KEYW Reports Third-Quarter 2016 Financial Results

  • Revenue from continuing operations of $72.1 million;
  • GAAP EPS from continuing operations of $0.09;
  • Adjusted EBITDA from continuing operations of $8.4 million, or 11.6% of revenue;
  • Third-quarter funding actions of $57 million, year-to-date funding actions of $233 million;
  • Year-to-date total contract award value of approximately $450 million, representing a 73%-win rate by dollar volume;
  • More than $1 billion in proposals submitted YTD, with approximately $700 million in prime contracts awaiting award; and
  • Company reaffirms fiscal year 2016 revenue and adjusted EBITDA margin guidance.

HANOVER, Md., Nov. 02, 2016 (GLOBE NEWSWIRE) -- The  KEYW Holding Corporation (Nasdaq:KEYW), a leading total solutions provider for the Intelligence, Cyber and Counterterrorism Communities' toughest challenges, today announced third-quarter 2016 financial results.

"During the third quarter, KEYW gained significant momentum from new business awards, with wins totaling $275 million in contract value, including all options. Importantly, the approximately $450 million in total contract value to the company from wins thus far in 2016 represents approximately 73% of total dollars in bids we submitted. We expect to see incremental revenue from these awards beginning in early 2017, after completing contract transitions and start-up activities in the fourth quarter of 2016," said Bill Weber, KEYW's president and chief executive officer. "Our third-quarter financial results were solid, with revenue and adjusted EBITDA margins from continuing operations in line with our forecasts. In addition, KEYW was profitable on a GAAP basis in the third quarter of 2016 after the divestiture of the Hexis and SETA businesses. I'm pleased to say that the strategic initiatives we've outlined to the investment community are progressing well."

Third-Quarter 2016 Results from Continuing Operations

Revenue declined by 3.7% from the third quarter of 2015 to $72.1 million, which excludes $3.2 million of SETA revenue from the same period last year. The decrease in year-over-year third-quarter 2016 revenue (excluding second-quarter 2015 SETA revenue) was largely the result of the conclusion of two large solutions contracts and delays in the follow-on efforts. Including 2015 SETA revenue, revenue decreased by 7.7% on a quarter-over-quarter basis. Partially offsetting this decline was growth in KEYW's airborne Intelligence, Surveillance and Reconnaissance (ISR) business, higher advanced geospatial intelligence products and solutions sales and increased revenue from other solutions contracts.

Gross margin for the third quarter of 2016 was 33.0% compared with 32.6% sequentially and 30.5% for the same period in 2015. Gross margin improved sequentially and 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 income for the third quarter of 2016 was $4.2 million, or 5.9% of revenue, compared with $3.3 million, or 4.2% of revenue, for the third quarter of 2015. The year-over-year increase in operating income and margin resulted from the higher gross margin and a reduction of indirect costs, partially offset by increased business development and research and development (R&D) costs.

KEYW reported GAAP net income from continuing operations of $3.5 million, or $0.09 per diluted share, for the third quarter of 2016, largely because of the factors affecting operating income, and a tax benefit of $1.9 million compared with a tax expense of $7.9 million in the third quarter of 2015. The company expects to record a full-year effective tax provision for continuing operations of approximately $2.2 million. GAAP net income (including loss on discontinued operations related to the company's former Commercial Cyber Solutions segment) was $2.5 million, or $0.06 per diluted share, for the third quarter.

Adjusted EBITDA was $8.4 million, or 11.6% of revenue, for the third quarter of 2016, versus $7.7 million, or 9.9% of revenue, in the prior-year period. Third quarter 2016 adjusted EBITDA improved year-over-year primarily because of the factors affecting operating income. Nine-month cash flow from operations at September 30, 2016 was $13.6 million.

Financial Outlook

For the full year 2016, KEYW expects revenue from continuing operations to be in the range of $290 million to $300 million, which includes approximately $2.5 million of revenue in the first quarter from KEYW's divested SETA business, and is unchanged from guidance provided last quarter. Full-year adjusted EBITDA margin expectations continue to be in the range of 10% to 13%, also unchanged from previous guidance. (Year-to-date adjusted EBITDA margin is 12.0%.)

"We continue to see tangible progress in our turnaround efforts as we approach the end of 2016. We're on track with our strategic plan to expand our presence as a pure-play, end-to-end products and solutions provider to the Intelligence, Cyber Communities and Counterterrorism communities.," said Weber. "Investments we're making in business development and expansion of our R&D programs are showing positive results. Our airborne ISR business revenue and advanced geospatial intelligence products and solutions sales are encouraging. We believe these areas will provide a key avenue of growth for additional solutions revenue in 2017 and beyond," concluded Weber.

"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.
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
       
  Three months ended September 30,   Nine months ended September 30,
  2016   2015   2016   2015
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
               
Revenues $ 72,111     $ 78,100     $ 219,099     $ 222,818  
Costs of Revenues, excluding amortization 48,312     54,252     148,576     154,474  
Gross Profit 23,799     23,848     70,523     68,344  
Operating Expenses              
Operating expenses 18,031     18,774     51,815     50,521  
Intangible amortization expense 1,528     1,766     4,463     5,373  
Total 19,559     20,540     56,278     55,894  
Operating Income 4,240     3,308     14,245     12,450  
Non-Operating Expense, net 2,612     2,561     6,776     7,655  
Earnings before Income Taxes from Continuing Operations 1,628     747     7,469     4,795  
Income Tax (Benefit) Expense, net on Continuing Operations (1,876 )   7,876     2,491     32,800  
Net Income (Loss) from Continuing Operations 3,504     (7,129 )   4,978     (28,005 )
Loss before Income Taxes from Discontinued Operations (1,044 )   (8,854 )   (27,990 )   (28,702 )
Income Tax Benefit, net on Discontinued Operations (4 )   (7,979 )   (494 )   (11,180 )
Loss on Discontinued Operations (1,040 )   (875 )   (27,496 )   (17,522 )
Net Income (Loss) $ 2,464     $ (8,004 )   $ (22,518 )   $ (45,527 )
               
Weighted Average Common Shares Outstanding              
Basic 40,955,372     39,144,935     40,367,963     38,339,646  
Diluted 41,305,545     39,144,935     40,930,999     38,339,646  
               
Basic net earnings (loss) per share:              
Continuing operations $ 0.09     $ (0.18 )   $ 0.12     $ (0.73 )
Discontinued operations (0.03 )   (0.02 )   (0.68 )   (0.46 )
Basic net earnings (loss) per share $ 0.06     $ (0.20 )   $ (0.56 )   $ (1.19 )
               
Diluted net earnings (loss) per share:              
Continuing operations $ 0.09     $ (0.18 )   $ 0.12     $ (0.73 )
Discontinued operations (0.03 )   (0.02 )   (0.67 )   (0.46 )
Diluted net earnings (loss) per share $ 0.06     $ (0.20 )   $ (0.55 )   $ (1.19 )

THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets
(In thousands, except share and par value per share amounts)
       
  September 30, 2016   December 31, 2015
  (Unaudited)    
ASSETS      
Current assets:      
Cash and cash equivalents $ 42,505     $ 21,227  
Receivables 47,472     53,111  
Inventories, net 15,680     15,616  
Prepaid expenses 1,815     1,538  
Income tax receivable 345     302  
Assets of discontinued operations 3,072     7,765  
Total current assets 110,889     99,559  
       
Property and equipment, net 32,060     28,750  
Goodwill 290,772     297,223  
Other intangibles, net 9,521     10,957  
Other assets 1,462     1,508  
Non-current assets of discontinued operations     15,408  
TOTAL ASSETS $ 444,704     $ 453,405  
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable $ 8,536     $ 10,299  
Accrued expenses 10,167     9,345  
Accrued salaries and wages 15,639     8,916  
Deferred income taxes 965     964  
Liabilities of discontinued operations 2,620     7,084  
Total current liabilities 37,927     36,608  
Long-term liabilities:      
Convertible senior notes, net of discount 130,888     126,188  
Non-current deferred tax liability 29,513     26,890  
Other non-current liabilities 11,462     11,894  
TOTAL LIABILITIES 209,790     201,580  
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, 40,975,827 and 39,940,667 shares issued and outstanding 41     40  
Additional paid-in capital 332,651     327,045  
Accumulated deficit (97,778 )   (75,260 )
Total stockholders' equity 234,914     251,825  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 444,704     $ 453,405  

THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
  Nine months ended September 30,
  2016   2015
  (Unaudited)   (Unaudited)
Net loss $ (22,518 )   $ (45,527 )
Adjustments to reconcile net loss to net cash provided by operating activities:      
Stock compensation 2,172     4,389  
Depreciation and amortization expense 10,460     15,184  
Impairment of Commercial Cyber Solutions goodwill 6,980      
Amortization of discount on convertible debt 4,700     3,842  
(Gain) loss on disposal of assets (3,447 )   1,186  
Loss on sale of assets held for sale 3,568      
Write-off of deferred financing costs 340      
Deferred taxes 1,974     21,464  
Changes in operating assets and liabilities:      
Receivables 11,113     6,171  
Inventories, net (1,165 )   (4,298 )
Prepaid expenses (1,224 )   176  
Accounts payable (3,071 )   2,265  
Accrued expenses 3,417     8,125  
Other 340     1,277  
Net cash provided by operating activities 13,639     14,254  
Cash flows from investing activities:      
Acquisitions, net of cash acquired (2,504 )   (20,766 )
Purchases of property and equipment (8,388 )   (12,741 )
Proceeds from sale of assets 16,226      
Net cash provided (used in) by investing activities 5,334     (33,507 )
Cash flows from financing activities:      
Proceeds from option and warrant exercises, net 2,305     4,623  
Net cash provided by financing activities 2,305     4,623  
Net increase (decrease) in cash and cash equivalents 21,278     (14,930 )
Cash and cash equivalents at beginning of period 21,227     39,601  
Cash and cash equivalents at end of period $ 42,505     $ 24,971  
Supplemental disclosure of cash flow information:      
Cash paid for interest $ 3,858     $ 3,850  
Cash paid for taxes $ 89     $ 97  

Adjusted EBITDA

Adjusted EBITDA, as defined by KEYW, is a financial measure that is not calculated in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The adjusted EBITDA reconciliation tables below provide a reconciliation of this non-US GAAP financial measure to net income (loss), the most directly comparable financial measure calculated and presented in accordance with US GAAP. Adjusted EBITDA should not be considered as an alternative to net income, operating income or any other measure of financial performance calculated and presented in accordance with US GAAP. KEYW's adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate adjusted EBITDA or similarly titled measures in the same manner as we do. We prepare adjusted EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. Investors are encouraged to evaluate these adjustments and the reasons we consider them appropriate. 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.

THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
 
ADJUSTED EBITDA RECONCILIATION TABLE
(in thousands)
       
  Three months ended September 30,   Nine months ended September 30,
  2016   2015   2016   2015
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Net income (loss) from continuing operations $ 3,504     $ (7,129 )   $ 4,978     $ (28,005 )
Depreciation 1,495     1,547     4,981     4,265  
Intangible Amortization 1,528     1,766     4,463     5,373  
Restructuring, Acquisition and Other Nonrecurring Costs 79     4     1,921     1,213  
Gain on SETA Divestiture Net of Transaction Costs         (2,966 )    
Stock Compensation Amortization 1,025     1,090     2,172     4,389  
Interest Expense 2,615     2,582     8,194     7,691  
Tax Expense (1,876 )   7,876     2,491     32,800  
Adjusted EBITDA $ 8,370     $ 7,736     $ 26,234     $ 27,726  

Earnings Conference Call and Webcast

KEYW senior management will host a conference call and webcast today at 5:00 p.m. EDT to review the company's third quarter 2016 financial results, followed by a question-and-answer session.

Individual investors and KEYW employees can connect to the Webcast via the Investor website beginning at 5 p.m. EDT today. We encourage institutional investors and analysts to listen to the session by calling 1-877-853-5645. The international dial-in access number is +1-408-940-3868. The conference ID for the event is 96629147.

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 website at approximately the same time as the webcast replay.

About KEYW

KEYW is a total solutions provider for the Intelligence, Cyber and Counterterrorism Communities' toughest challenges. We support the collection, processing, analysis and dissemination of information across the full spectrum of their missions. We employ and challenge more than 1,000 of the most talented professionals in the industry with solving such complex problems as preventing cyber threats, transforming data into intelligence and combating global terrorism. For more information, contact KEYW Corporation, 7740 Milestone Parkway, Suite 400, Hanover, Maryland 21076; Phone 443-733-1600; Fax 443-733-1601; E-mail investors@keywcorp.com; or on the Web at www.keywcorp.com.

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 about our future expectations, plans and prospects; statements about expected incremental revenue from 2016 contract awards; our full-year 2016 revenue and adjusted EBITDA estimates under the heading "Financial Outlook" in this press release; statements regarding implementation of our strategic plan and initiatives; and other 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. These statements involve numerous risks and uncertainties, including but not limited to those risk factors set forth in our Annual Report on Form 10-K, dated and filed March 15, 2016 with the Securities and Exchange Commission (SEC) as required under the Securities Act of 1934, and other filings that we make with the SEC from time to time. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements. KEYW is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
Contact:Chris Donaghey	Investor Relations443.733.1600Heather WilliamsCorporate Media Relations 443.733.1613

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