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KLDiscovery Inc. Announces Fourth Quarter 2021 Financial Results

03/16/2022

Double Digit Revenue Growth and Net Loss Improvement of 25% for the quarter

Nebula Revenue Growth of 38% for the full year

MCLEAN, Va.--(BUSINESS WIRE)-- KLDiscovery Inc. (“KLDiscovery” or the “Company”), a leading global provider of electronic discovery, information governance and data recovery technology solutions, announced today that revenue for the fourth quarter ended December 31, 2021 was $82.3 million versus $74.6 million in the fourth quarter of 2020, a 10% increase year-over-year. Net loss for the fourth quarter of 2021 was $(7.3) million compared to $(9.8) million in the fourth quarter of 2020, an improvement of 25%.

EBITDA for the fourth quarter of 2021 was $13.8 million versus $14.3 million in the fourth quarter of 2020. Adjusted EBITDA (which excludes stock-based compensation, acquisition financing and transaction costs and other items as described below) for the fourth quarter of 2021 was $15.3 million compared to $19.4 million in the fourth quarter of 2020.1

“2021 was an exceptional year for KLDiscovery as we continued to grow our business, manage expenses and deliver excellent growth in our innovative Nebula platform,” said Christopher Weiler, CEO of KLDiscovery Inc. “We delivered our best revenue quarter ever in the fourth quarter of 2021 with $82.3 million, a 10% increase year-over-year. Our net loss also improved by 25% year-over-year and has improved over 50% from the first quarter of 2021 even as we increased our investment in research and development. Our Nebula platform revenue grew 38% in 2021 compared to 2020 and we are expecting this strong growth to continue in 2022 and beyond.”

Mr. Weiler continued, “We solve complex legal, regulatory and data challenges for our clients around the world by leveraging our proprietary and innovative technology-based solutions. Our fully-integrated solution combines world-class customer service with our full-stack of AI and ML powered technology. We have had a long history of pioneering transformational shifts in legal technology and our Nebula platform delivers our proprietary, end-to-end solution with an enhanced user experience. We are excited about the prospects for our company in 2022.”

 
2020-2021 Quarterly Results
 
2020 (unaudited) 2021 (unaudited)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Revenue

 

78.3

 

 

64.4

 

 

72.3

 

 

74.6

 

 

75.5

 

 

81.7

 

 

81.1

 

 

82.3

 

Net loss

 

(12.5

)

 

(14.9

)

 

(12.7

)

 

(9.8

)

 

(14.9

)

 

(8.9

)

 

(29.5

)

 

(7.3

)

Net loss per share (basic and diluted)

$

(0.29

)

$

(0.35

)

$

(0.30

)

$

(0.23

)

$

(0.35

)

$

(0.21

)

$

(0.69

)

$

(0.17

)

Weighted average outstanding shares (basic and diluted)

 

42.5

 

 

42.5

 

 

42.5

 

 

42.5

 

 

42.6

 

 

42.6

 

 

42.6

 

 

42.7

 

EBITDA

 

12.5

 

 

10.4

 

 

12.3

 

 

14.3

 

 

15.1

 

 

13.7

 

 

14.7

 

 

13.8

 

Adjusted EBITDA

 

15.0

 

 

12.2

 

 

16.7

 

 

19.4

 

 

15.4

 

 

17.7

 

 

16.8

 

 

15.3

 

(in millions except per share data)
_______________

1 Reconciliations of EBITDA and Adjusted EBITDA to their comparable GAAP measure are shown in detail below, along with definitions for those terms.

Earnings Conference Call

Management will conduct a conference call at 8:30 AM ET on Thursday, March 17, 2022 to discuss financial results for the fourth quarter of 2021 and full-year. 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: https://conferencingportals.com/event/OpzKpVWo

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 (800) 770-2030 (from the U.S. and Canada) or (647) 362-9199 (from all other countries) using access code 55139 or visit the Investors section of the KLD website.

 
KLDiscovery Inc.
Consolidated Statements of Comprehensive Loss
(in thousands, except share and per share amounts)
 
Three Months Ended December 31, Year Ended December 31,

 

2021

 

 

2020

 

 

2021

 

 

2020

 

(unaudited)
 
Revenues

$

82,255

 

$

74,592

 

$

320,477

 

$

289,545

 

Cost of revenues

 

43,797

 

 

36,260

 

 

163,958

 

 

147,732

 

Gross profit

 

38,458

 

 

38,332

 

 

156,519

 

 

141,813

 

 
 
Operating expenses
General and administrative

 

14,879

 

 

15,975

 

 

61,245

 

 

58,509

 

Research and development

 

2,924

 

 

2,033

 

 

10,265

 

 

7,167

 

Sales and marketing

 

10,554

 

 

8,935

 

 

39,892

 

 

38,395

 

Impairment of intangible asset

 

 

 

 

 

22,529

 

 

 

Depreciation and amortization

 

5,227

 

 

8,820

 

 

27,863

 

 

35,955

 

Total operating expenses

 

33,584

 

 

35,763

 

 

161,794

 

 

140,026

 

 
(Loss) Income from operations

 

4,874

 

 

2,569

 

 

(5,275

)

 

1,787

 

 
Other expenses
Other expense

 

15

 

 

16

 

 

25

 

 

118

 

Change in fair value of Private Warrants

 

(318

)

 

 

 

(1,969

)

 

 

Interest expense

 

12,818

 

 

12,356

 

 

50,402

 

 

50,659

 

Loss on debt extinguishment

 

-

 

 

-

 

 

7,257

 

 

-

 

Loss before income taxes

 

(7,641

)

 

(9,803

)

 

(60,990

)

 

(48,990

)

Income tax (benefit) provision

 

(350

)

 

(28

)

 

(447

)

 

936

 

 
Net loss

$

(7,291

)

$

(9,775

)

$

(60,543

)

$

(49,926

)

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

 

(906

)

 

4,400

 

 

(4,465

)

 

4,947

 

Total other comprehensive income (loss), net of tax

 

(906

)

 

4,400

 

 

(4,465

)

 

4,947

 

Comprehensive loss

$

(8,197

)

$

(5,375

)

$

(65,008

)

$

(44,979

)

 
Net loss per share - basic and diluted

$

(0.17

)

$

(0.23

)

$

(1.42

)

$

(1.17

)

 
Weighted average shares outstanding - basic and diluted

 

42,674,794

 

 

42,529,017

 

 

42,601,745

 

 

42,529,017

 

In Q1 2021, the Company determined that the 6,350,000 private warrants issued in connection with the consummation of the business combination in December 2019 between Pivotal Acquisition Corp. and LD Topco, Inc. (the “Business Combination”) which were originally accounted for using equity accounting, should be accounted for using liability accounting in accordance with Accounting Standard Codification ASC 815-40, Derivatives and Hedging: Contracts on an Entity's Own Equity. The Company corrected this error in Q1 2021 and now measures these warrant liabilities at fair value on a recurring basis, with changes in fair value presented within change in fair value of private warrants in the Consolidated Statement of Comprehensive Loss.

In Q3 2021, the Company negotiated the termination of its license for the Kroll Ontrack and KrolLDiscovery tradenames and executed the final agreements relating to the termination in October 2021. This significant change was a triggering event which resulted in an evaluation of impairment of the Kroll Ontrack and KrolLDiscovery tradenames capitalized as part of the Company's 2016 Kroll Ontrack acquisition. Upon analysis, the tradenames were deemed to be impaired and the Company recorded an impairment charge of approximately $22.5 million in the third quarter of 2021.

In Q4 2021 the Company adopted ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement. Upon adoption, the Company is required to update the presentation of certain implementation costs associated with cloud computing arrangements in its Consolidated Financial statements. As a result of the adoption of ASU 2018-15, the Company reclassified $0.9 million of amortization expense into the “General and administrative” line of our Consolidated Statement of Compressive Loss for the year ended December 31,2021. These costs were part of the “depreciation and amortization” line of our Consolidated Statements of Comprehensive Loss for the year ended December 31, 2020.

 
Reconciliation of Non-GAAP Financial Matters
(In thousands)
(Unaudited)
 
Three Months Ended December 31, Year Ended December 31,

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net loss

$

(7,291

)

$

(9,775

)

$

(60,543

)

$

(49,926

)

Interest expense

 

12,818

 

 

12,356

 

 

50,402

 

 

50,659

 

Income tax (benefit) provision

 

(350

)

 

(28

)

 

(447

)

 

936

 

Extinguishment of debt

 

 

 

 

 

7,257

 

 

 

Impairment of intangible asset

 

 

 

 

 

22,529

 

 

 

Depreciation and amortization expense

 

8,619

 

 

11,699

 

 

38,018

 

 

47,761

 

EBITDA

$

13,796

 

$

14,252

 

$

57,216

 

$

49,430

 

Acquisition, financing and transaction costs

 

115

 

 

3,629

 

 

2,660

 

 

5,210

 

Strategic Initiatives:
Sign-on bonus amortization

 

 

 

 

 

 

 

188

 

Non-recoverable draw

 

 

 

 

 

 

 

304

 

Total strategic initiatives

 

 

 

 

 

 

 

492

 

Stock compensation and other

 

1,037

 

 

933

 

 

4,202

 

 

3,658

 

Change in fair value of Private Warrants

 

(318

)

 

 

 

(1,969

)

 

 

Restructuring costs

 

(5

)

 

231

 

 

1,014

 

 

2,530

 

Systems establishment

 

679

 

 

403

 

 

2,049

 

 

1,969

 

Adjusted EBITDA

$

15,304

 

$

19,448

 

$

65,172

 

$

63,289

 

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.
  • Strategic initiatives include the amortization of one-time expenses related to the hiring of a team of sales personnel.
  • Stock compensation & other includes consulting fees, expenses related to the Company’s stock compensation plan, business insurance and other expenses.
  • Change in fair value of warrants relates to changes in the fair market value of the private warrants issued in conjunction with the Business Combination.
  • 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)
 
December 31, 2021 December 31, 2020
 
Current assets
Cash and cash equivalents

$

46,468

 

$

51,201

 

Accounts receivable, net of allowance
for doubtful accounts of $9,774 and $8,513, respectively

 

93,273

 

 

83,985

 

Prepaid expenses

 

9,669

 

 

7,175

 

Other current assets

 

1,133

 

 

709

 

Total current assets

 

150,543

 

 

143,070

 

Property and equipment
Computer software and hardware

 

73,677

 

 

72,211

 

Leasehold improvements

 

26,796

 

 

27,271

 

Furniture, fixtures and other equipment

 

3,064

 

 

3,365

 

Accumulated depreciation

 

(81,261

)

 

(77,697

)

Property and equipment, net

 

22,276

 

 

25,150

 

Intangible assets, net

 

59,291

 

 

109,733

 

Goodwill

 

395,759

 

 

399,085

 

Other assets

 

8,535

 

 

2,708

 

Total assets

$

636,404

 

$

679,746

 

Current liabilities
Current portion of long-term debt, net

$

3,000

 

$

10,948

 

Accounts payable and accrued expense

 

27,067

 

 

33,504

 

Current portion of contingent consideration

 

646

 

 

695

 

Deferred revenue

 

4,800

 

 

3,955

 

Total current liabilities

 

35,513

 

 

49,102

 

Long-term debt, net

 

507,706

 

 

472,600

 

Deferred tax liabilities

 

6,772

 

 

7,335

 

Other liabilities

 

8,559

 

 

8,488

 

Total liabilities

 

558,550

 

 

537,525

 

Commitments and contingencies
Stockholders' equity
Common stock
$0.0001 par value, 200,000,000 shares authorized,
42,684,549 and 42,529,017 issued and outstanding as of December 31, 2021 and December 31, 2020, respectively

 

4

 

 

4

 

Preferred Stock
$0.0001 par value, 1,000,000 shares authorized,
zero shares issued and outstanding as of December 31, 2021 and
December 31, 2020

 

 

 

 

Additional paid-in capital

 

386,028

 

 

385,387

 

Accumulated deficit

 

(315,967

)

 

(255,424

)

Accumulated other comprehensive income

 

7,789

 

 

12,254

 

Total stockholders' equity

 

77,854

 

 

142,221

 

Total liabilities and stockholders' equity

$

636,404

 

$

679,746

 

 
 
KLDiscovery Inc.
Consolidated Statements of Cash Flows
(in thousands)
 
For The Year Ended December 31,

 

2021

 

 

2020

 

Operating activities
Net loss

$

(60,543

)

$

(49,926

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization

 

38,018

 

 

47,762

 

Non-cash interest

 

19,060

 

 

19,450

 

Loss on extinguishment of debt

 

7,257

 

 

 

Stock-based compensation

 

3,980

 

 

3,435

 

Provision for losses on accounts receivable

 

3,149

 

 

4,088

 

Deferred income taxes

 

(564

)

 

1,041

 

Change in fair value of contingent consideration

 

(275

)

 

98

 

Change in fair value of Private Warrants

 

(1,969

)

 

 

Impairment of intangible asset

 

22,529

 

 

 

Changes in operating assets and liabilities:
Accounts receivable

 

(11,362

)

 

10,050

 

Prepaid expenses and other assets

 

(5,490

)

 

87

 

Accounts payable and accrued expenses

 

(4,573

)

 

4,675

 

Deferred revenue

 

882

 

 

(984

)

Net cash provided by operating activities

 

10,099

 

 

39,776

 

Investing activities
Acquisitions, net of cash acquired

 

 

 

(3,124

)

Purchases of property and equipment

 

(12,488

)

 

(10,935

)

Net cash used in investing activities

 

(12,488

)

 

(14,059

)

Financing activities
Proceeds for exercise of stock options

 

38

 

 

 

Revolving credit facility draws

 

 

 

29,000

 

Revolving credit facility repayments

 

 

 

(29,000

)

Payments for capital lease obligations

 

(2,518

)

 

(1,595

)

Debt acquisition costs

 

(2,031

)

 

 

Proceeds long-term debt, net of original issue discount

 

294,000

 

 

 

Retirement of debt

 

(289,000

)

 

 

Payments on long-term debt

 

(2,250

)

 

(17,000

)

Net cash used in financing activities

 

(1,761

)

 

(18,595

)

Effect of foreign exchange rates

 

(583

)

 

672

 

Net (decrease) increase in cash

 

(4,733

)

 

7,794

 

Cash at beginning of period

 

51,201

 

 

43,407

 

Cash at end of period

$

46,468

 

$

51,201

 

Supplemental disclosure:
Cash paid for interest

$

36,073

 

$

32,196

 

Income taxes refunded: net of payments

$

244

 

$

195

 

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

$

429

 

$

394

 

About KLDiscovery

KLDiscovery provides technology solutions to help law firms, corporations, insurance companies and individuals solve complex data challenges.With 32 locations, 9 data centers and 17 data recovery labs across 19 countries, KLDiscovery 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 https://investors.kldiscovery.com.

This press release includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934 and 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 expectations regarding Nebula platform revenue growth and the company’s prospects in 2022, 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: KLDiscovery’s potential failure to comply with privacy and information security regulations governing the client datasets it processes and stores; the outbreak of disease or similar public health threat, such as COVID-19; KLDiscovery’s ability to operate in highly competitive markets, and potential adverse effects of this competition; risk of decreased revenues if KLDiscovery does not adapt its pricing models; KLDiscovery’s ability to develop and successfully grow revenues from new products such as Nebula; the ability to deliver products and services following a disaster or business continuity event; potential disruption of KLDiscovery’s products, offerings, website and networks; the ability to attract, motivate and retain qualified employees, including members of KLDiscovery’s senior management team; the ability to maintain a high level of client service and expand operations; potential issues with KLDiscovery’s product offerings that could cause legal exposure, reputational damage and an inability to deliver services; KLDiscovery’s ability to develop new products, improve existing products and adapt its business model to keep pace with industry trends; risk that KLDiscovery’s products and services fail to interoperate with third-party systems; potential unavailability of third-party technology that KLDiscovery uses in its products and services; difficulties resulting from KLDiscovery’s implementation of new consolidated business systems; the ability to comply with various trade restrictions, such as sanctions and export controls, resulting from KLDiscovery’s international operations; potential intellectual property infringement claims; and KLDiscovery’s substantial indebtedness. 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-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-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-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, 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 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 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 earn-out payments, 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.
  • 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.
  • Change in fair value of warrants relates to changes in the fair market value of the private warrants issued in conjunction with the Business Combination. We do not consider the amount to be representative of a component of the day-to-day operating performance of our 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
rsimonelli@simonellicapital.com

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

Source: KLDiscovery Inc.

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