Wednesday, August 12, 2020

KLDiscovery Inc. Announces Second Quarter Financial Results

  • Second quarter ended June 30, 2020 was $64.4 million versus $78.3 in the second quarter of 2019
  • Net loss for the second quarter 2020 was $14.9 million compared to $11.4 million in the second quarter of 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 second quarter ended June 30, 2020 was $64.4 million versus $78.3 in the second quarter of 2019. Net loss for the second quarter 2020 was $14.9 million compared to $11.4 million in the second quarter of 2019.

EBITDA for the second quarter of 2020 was $10.4 million versus $13.7 million in the second 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 second quarter of 2020, was $12.2 million compared to $19.6 million in the second quarter of 2019. Reconciliations of EBITDA and Adjusted EBITDA to their comparable GAAP measure are shown in detail below, along with definitions for those terms. As of June 30, 2020, the Company had approximately $34.1 million in cash and cash equivalents.

“In the second quarter of 2020, we continued to take positive actions to ensure that we will be well positioned for the future as we remain dedicated to the health and well-being of our employees during the COVID-19 pandemic,” said Christopher Weiler, CEO of KLDiscovery Inc. “Our priority was to maximize efficiencies throughout the Company while continuing to invest in technology and development staff. June was an excellent month as we achieved the second highest monthly EBITDA in company history. We made significant strides in reducing operating expenses by 15.8% in the second quarter of 2020 compared to second quarter of 2019. We accomplished consistent EBITDA margins despite seeing a decrease in second quarter 2020 revenue of $14 million versus the first quarter of 2020. We expect permanent cost savings of approximately $10 million in 2021 as we benefit from savings from integration, lower real estate expenses, data center consolidation and other cost savings initiatives. Additionally, our technology investments continue to pay off with Nebula, our proprietary end-to-end eDiscovery and information governance platform. Nebula is growing rapidly and today we host over 130 terabytes of data there, which represents over 300% growth from one year ago. This fully integrated platform continues to be key to the future growth of our business.”

Mr. Weiler continued, “Our revenue during the second quarter was adversely affected by weak global economic conditions from COVID-19, the severe 33% annualized decline in the U.S. GDP quarter and the reality that the U.S litigation process and court system were slowed down substantially and have been operating at a significantly reduced capacity. The decreased litigation activity we are experiencing today however, does not mean these cases have disappeared, they are likely delayed and will be pushed out to the future.  During the last recession, our Company prospered and was awarded some of the largest and most noteworthy matters borne from the economic crisis.  I believe that once global restrictions are eased and businesses work towards resuming normal operations, we will benefit from this pent-up demand.”

Year 2019-2020 Quarterly Results - Unaudited
(in millions except per share data)
             
  2019 2020
  Q1 Q2 Q3 Q4 Q1 Q2
Revenue  

75.0

   

78.3

   

78.2

   

80.5

   

78.3

   

64.4

 
Net loss  

(13.5

)

  

(11.4

)

  

(11.3

)

  

(17.8

)

  

(12.5

)

  

(14.9

)

             
Net loss per share (basic and diluted) 

$

(0.32

)

 

$

(0.27

)

 

$

(0.26

)

 

$

(0.42

)

 

$

(0.29

)

 

$

(0.35

)

Weighted average outstanding shares (basic and diluted)  

42.3

   

42.4

   

42.5

   

42.5

   

42.5

   

42.5

 
             
EBITDA  

11.2

   

13.7

   

13.4

   

14.4

   

12.5

   

10.4

 
Adjusted EBITDA  

15.1

   

19.6

   

16.8

   

17.2

   

15.0

   

12.2

 

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 EDT on Thursday, August 13, 2020 to discuss results for the second 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 register via the following link: http://www.directeventreg.com/registration/event/8274078. 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 8274078. The webcast replay will also be available in the Investors section of KLDiscovery’s website for a period of time following the call.

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

Three Months Ended June 30,

 

Six Months Ended June 30,

   

2020

   

2019

   

2020

   

2019

 
  (unaudited) (unaudited)
         
Revenues 

$

64,381

  

$

78,332

  

$

142,652

  

$

153,358

 
Cost of revenues  

34,214

   

39,463

   

73,734

   

76,919

 
Gross profit  

30,167

   

38,869

   

68,918

   

76,439

 
         
         
Operating expenses        
General and administrative  

12,400

   

14,813

   

28,253

   

29,656

 
Research and development  

1,639

   

1,489

   

3,306

   

2,922

 
Sales and marketing  

8,660

   

11,466

   

20,305

   

24,169

 
Depreciation and amortization  

8,985

   

9,893

   

17,901

   

19,718

 
Total operating expenses  

31,684

   

37,661

   

69,765

   

76,465

 
         
Income (Loss) from operations  

(1,517

)

  

1,208

   

(847

)

  

(26

)

         
Other (income) expenses        
Other expense  

63

   

36

   

91

   

131

 
Interest expense  

12,970

   

12,387

   

25,932

   

24,453

 
Loss before income taxes  

(14,550

)

  

(11,215

)

  

(26,870

)

  

(24,610

)

Income tax provision  

368

   

233

   

574

   

329

 
         
Net loss 

$

(14,918

)

 

$

(11,448

)

 

$

(27,444

)

 

$

(24,939

)

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

2,733

   

(855

)

  

(1,695

)

  

(45

)

Total other comprehensive (loss) income, net of tax  

2,733

   

(855

)

  

(1,695

)

  

(45

)

Comprehensive loss 

$

(12,185

)

 

$

(12,303

)

 

$

(29,139

)

 

$

(24,984

)

         
Net loss per share - basic and diluted 

$

(0.35

)

 

$

(0.27

)

 

$

(0.65

)

 

$

(0.59

)

         
Weighted average shares outstanding - basic and diluted  

42,529,017

   

42,369,357

   

42,529,017

   

42,336,093

 

 

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

Three Months Ended June 30,

 

Six Months Ended June 30,

   

2020

   

2019

   

2020

   

2019

 
Net loss 

$

(14,918

)

 

$

(11,448

)

 

$

(27,444

)

 

$

(24,939

)

Interest expense  

12,970

   

12,387

   

25,932

   

24,453

 
Income tax expense  

368

   

233

   

574

   

329

 
Depreciation and amortization expense  

11,979

   

12,530

   

23,816

   

25,063

 
EBITDA 

$

10,399

  

$

13,702

  

$

22,878

  

$

24,906

 
Acquisition, financing and transaction costs  

206

   

2,582

   

291

   

2,756

 
Strategic Initiatives:        
Sign-on bonus amortization  

   

113

   

188

   

225

 
Non-recoverable draw  

   

921

   

304

   

2,035

 
Total strategic initiatives  

   

1,034

   

492

   

2,260

 
Management fees, stock compensation and other  

870

   

885

   

1,750

   

2,100

 
Restructuring costs  

128

   

626

   

718

   

1,335

 
Systems establishment  

560

   

806

   

1,046

   

1,360

 
Adjusted EBITDA 

$

12,163

  

$

19,635

  

$

27,175

  

$

34,717

 

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)
     
  June 30, 2020  December 31, 2019
  (Unaudited)   
Current assets    
Cash and cash equivalents 

$

34,099

  

$

43,407

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

89,120

   

96,994

 
Prepaid expenses  

13,563

   

7,296

 
Other current assets  

668

   

556

 
Total current assets  

137,450

   

148,253

 
Property and equipment    
Computer software and hardware  

72,413

   

72,228

 
Leasehold improvements  

27,404

   

26,963

 
Furniture, fixtures and other equipment  

3,748

   

3,794

 
Accumulated depreciation  

(72,416

)

  

(64,682

)

Property and equipment, net  

31,149

   

38,303

 
Intangible assets, net  

120,129

   

130,568

 
Goodwill  

395,031

   

395,171

 
Other assets  

2,990

   

2,617

 
Total assets 

$

686,749

  

$

714,912

 
Current liabilities    
Current portion of long-term debt, net 

$

13,074

  

$

11,689

 
Accounts payable and accrued expense  

30,804

   

31,270

 
Current portion of contingent consideration  

398

   

340

 
Deferred revenue  

4,984

   

4,851

 
Total current liabilities  

49,260

   

48,150

 
Long-term debt, net  

466,014

   

468,932

 
Contingent consideration  

482

   

482

 
Deferred tax liabilities  

6,590

   

6,294

 
Other liabilities  

8,138

   

7,289

 
Total liabilities  

530,484

   

531,147

 
Commitments and contingencies    
Stockholders' equity    
Common stock    
$0.0001 par value, shares authorized - 200,000,000 shares authorized as of June 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 June 30, 2020 and December 31, 2019, respectively  

   

 
Additional paid-in capital  

383,591

   

381,952

 
Treasury stock  

   

 
Accumulated deficit  

(232,942

)

  

(205,498

)

Accumulated other comprehensive income  

5,612

   

7,307

 
Total stockholders' equity  

156,265

   

183,765

 
Total liabilities and stockholders' equity 

$

686,749

  

$

714,912

 
     

 

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

For The Six Months Ended June 30

 
   

2020

   

2019

  
Operating activities     
Net loss 

$

(27,444

)

 

$

(24,939

)

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

23,816

   

25,063

  
Non-cash interest  

9,428

   

2,365

  
Stock-based compensation  

1,639

   

1,489

  
Provision for losses on accounts receivable  

2,155

   

1,332

  
Deferred income taxes  

296

   

(130

)

 
Change in fair value of contingent consideration  

58

   

  
Changes in operating assets and liabilities:     
Accounts receivable  

5,866

   

(9,861

)

 
Prepaid expenses and other assets  

(6,519

)

  

(4,078

)

 
Accounts payable and accrued expenses  

(711

)

  

(3,359

)

 
Deferred revenue  

146

   

236

  
Net cash provided by (used) in operating activities  

8,730

   

(11,882

)

 
Investing activities     
Acquisitions, net of cash  

(3,124

)

  

  
Purchases of property and equipment  

(5,875

)

  

(5,140

)

 
Net cash used in investing activities  

(8,999

)

  

(5,140

)

 
Financing activities     
Revolving credit facility - draws  

29,000

   

21,500

  
Revolving credit facility - repayments  

(29,000

)

  

(14,500

)

 
Payments for capital lease obligations  

(455

)

  

(307

)

 
Payments on long-term debt  

(8,500

)

  

(8,500

)

 
Net cash used in financing activities  

(8,955

)

  

(1,807

)

 
Effect of foreign exchange rates  

(84

)

  

14

  
Net decrease in cash  

(9,308

)

  

(18,815

)

 
Cash at beginning of period  

43,407

   

23,439

  
Cash at end of period 

$

34,099

  

$

4,624

  
Supplemental disclosure:     
Cash paid for interest 

$

17,248

  

$

18,747

  
Income taxes paid, net of refunds 

$

(297

)

 

$

107

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

$

193

  

$

220

  

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.

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