanding of both KeyW and Sotera; he also has a proven track record of large prime contract wins within the Intelligence and Counterterrorism Communities. We couldn’t be more pleased to have Kirk lead this newly combined function,” concluded Weber.
Conference Call Information
As previously announced, a conference call has been scheduled to discuss these results today at 5:00 p.m. ET. At that time, management will review the company’s third-quarter 2017 financial results, 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, http://investors.keywcorp.com, on November 2, 2017. We encourage people to register for an email reminder about the webcast on the Events and Presentations link, also found on the Investor Relations 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 97352288.
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 the 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