News Column

KEYW Reports Q4 and 2013 Financial Results

February 4, 2014

HANOVER, 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 THE KEYW HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (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 (Unaudited) Revenues 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 THE KEYW HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) December 31, December 31, 2013 2012 ASSETS 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 LIABILITIES AND SHAREHOLDERS' EQUITY 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 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $443,722 $462,675 THE KEYW HOLDING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (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 provides agile cyber superiority, cybersecurity, and geospatial intelligence solutions for U.S. Government intelligence and defense customers and commercial enterprises. We create our solutions by combining our services and expertise with hardware, software, and proprietary technology to meet our customers' requirements. For more information contact KEYW Corporation , 7740 Milestone Parkway , Suite 400, Hanover, Maryland 21076; Phone 443-733-1600; Fax 443-733-1601; E-mail ; or on the Web at . 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 expected 2014 revenue growth in our Commercial Cyber Solutions segment, statements about our expectations regarding the 2014 environment for our government customers, statements about our future expectations, plans and prospects, 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 12, 2013 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 443-733-1600 Source: KEYW Corp.

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