Le Lézard
Classified in: Science and technology, Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast

KLDiscovery Inc. Reports 3Q Financial Results


KLDiscovery Inc. ("KLDiscovery", "KLD" or the "Company"), a leading provider of global electronic discovery, information governance and data recovery technology solutions, announced today that revenue for the third quarter ended September 30, 2021 was $81.1 million versus $72.3 million in the third quarter of 2020, an increase of 12% year-over-year.

Net loss for the third quarter of 2021 was $(29.5) million and includes an impairment charge for an intangible asset of $(22.5) million. EBITDA for the third quarter of 2021 was $14.7 million versus $12.3 million in the third quarter of 2020, a 20% increase over the third quarter of 2020. Adjusted EBITDA (which excludes stock-based compensation, change in fair value of warrants, acquisition financing, transaction costs and other items as described below) for the third quarter of 2021 was $16.8 million compared to $16.7 million in the third quarter of 2020. Reconciliations of EBITDA and Adjusted EBITDA to their most comparable GAAP measure are shown in detail below, along with definitions for those terms.

"We continued our year of delivering strong financial results in the third quarter of 2021," said Christopher Weiler, CEO of KLDiscovery Inc. "Revenue for the third quarter was up 12% year-over-year. During the first three quarters of 2021, we generated our highest three-quarter revenue total in company history. With over $81 million in revenue during each of the past two quarters, our revenue run rate has accelerated to over $325 million on an annualized basis, with the increased adoption of our Nebula ecosystem contributing to this growth. We intend to continue to further increase Nebula growth throughout the remainder of 2021 and beyond with increased investment in R&D and additional dedicated sales force resources. In the third quarter 2021, our net loss was $(29.5) million and includes an impairment charge for an intangible asset of $(22.5) million. In the third quarter of 2021 we had a 20% increase in EBITDA year-over-year. We ended the third quarter of 2021 with $41.8 million in cash and cash equivalents and nothing drawn on our $40 million revolving credit facility."

Mr. Weiler continued, "We have been building momentum in our business every quarter over the past 12 months. As the economy continues its recovery from the depths of the pandemic, we continue to solve complex legal, regulatory and data challenges for our clients around the world by leveraging our proprietary software and innovative technology-based solutions which are enhanced by our unparalleled customer service. Our investments and human capital commitment to Nebula are resulting in accelerated growth of sales and usage."

2020-2021 Quarterly Results
 

2020 (unaudited)

 

2021 (unaudited)

Q1

 

Q2

 

Q3

 

Q4

 

Q1

 

Q2

 

Q3

Revenue

 

78.3

 

 

64.4

 

 

72.3

 

 

74.6

 

 

75.5

 

 

81.7

 

 

81.1

 

Net loss

 

(12.5

)

 

(14.9

)

 

(12.7

)

 

(9.8

)

 

(14.9

)

 

(8.9

)

 

(29.5

)

 
Net loss per share (basic and diluted)

$

(0.29

)

$

(0.35

)

$

(0.30

)

$

(0.23

)

$

(0.35

)

$

(0.21

)

$

(0.69

)

Weighted average outstanding shares (basic and diluted)

 

42.5

 

 

42.5

 

 

42.5

 

 

42.5

 

 

42.6

 

 

42.6

 

 

42.6

 

 
EBITDA

 

12.5

 

 

10.4

 

 

12.3

 

 

14.3

 

 

15.1

 

 

13.7

 

 

14.7

 

Adjusted EBITDA

 

15.0

 

 

12.2

 

 

16.7

 

 

19.4

 

 

15.4

 

 

17.7

 

 

16.8

 

Earnings Conference Call

Management will conduct a conference call at 8:30 AM ET on Friday, November 12, 2021 to discuss results for the third quarter of 2021. 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 visit the Investors section of the KLDiscovery website at https://investors.kldiscovery.com/.

KLDiscovery Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands, except share and per share amounts)
 
Three Months Ended September 30, Nine Months Ended September 30,

2021

 

2020

 

2021

 

2020

(unaudited) (unaudited)
Revenues

$

81,122

 

$

72,301

 

$

238,222

 

$

214,953

 

Cost of revenues

 

41,852

 

 

37,738

 

 

120,161

 

 

111,472

 

Gross profit

 

39,270

 

 

34,563

 

 

118,061

 

 

103,481

 

 
Operating expenses
General and administrative

 

14,353

 

 

14,281

 

 

46,366

 

 

42,534

 

Research and development

 

2,770

 

 

1,828

 

 

7,341

 

 

5,134

 

Sales and marketing

 

9,765

 

 

9,155

 

 

29,338

 

 

29,460

 

Impairment of intangible asset

 

22,529

 

 

-

 

 

22,529

 

Depreciation and amortization

 

7,512

 

 

9,234

 

 

22,636

 

 

27,135

 

Total operating expenses

 

56,929

 

 

34,498

 

 

128,210

 

 

104,263

 

 
Income (loss) from operations

 

(17,659

)

 

65

 

 

(10,149

)

 

(782

)

 
Other (income) expenses
Other (income) expense

 

(15

)

 

11

 

 

10

 

 

102

 

Change in fair value of Private Warrants

 

64

 

 

-

 

 

(1,651

)

 

-

 

Interest expense

 

12,792

 

 

12,371

 

 

37,584

 

 

38,303

 

Loss on debt extinguishment

 

-

 

 

-

 

 

7,257

 

 

-

 

Loss before income taxes

 

(30,500

)

 

(12,317

)

 

(53,349

)

 

(39,187

)

Income tax (benefit) provision

 

(969

)

 

390

 

 

(97

)

 

964

 

 
Net loss

$

(29,531

)

$

(12,707

)

$

(53,252

)

$

(40,151

)

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

 

(1,812

)

 

2,242

 

 

(3,559

)

 

547

 

Total other comprehensive income (loss), net of tax

 

(1,812

)

 

2,242

 

 

(3,559

)

 

547

 

Comprehensive loss

$

(31,343

)

$

(10,465

)

$

(56,811

)

$

(39,604

)

 
Net loss per share - basic and diluted

$

(0.69

)

$

(0.30

)

$

(1.25

)

$

(0.94

)

 
Weighted average shares outstanding - basic and diluted

 

42,637,315

 

 

42,529,017

 

 

42,577,128

 

 

42,529,017

 

Reconciliation of Non-GAAP Financial Matters
(In thousands)
(Unaudited)
 
Three Months Ended September 30, Nine Months Ended September 30,

2021

 

2020

 

2021

 

2020

Net loss

$

(29,531

)

$

(12,707

)

$

(53,252

)

$

(40,151

)

Interest expense

 

12,792

 

 

12,371

 

 

37,584

 

 

38,303

 

Income tax (benefit) provision

 

(969

)

 

390

 

 

(97

)

 

964

 

Extinguishment of debt

 

?

 

 

?

 

 

7,257

 

 

?

 

Impairment of intangible asset

 

22,529

 

 

22,529

 

 

?

 

Depreciation and amortization expense

 

9,850

 

 

12,246

 

 

29,400

 

 

36,063

 

EBITDA

$

14,671

 

$

12,300

 

$

43,421

 

$

35,179

 

Acquisition, financing and transaction costs

 

528

 

 

1,290

 

 

2,545

 

 

1,580

 

Strategic initiatives:
Sign-on bonus amortization

 

?

 

 

?

 

 

?

 

 

188

 

Non-recoverable draw

 

?

 

 

?

 

 

?

 

 

304

 

Total strategic initiatives

 

?

 

 

?

 

 

?

 

 

492

 

Stock compensation and other

 

1,058

 

 

974

 

 

3,165

 

 

2,724

 

Change in fair value of Private Warrants

 

64

 

 

?

 

 

(1,651

)

 

?

 

Restructuring costs

 

(14

)

 

1,581

 

 

1,019

 

 

2,299

 

Systems establishment

 

453

 

 

521

 

 

1,370

 

 

1,567

 

Adjusted EBITDA

$

16,760

 

$

16,666

 

$

49,869

 

$

43,841

 

We define EBITDA as net income (loss) plus interest (income) expense, income tax expense (benefit), extinguishment of debt, and depreciation and amortization, and impairment of intangible assets. We view adjusted EBITDA as an 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 as the 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:

KLDiscovery Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
 
September 30, 2021 December 31, 2020
(Unaudited)
Current assets
Cash and cash equivalents

$

41,786

 

$

51,201

 

Accounts receivable, net of allowance
for doubtful accounts of $10,339 and $8,513, respectively

 

97,551

 

 

83,985

 

Prepaid expenses

 

12,084

 

 

7,175

 

Other current assets

 

950

 

 

709

 

Total current assets

 

152,371

 

 

143,070

 

Property and equipment
Computer software and hardware

 

75,288

 

 

72,211

 

Leasehold improvements

 

27,182

 

 

27,271

 

Furniture, fixtures and other equipment

 

3,059

 

 

3,365

 

Accumulated depreciation

 

(83,966

)

 

(77,697

)

Property and equipment, net

 

21,563

 

 

25,150

 

Intangible assets, net

 

71,558

 

 

109,733

 

Goodwill

 

396,479

 

 

399,085

 

Other assets

 

2,781

 

 

2,708

 

Total assets

$

644,752

 

$

679,746

 

Current liabilities
Current portion of long-term debt, net

$

3,000

 

$

10,948

 

Accounts payable and accrued expense

 

35,398

 

 

33,504

 

Current portion of contingent consideration

 

970

 

 

695

 

Deferred revenue

 

3,881

 

 

3,955

 

Total current liabilities

 

43,249

 

 

49,102

 

Long-term debt, net

 

499,183

 

 

472,600

 

Deferred tax liabilities

 

6,769

 

 

7,335

 

Other liabilities

 

10,839

 

 

8,488

 

Total liabilities

 

560,040

 

 

537,525

 

Commitments and contingencies
Stockholders' equity
Common stock
$0.0001 par value, - 200,000,000 shares authorized, 42,637,315 and 42,529,017 issued and outstanding as of September 30, 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 September 30, 2021 and December 31, 2020, respectively

 

?

 

 

?

 

Additional paid-in capital

 

384,689

 

 

385,387

 

Accumulated deficit

 

(308,676

)

 

(255,424

)

Accumulated other comprehensive income

 

8,695

 

 

12,254

 

Total stockholders' equity

 

84,712

 

 

142,221

 

Total liabilities and stockholders' equity

$

644,752

 

$

679,746

 

KLDiscovery Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
For The Nine Months Ended September 30,

2021

2020

Operating activities
Net loss

$

(53,252

)

$

(40,151

)

Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization

 

29,400

 

 

36,063

 

Non-cash interest

 

14,240

 

 

14,360

 

Loss on extinguishment of debt

 

7,257

 

 

-

 

Stock-based compensation

 

2,998

 

 

2,552

 

Provision for losses on accounts receivable

 

2,640

 

 

3,059

 

Deferred income taxes

 

(567

)

 

418

 

Change in fair value of contingent consideration

 

49

 

 

80

 

Change in fair value of Private Warrants

 

(1,651

)

 

?

 

Impairment of intangible asset

 

22,529

 

 

?

 

Changes in operating assets and liabilities:
Accounts receivable

 

(16,477

)

 

8,365

 

Prepaid expenses and other assets

 

(6,464

)

 

(3,338

)

Accounts payable and accrued expenses

 

(668

)

 

4,734

 

Deferred revenue

 

(27

)

 

(835

)

Net cash provided by operating activities

 

7

 

 

25,307

 

Investing activities
Acquisitions, net of cash acquired

 

?

 

 

(3,124

)

Purchases of property and equipment

 

(9,708

)

 

(8,377

)

Net cash used in investing activities

 

(9,708

)

 

(11,501

)

Financing activities
Issuance of common stock

 

38

 

 

?

 

Revolving credit facility - draws

 

?

 

 

29,000

 

Revolving credit facility - repayments

 

?

 

 

(29,000

)

Payments for capital lease obligations

 

(846

)

 

(688

)

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

 

(1,500

)

 

(12,750

)

Net cash provided by (used in) financing activities

 

661

 

 

(13,438

)

 
Effect of foreign exchange rates

 

(375

)

 

63

 

Net (decrease) increase in cash

 

(9,415

)

 

431

 

Cash at beginning of period

 

51,201

 

 

43,407

 

Cash at end of period

$

41,786

 

$

43,838

 

 
Supplemental disclosure:
Cash paid for interest

$

21,184

 

$

24,857

 

Income tax refunds

$

157

 

$

311

 

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

$

297

 

$

21

 

About KLDiscovery

KLDiscovery provides technology solutions to help law firms, corporations and consumers solve complex data challenges. The company has 32 locations, 9 data centers and 17 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 Yeartm. Additionally, KLDiscovery is a Relativity Certified Partner and maintains ISO/IEC 27001 Certified data centers around the world. For more information, please email [email protected] or visit www.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 future financial and business performance and KLDiscovery's plans and expectations regarding Nebula's growth, 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; risks relating to market acceptance of KLDiscovery's solutions, including Nebula; KLDiscovery's ability to effectively compete in highly competitive markets, and potential adverse effects of this competition; risk of decreased revenues due to pricing pressure or if KLDiscovery does not adapt to evolving pricing models; 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; risks related to acquisitions; 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, Adjusted EBITDA and net loss adjusted for an impairment charge. Our management believes 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.

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 net loss adjusted for an impairment charge, EBITDA and adjusted EBITDA. 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.

Adjusted EBITDA

We define EBITDA as net income (loss) plus interest (income) expense, income tax expense (benefit), extinguishment of debt, depreciation and amortization and impairment of intangible assets. 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:


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