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KLDiscovery Inc. Announces Third Quarter 2020 Financial Results

11/11/2020

Revenue, Net Loss, EBITDA Improve versus Second Quarter 2020

Cash Flow from Operations Increases Compared to 2019

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 third quarter ended September 30, 2020 was $72.3 million versus $64.4 million in the second quarter of 2020, a 12.3 % increase quarter-over-quarter. Net loss for the third quarter of 2020 was $(12.7) million compared to $(14.9) million in the second quarter of 2020, an improvement of 14.8% quarter-over-quarter.

EBITDA for the third quarter of 2020 was $12.3 million versus $10.4 million in the second quarter of 2020, up 18.3% quarter-over-quarter. Adjusted EBITDA (which excludes management fees and stock-based compensation, acquisition financing and transaction costs and other items as described below) for the third quarter of 2020, was $16.7 million compared to $12.2 million in the second quarter of 2020, an increase of 36.9%, quarter-over-quarter. Reconciliations of EBITDA and Adjusted EBITDA to their comparable GAAP measure are shown in detail below, along with definitions for those terms. As of September 30, 2020, the Company had approximately $43.8 million in cash and cash equivalents.

“I am extremely proud of the KLDiscovery team’s commitment to excellence and of the steps we have proactively taken during the COVID-19 pandemic,” said Christopher Weiler, CEO of KLDiscovery Inc. “These actions resulted in solid productivity gains as we greatly improved liquidity and delivered solid earnings. We ended the third quarter of 2020, with a cash position of $43.8 million and we increased our cash flow from operations by $37.3 million with continued high cash receipts, cost reductions, and payroll tax deferrals/credits. We had a net loss improvement of 14.8% quarter-over-quarter as a result of our focus on fully integrating our business, driving operational efficiencies, and delivering effective cost-cutting strategies. As the economy improves, our revenue momentum is strengthening. September was our best month of revenue since the pandemic began. In the third quarter of 2020, revenue was $72.3 million up 12.3% quarter-over-quarter. Adjusted EBITDA was $16.7 million in the third quarter of 2020, an increase of 36.9% quarter-over-quarter. Despite a 7% decrease in revenue, Adjusted EBITDA margins during the first three quarters of 2020 were on par with the same period last year.”

Mr. Weiler continued, “Strategically, our evolution as a company has accelerated during the pandemic. We have invested in technology, strengthened our systems and have made incredible strides with our innovative, fully integrated Nebula platform, which continues to grow and gain market share. As of November 1, 2020, we now host 156 terabytes of data on this integrated platform. Looking ahead to 2021, we expect that we will be in a position to secure more second requests for government reviews of mergers & acquisitions, more joint defense cases and increase our market share in information governance.”

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

2019 (unaudited)

 

 

2020 (unaudited)

Q1

 

Q2

 

Q3

 

Q4

 

 

Q1

 

Q2

 

Q3

Revenue

 

75.0

 

 

78.3

 

 

78.2

 

 

80.5

 

 

78.3

 

 

64.4

 

 

72.3

 

Net loss

 

(13.5

)

 

(11.4

)

 

(11.3

)

 

(17.8

)

 

(12.5

)

 

(14.9

)

 

(12.7

)

 
Net loss per share (basic and diluted)

$

(0.32

)

$

(0.27

)

$

(0.26

)

$

(0.42

)

$

(0.29

)

$

(0.35

)

$

(0.30

)

Weighted average outstanding shares (basic and diluted)

 

42.3

 

 

42.4

 

 

42.5

 

 

42.5

 

 

42.5

 

 

42.5

 

 

42.5

 

 
EBITDA

 

11.2

 

 

13.7

 

 

13.4

 

 

14.4

 

 

12.5

 

 

10.4

 

 

12.3

 

Adjusted EBITDA

 

15.1

 

 

19.6

 

 

16.8

 

 

17.2

 

 

15.0

 

 

12.2

 

 

16.7

 

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 pandemic. KLDiscovery is not providing full-year 2020 guidance until it gains additional data points about the total operational impact of this global pandemic.

Earnings Conference Call

Management will conduct a conference call at 8:30 AM ET on Thursday, November 12, 2020 to discuss results for the third quarter of 2020. 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 register via the following link: http://www.directeventreg.com/registration/event/7078065. Once registered, you will receive an email with Direct Entry and Registrant ID along with dial-in details. An audio recording of the conference call will be available for replay shortly after the call's completion and will remain available for two weeks following the call. To access the recorded conference call, please dial (855) 859-2056 (from the U.S. and Canada) or (404) 537-3406 (from all other countries) using access code 7078065 or visit the Investors section of the KLDiscovery website at https://investors.kldiscovery.com.

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

Three Months Ended September 30,

 

Nine Months Ended September 30,

2020

 

2019

 

2020

 

2019

(unaudited)

 

(unaudited)

 
Revenues

$

72,301

 

$

78,169

 

$

214,953

 

$

231,527

 

Cost of revenues

 

37,738

 

 

42,018

 

 

111,472

 

 

118,937

 

Gross profit

 

34,563

 

 

36,151

 

 

103,481

 

 

112,590

 

 
 
Operating expenses
General and administrative

 

14,281

 

 

12,223

 

 

42,534

 

 

41,879

 

Research and development

 

1,828

 

 

1,533

 

 

5,134

 

 

4,455

 

Sales and marketing

 

9,155

 

 

12,043

 

 

29,460

 

 

36,212

 

Depreciation and amortization

 

9,234

 

 

9,525

 

 

27,135

 

 

29,243

 

Total operating expenses

 

34,498

 

 

35,324

 

 

104,263

 

 

111,789

 

 
Income (loss) from operations

 

65

 

 

827

 

 

(782

)

 

801

 

 
Other (income) expenses
Other expense

 

11

 

 

(9

)

 

102

 

 

122

 

Interest expense

 

12,371

 

 

12,034

 

 

38,303

 

 

36,487

 

Loss before income taxes

 

(12,317

)

 

(11,198

)

 

(39,187

)

 

(35,808

)

Income tax provision

 

390

 

 

62

 

 

964

 

 

391

 

 
Net loss

$

(12,707

)

$

(11,260

)

$

(40,151

)

$

(36,199

)

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

 

2,242

 

 

(2,248

)

 

547

 

 

(2,293

)

Total other comprehensive income (loss), net of tax

 

2,242

 

 

(2,248

)

 

547

 

 

(2,293

)

Comprehensive loss

$

(10,465

)

$

(13,508

)

$

(39,604

)

$

(38,492

)

 
Net loss per share - basic and diluted

$

(0.30

)

$

(0.26

)

$

(0.94

)

$

(0.85

)

 
Weighted average shares outstanding - basic and diluted

 

42,529,017

 

 

42,497,078

 

 

42,529,017

 

 

42,390,717

 

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

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Three Months Ended June 30,

2020

 

2019

 

2020

 

2019

 

2020

Net loss

$

(12,707

)

$

(11,260

)

$

(40,151

)

$

(36,199

)

$

(14,918

)

Interest expense

 

12,371

 

 

12,034

 

 

38,303

 

 

36,487

 

 

12,970

 

Income tax expense

 

390

 

 

62

 

 

964

 

 

391

 

 

368

 

Depreciation and amortization expense

 

12,246

 

 

12,551

 

 

36,063

 

 

37,614

 

 

11,979

 

EBITDA

$

12,300

 

$

13,387

 

$

35,179

 

$

38,293

 

$

10,399

 

Acquisition, financing and transaction costs

 

1,290

 

 

749

 

 

1,580

 

 

3,505

 

 

206

 

Strategic initiatives:
Sign-on bonus amortization

 

 

 

112

 

 

188

 

 

337

 

 

 

Non-recoverable draw

 

 

 

879

 

 

304

 

 

2,914

 

 

 

Total strategic initiatives

 

 

 

991

 

 

492

 

 

3,251

 

 

 

Management fees, stock compensation and other

 

974

 

 

717

 

 

2,724

 

 

2,817

 

 

870

 

Restructuring costs

 

1,581

 

 

252

 

 

2,299

 

 

1,587

 

 

128

 

Systems establishment

 

521

 

 

665

 

 

1,567

 

 

2,025

 

 

560

 

Adjusted EBITDA

$

16,666

 

$

16,761

 

$

43,841

 

$

51,478

 

$

12,163

 

Note:

  • Acquisition, financing and transaction costs include earnout payments, rating agency, letter of credit and revolving facility fees, and transaction costs relating to 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)
 

September 30, 2020

 

December 31, 2019

(Unaudited)

 

 

Current assets
Cash and cash equivalents

$

43,838

 

$

43,407

 

Accounts receivable, net of allowance for doubtful accounts of $8,449 and $7,486, respectively

 

86,095

 

 

96,994

 

Prepaid expenses

 

10,312

 

 

7,296

 

Other current assets

 

778

 

 

556

 

Total current assets

 

141,023

 

 

148,253

 

Property and equipment
Computer software and hardware

 

73,343

 

 

72,228

 

Leasehold improvements

 

27,493

 

 

26,963

 

Furniture, fixtures and other equipment

 

3,722

 

 

3,794

 

Accumulated depreciation

 

(76,780

)

 

(64,682

)

Property and equipment, net

 

27,778

 

 

38,303

 

Intangible assets, net

 

114,632

 

 

130,568

 

Goodwill

 

396,310

 

 

395,171

 

Other assets

 

2,611

 

 

2,617

 

Total assets

$

682,354

 

$

714,912

 

Current liabilities
Current portion of long-term debt, net

$

11,106

 

$

11,689

 

Accounts payable and accrued expense

 

35,964

 

 

31,270

 

Current portion of contingent consideration

 

677

 

 

340

 

Deferred revenue

 

4,018

 

 

4,851

 

Total current liabilities

 

51,765

 

 

48,150

 

Long-term debt, net

 

467,163

 

 

468,932

 

Contingent consideration

 

225

 

 

482

 

Deferred tax liabilities

 

6,712

 

 

6,294

 

Other liabilities

 

9,776

 

 

7,289

 

Total liabilities

 

535,641

 

 

531,147

 

Commitments and contingencies
Stockholders' equity
Common stock
$0.0001 par value, shares authorized - 200,000,000 shares authorized as of September 30, 2020 and December 31, 2019; shares issued and outstanding - 42,529,017 as of June 30, 2020 and December 31, 2019, respectively

 

4

 

 

4

 

Preferred Stock
$0.0001 par value, 1,000,000 shares authorized, zero issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

 

 

 

 

Additional paid-in capital

 

384,504

 

 

381,952

 

Treasury stock

 

 

 

 

Accumulated deficit

 

(245,649

)

 

(205,498

)

Accumulated other comprehensive income

 

7,854

 

 

7,307

 

Total stockholders' equity

 

146,713

 

 

183,765

 

Total liabilities and stockholders' equity

$

682,354

 

$

714,912

 

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

For The Nine Months Ended September 30

 

2020

 

2019

Operating activities  
Net loss  

$

(40,151

)

$

(36,199

)

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

 

36,063

 

 

37,614

 

Non-cash interest  

 

14,360

 

 

3,597

 

Stock-based compensation  

 

2,552

 

 

1,900

 

Provision for losses on accounts receivable  

 

3,059

 

 

1,846

 

Deferred income taxes  

 

418

 

 

(221

)

Change in fair value of contingent consideration  

 

80

 

 

 

Changes in operating assets and liabilities:  
Accounts receivable  

 

8,365

 

 

(13,780

)

Prepaid expenses and other assets  

 

(3,338

)

 

(3,386

)

Accounts payable and accrued expenses  

 

4,734

 

 

(2,511

)

Deferred revenue  

 

(835

)

 

(820

)

Net cash provided by (used) in operating activities  

 

25,307

 

 

(11,960

)

Investing activities  
Acquisitions, net of cash  

 

(3,124

)

 

(650

)

Purchases of property and equipment  

 

(8,377

)

 

(9,288

)

Net cash used in investing activities  

 

(11,501

)

 

(9,938

)

Financing activities  
Revolving credit facility - draws  

 

29,000

 

 

41,500

 

Revolving credit facility - repayments  

 

(29,000

)

 

(24,500

)

Payments for capital lease obligations  

 

(688

)

 

(453

)

Issuance of common stock  

 

 

 

414

 

Payments on long-term debt  

 

(12,750

)

 

(12,750

)

Net cash (used in) provided by financing activities  

 

(13,438

)

 

4,211

 

   
Effect of foreign exchange rates  

 

63

 

 

(142

)

Net decrease in cash  

 

431

 

 

(17,829

)

Cash at beginning of period  

 

43,407

 

 

23,439

 

Cash at end of period  

$

43,838

 

$

5,610

 

   
Supplemental disclosure:  
Cash paid for interest  

$

24,857

 

$

29,770

 

Income taxes paid, net of refunds  

$

(311

)

$

325

 

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

$

21

 

$

222

 

About KLDiscovery

KLDiscovery provides technology-enabled services and software to help law firms, corporations, government agencies and consumers solve complex data challenges. The company has 34 locations, eight data centers and 19 data recovery labs across 19 countries and 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 ongoing impact of COVID-19, 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 KLDiscovery; general economic conditions and cyclical nature of certain markets impacting demand for KLDiscovery’s services; KLDiscovery’s substantial levels of indebtedness; changes in complex laws and regulations in the U.S. and internationally; and volatility in the trading price of KLDiscovery common stock and warrants. These risks and other factors discussed in the “Risk Factors” section of KLDiscovery’s Annual Report on Form 10-K filed with the Securities Exchange Commission (“SEC”) and any other reports KLDiscovery files with the SEC could cause actual results to differ materially from those expressed or implied by forward-looking statements made by KLDiscovery or on our behalf.

Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All statements speak only as of the date made, and unless legally required, KLDiscovery undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (“GAAP”), this earnings press release includes additional financial measures that are not prepared in accordance with GAAP (“non-GAAP”), including EBTIDA and Adjusted EBITDA. We believe that these measures are relevant and provide useful supplemental information to investors by providing a baseline for evaluation and comparing our operating performance against that of other companies in our industry.

The non-U.S. GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies and in the future, we may disclose different non-U.S. GAAP financial measures in order to help our investors meaningfully evaluate and compare our results of operations to our previously reported results of operations or to those of other companies in our industry. We believe these non-U.S. GAAP financial measures reflect our ongoing operating performance because the isolation of non-cash charges, such as amortization and depreciation, and other items, such as interest, income taxes, management fees and equity compensation, acquisition and transaction costs, restructuring costs, systems establishment and costs associated with strategic initiatives which are incurred outside the ordinary course of our business, provides information about our cost structure and helps us to track our operating progress. We encourage investors and potential investors to carefully review the U.S. GAAP financial information and compare them with our EBITDA and adjusted EBITDA.

Adjusted EBITDA

We define EBITDA as net income (loss) plus interest (income) expense, income tax expense (benefit), depreciation and amortization. We view adjusted EBITDA as our operating performance measure and as such, we believe that the most directly comparable U.S. GAAP financial measure is net loss. In calculating adjusted EBITDA, we exclude from net loss certain items that we believe are not reflective of our ongoing business and exclusion of these items allows us to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions:

  • Acquisition, financing and transaction costs generally represented by non-ordinary course earn-out valuation changes, rating agency fees, letter of credit and revolving facility fees, as well as professional service fees and direct expenses related to acquisitions. Because we do not acquire businesses on a predictable cycle, we do not consider the amount of acquisition- and integration-related costs to be a representative component of the day-to-day operating performance of our business.
  • Strategic initiatives expenses relate to costs resulting from pursuing strategic business opportunities. We do not consider the amounts to be representative of the day-to-day operating performance of our business.
  • Management fees, stock compensation and other primarily represents consulting fees and portion of compensation paid to our employees and executives through stock-based instruments. Determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expenses recorded may not align with the actual value realized upon the future exercise or termination of the related stock-based awards. Therefore, we believe it is useful to exclude stock-based compensation to better understand the long-term performance of our core business.
  • Restructuring costs generally represent non-ordinary course costs incurred in connection with a change in a contract or a change in the makeup of our personnel often related to an acquisition. We do not consider the amount of restructuring costs to be a representative component of the day-to-day operating performance of our business.
  • Systems establishment costs relate to non-ordinary course expenses incurred to develop our IT infrastructure, including system automation and enterprise resource planning system implementation. We do not consider the amount to be representative of a component of the day-to-day operating performance of our business.

 

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

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

Media Contact:
Krystina Jones
(888) 811-3789
krystina.jones@kldiscovery.com

Source: KLDiscovery Inc.

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