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KLDiscovery Inc. Achieves First Quarter Revenue of $78.3 Million, Up 4.3% Year-over-Year

05/14/2020

Net Loss Improves 7.5% Year-over-Year, EBITDA Increases 11.4% Year-over-Year

MCLEAN, Va.--(BUSINESS WIRE)-- KLDiscovery Inc. (“KLDiscovery” or the “Company”), a leading global provider of electronic discovery, information governance and data recovery services, announced today that revenue for the first quarter ended March 31, 2020 was $78.3 million, an increase of 4.3% over revenue of $75.0 million for first quarter of 2019.

Net loss for the first quarter ended March 31, 2020 was $12.5 million compared to net loss of $13.5 million for the first quarter of 2019. EBITDA for the first quarter of 2020 was $12.5 million, an increase of 11.4% compared to EBITDA of $11.2 million for the first quarter of 2019.

Adjusted EBITDA (which excludes management fees and stock-based compensation, acquisition financing and transaction costs and other items as described below) for the first quarter of 2020, was $15.0 million compared to adjusted EBITDA of $15.1 million for the first quarter of 2019. Reconciliations of EBITDA and Adjusted EBITDA to their GAAP basis results are shown in detail below, along with definitions for those terms.

As of March 31, 2020, the Company had approximately $50.6 million in cash and cash equivalents.

“I am extremely proud of achieving a very good first quarter of 2020 while operating under the challenging circumstances resulting from the COVID-19 global pandemic,” said Christopher Weiler, CEO of KLDiscovery Inc. “Business activity is strong as we continue to add clients and expand existing contracts including: facilitating a large second request, supporting a major international company that is facing a variety of COVID-19 related actions, and other significant wins with new clients in the legal, financial and retail industries. In the first quarter of 2020, our revenue was up 4.3% year-over-year and EBITDA increased 11.4% year-over year. As COVID-19 restrictions are eased, and global businesses work towards resuming normal operations, we believe we will experience an increase in new business opportunities. In addition to pent-up demand, there will likely be a material amount of litigation and investigations which occur as a result of the COVID-19 crisis.”

Weiler continued, “We have proactively taken steps to ensure continuity of operations during this crisis. Virtually all full-time employees are working from home and we have taken precautions to protect the safety of a small number of employees who do come into the Company’s offices. The KLDiscovery culture is stronger than ever as our outstanding global team of professionals has been extremely flexible and has maintained an inspiring level of positivity and productivity.”

Year 2019-2020 Quarterly Results - Unaudited
(in millions except per share data)
 

2019

 

2020

Q1

 

Q2

 

Q3

 

Q4

 

Q1

Revenue

 

75.0

 

 

 

78.3

 

 

 

78.2

 

 

 

80.5

 

 

78.3

 

Net loss

 

(13.5

)

 

 

(11.4

)

 

 

(11.3

)

 

 

(17.8

)

 

(12.5

)

       
Net loss per share (basic and diluted)

$

(0.32

)

 

$

(0.27

)

 

$

(0.26

)

 

$

(0.42

)

$

(0.29

)

Weighted average outstanding shares (basic and diluted)

 

42.3

 

 

 

42.4

 

 

 

42.5

 

 

 

42.5

 

 

42.5

 

       
EBITDA

 

11.2

 

 

 

13.7

 

 

 

13.4

 

 

 

14.4

 

 

12.5

 

Adjusted EBITDA

 

15.1

 

 

 

19.6

 

 

 

16.8

 

 

 

17.2

 

 

15.0

 

2020 Outlook

As previously announced, KLDiscovery is currently limited in its ability to accurately predict what the financial impact will be from the COVID-19 outbreak. KLDiscovery is not providing full-year 2020 guidance until it gains additional data points about the total operational impact of this global pandemic.

While KLDiscovery cannot predict how long the pandemic will last, it has taken actions to improve its cash position that will provide the Company with the capacity and flexibility to sustain prolonged disruption and create long -term value for stakeholders through disciplined capital allocation. This includes implementing discretionary cost saving measures and deferring certain capital expenditures when possible.

Non-GAAP Financial Measures

For information regarding the purpose for which management uses the non-GAAP financial measures disclosed in this release and why management believes they provide useful information to investors regarding KLDiscovery’s financial condition and results of operations, please refer to the Company’s latest periodic report.

EBITDA is a non-GAAP financial measure that represents GAAP net income attributable to KLDiscovery before interest and other income (expense), loss on debt extinguishment, income taxes, depreciation and amortization.

Adjusted EBITDA is a non-GAAP financial measure that represents EBITDA before stock-based compensation expense, acquisition- and integration-related costs, restructuring costs and settlements and impairments incurred outside KLDiscovery’s normal course of business.

Earnings Conference Call

Management will conduct a conference call at 10:00 AM EDT on Friday, May 15, 2020 to discuss results for the first quarter of 2020 and KLDiscovery’s outlook. The audio portion of the conference call will be broadcast live over the Internet in the Investors section of KLDiscovery's website https://investors.kldiscovery.com. To join the conference call by telephone, please dial (833) 579-0923 from the United States and Canada or (778) 560-2806 from all other countries and refer to conference code 3257688. An audio recording of the conference call will be available for replay shortly after the call's completion and will remain available for a period of time following the call. To access the recorded conference call, please dial (800) 585-8367 (from the U.S. and Canada) or (416) 621-4642 (from all other countries) using access code 3257688. The webcast replay will also be available in the Investors section of KLDiscovery’s website for a period of time following the call at https://investors.kldiscovery.com.

KLDiscovery Inc.
Consolidated Statements of Comprehensive Loss
(in thousands, except share and per share amounts)

Three Months Ended March 31,

2020

 

2019

(unaudited)

Revenues

$

78,271

 

$

75,026

 

Cost of revenues

 

39,520

 

 

37,455

 

Gross profit

 

38,751

 

 

37,571

 

Operating expenses
General and administrative

 

15,853

 

 

14,844

 

Research and development

 

1,667

 

 

1,432

 

Sales and marketing

 

11,645

 

 

12,703

 

Depreciation and amortization

 

8,916

 

 

9,825

 

Total operating expenses

 

38,081

 

 

38,804

 

Income (Loss) from operations

 

670

 

 

(1,233

)

Other (income) expenses
Other expense

 

28

 

 

97

 

Interest expense

 

12,962

 

 

12,066

 

Loss before income taxes

 

(12,320

)

 

(13,396

)

Income tax provision

 

206

 

 

95

 

Net loss

$

(12,526

)

$

(13,491

)

Other comprehensive (loss) income, net of tax
Foreign currency translation

 

(4,428

)

 

810

 

Total other comprehensive (loss) income, net of tax

 

(4,428

)

 

810

 

Comprehensive loss

$

(16,954

)

$

(12,681

)

Net loss per share - basic and diluted

$

(0.29

)

$

(0.32

)

Weighted average shares outstanding - basic and diluted

 

42,529,017

 

 

42,302,775

 

Reconciliation of Non-GAAP Financial Matters
(In thousands)
(Unaudited)
 

Three Months Ended March 31,

2020

 

2019

Net loss

$

(12,526

)

 

$

(13,491

)

Interest expense

 

12,962

 

 

 

12,065

 

Income tax (benefit) expense

 

206

 

 

 

95

 

Depreciation and amortization expense

 

11,837

 

 

 

12,533

 

EBITDA

$

12,479

 

 

$

11,202

 

Acquisition, financing and transaction costs

 

85

 

 

 

174

 

Strategic Initiatives:  
Sign-on bonus amortization

 

189

 

 

 

114

 

Non-recoverable draw

 

303

 

 

 

1,114

 

Total strategic initiatives

 

492

 

 

 

1,228

 

Management fees, stock compensation and other

 

880

 

 

 

1,215

 

Restructuring costs

 

590

 

 

 

709

 

Systems establishment

 

485

 

 

 

554

 

Adjusted EBITDA

$

15,011

 

 

$

15,082

 

Note:

  • Acquisition, financing and transaction costs include earnout payments, rating agency, letter of credit and revolving facility fees, and transaction costs from the business combination with Pivotal Acquisition Corp in December 2019
  • Strategic initiatives include the amortization of one-time expenses related to the hiring of a team of industry leading sales personnel.
  • Management fees, stock compensation & other includes consulting fees, expenses related to the Company’s stock compensation plan, business insurance and other expenses.
  • Restructuring costs include severance payments, recruiting fees, and retention charges
  • Systems establishment costs include expenses related to IT infrastructure build-out, system automation and ERP implementation
KLDiscovery Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
     
March 31, 2020 December 31, 2019
(Unaudited)  
Current assets    
Cash and cash equivalents

$

50,611

 

$

43,407

 

Accounts receivable, net of allowance    
for doubtful accounts of $7,486 and $5,564, respectively

 

103,319

 

 

96,994

 

Prepaid expenses

 

14,650

 

 

7,296

 

Other current assets

 

785

 

 

556

 

Total current assets

 

169,365

 

 

148,253

 

Property and equipment    
Computer software and hardware

 

72,077

 

 

72,228

 

Leasehold improvements

 

26,846

 

 

26,963

 

Furniture, fixtures and other equipment

 

3,794

 

 

3,794

 

Accumulated depreciation

 

(68,024

)

 

(64,682

)

Property and equipment, net

 

34,693

 

 

38,303

 

Intangible assets, net

 

125,468

 

 

130,568

 

Goodwill

 

393,157

 

 

395,171

 

Other assets

 

3,263

 

 

2,617

 

Total assets

$

725,946

 

$

714,912

 

Current liabilities    
Current portion of long-term debt, net

$

41,438

 

$

11,689

 

Accounts payable and accrued expense

 

31,578

 

 

31,270

 

Current portion of contingent consideration

 

369

 

 

340

 

Deferred revenue

 

3,517

 

 

4,851

 

Total current liabilities

 

76,902

 

 

48,150

 

Long-term debt, net

 

467,521

 

 

468,932

 

Contingent consideration

 

482

 

 

482

 

Deferred tax liabilities

 

6,406

 

 

6,294

 

Other liabilities

 

6,999

 

 

7,289

 

Total liabilities

 

558,310

 

 

531,147

 

Commitments and contingencies    
Stockholders' equity    
Common stock    
$0.0001 par value, shares authorized - 200,000,000 shares authorized as of December 31, 2019 and December 31, 2018; shares issued and outstanding - 42,529,017 and 42,288,870 as of December 31, 2019 and December 31, 2018, respectively

 

4

 

 

4

 

Preferred Stock    
$0.0001 par value, 1,000,000 shares authorized, zero issued and outstanding as of December 31, 2019 and December 31, 2018, respectively

 

 
Additional paid-in capital

 

382,777

 

 

381,952

 

Treasury stock

 

 
Accumulated deficit

 

(218,024

)

 

(205,498

)

Accumulated other comprehensive income

 

2,879

 

 

7,307

 

Total stockholders' equity

 

167,636

 

 

183,765

 

Total liabilities and stockholders' equity

$

725,946

 

$

714,912

 

KLDiscovery Inc.
Consolidated Statements of Cash Flows
(in thousands)
     

For The Three Months Ended March 31,

2020

 

2019

Operating activities      
Net loss

$

(12,526

)

 

$

(13,491

)

Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization

 

11,837

 

 

 

12,534

 

Non-cash interest

 

4,507

 

 

 

1,168

 

Stock-based compensation

 

825

 

 

 

909

 

Provision for losses on accounts receivable

 

784

 

 

 

633

 

Deferred income taxes

 

112

 

 

 

(106

)

Change in fair value of contingent consideration

 

29

 

 

 
Changes in operating assets and liabilities:      
Accounts receivable

 

(7,487

)

 

 

(3,348

)

Prepaid expenses and other assets

 

(8,151

)

 

 

(9,170

)

Accounts payable and accrued expenses

 

(588

)

 

 

(6,686

)

Deferred revenue

 

(1,298

)

 

 

(783

)

Net cash used in operating activities

 

(11,956

)

 

 

(18,340

)

Investing activities      
Acquisitions, net of cash

 

(2,334

)

 

 
Purchases of property and equipment

 

(2,767

)

 

 

(2,182

)

Net cash used in investing activities

 

(5,101

)

 

 

(2,182

)

Financing activities      
Revolving credit facility - draws

 

29,000

 

 

 

11,000

 

Revolving credit facility - repayments

   

 

(5,000

)

Payments for capital lease obligations

 

(224

)

 

 

(157

)

Payments on long-term debt

 

(4,250

)

 

 

(4,250

)

Net cash provided by financing activities

 

24,526

 

 

 

1,593

 

     
Effect of foreign exchange rates

 

(265

)

 

 

22

 

Net increase in cash

 

7,204

 

 

 

(18,907

)

Cash at beginning of period

 

43,407

 

 

 

23,439

 

Cash at end of period

$

50,611

 

 

$

4,532

 

     
Supplemental disclosure:      
Cash paid for interest

$

8,704

 

 

$

11,022

 

Income taxes paid, net of refunds

$

(265

)

 

$

317

 

     
Significant noncash investing and financing activities      
Purchases of property and equipment in accounts payable and accrued expenses on the consolidated balance sheets

$

931

 

 

$

112

 

About KLDiscovery

KLDiscovery provides technology-enabled services and software to help law firms, corporations, government agencies and consumers solve complex data challenges. The company, with offices in 40+ locations across 19 countries, is a global leader in delivering best-in-class eDiscovery, information governance and data recovery solutions to support the litigation, regulatory compliance, internal investigation and data recovery and management needs of our clients. Serving clients for over 30 years, KLDiscovery offers data collection and forensic investigation, early case assessment, electronic discovery and data processing, application software and data hosting for web-based document reviews, and managed document review services. In addition, through its global Ontrack Data Recovery business, KLDiscovery delivers world-class data recovery, email extraction and restoration, data destruction and tape management. KLDiscovery has been recognized as one of the fastest growing companies in North America by both Inc. Magazine (Inc. 5000) and Deloitte (Deloitte's Technology Fast 500) and CEO Chris Weiler was recognized as a 2014 Ernst & Young Entrepreneur of the Year™. Additionally, KLDiscovery is a Relativity Certified Partner and maintains ISO/IEC 27001 Certified data centers around the world. For more information, please email info@kldiscovery.com or visit www.kldiscovery.com.

This press release includes “forward looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. All statements contained in this press release other than statements of historical facts, including, without limitation, statements regarding KLDiscovery’s future financial and business performance, attractiveness of KLDiscovery’s product offerings and platform and the value proposition of KLDiscovery’s products, are forward-looking statements. When used in this press release, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside KLDiscovery’s management’s control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Important factors, among others, that may affect actual results or outcomes include: the impact of COVID-19, the inability to recognize the anticipated benefits of the business combination with Pivotal Acquisition Corp. (“Pivotal”) which occurred in December 2019 (the “business combination”), which may be affected by, among other things, costs related to the business combination; KLDiscovery’s ability to execute on its plans to develop and market new products and the timing of these development programs; KLDiscovery’s estimates of the size of the markets for its solutions; the rate and degree of market acceptance of KLDiscovery’s solutions; the success of other competing technologies that may become available; KLDiscovery’s ability to identify and integrate acquisitions; the performance and security of KLDiscovery’s services; potential litigation involving Pivotal or KLDiscovery; and general economic and market conditions impacting demand for KLDiscovery’s services. Other factors include risks and uncertainties set forth in the “Risk Factors” section of KLDiscovery’s annual report on Form 10-K filed with the SEC on March 26, 2020 and any subsequent reports that KLDiscovery files with the SEC. KLDiscovery does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Investors:
Dawn Wilson
(703) 520-1498
dawn.wilson@kldiscovery.com

Richard Simonelli
202-450-9516
richard.simonelli@kldiscovery.com

Media
Krystina Jones
888-811-3789
krystina.jones@kldiscovery.com

Source: KLDiscovery Inc.

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