Jacobs Completes Tender Offer; Receives 80% of Outstanding Shares; Terminating Coverage

Does First Quarter Miss Matter?

Could It Go Higher?

Are Needle Moving Contracts on the Horizon?

Joe Gomes

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Technology

Software

The KEYW Holding Corporation

Fourth Quarter and Full Year 2018 Results
Fourth quarter revenue totaled $126.3 million. We had forecast revenue of $128 million. Unexpected holidays in the quarter (President Bush&#8217;s funeral) and weather-related closures impacted fourth quarter revenue by an estimated $2 million. Ex these items, revenues were in-line with our estimate. Adjusted EBITDA for the quarter was $12 million, or 9.5% of revenue, above management&#8217;s expectations due to higher sensor and product solution sales. We were at $11.9 million. During the quarter, KeyW incurred some $5.1 million of one-time non-recurring charges, including a $4.3 million asset impairment charge and $800,000 of other non-recurring costs. The one-time charges resulted in an operating loss for the quarter of $182,000 versus our estimate of operating income of $4.8 million. KeyW reported a net loss for the quarter of $5.5 million, or $0.11 per share. In the fourth quarter of 2017, the Company reported revenue of $126.9 million, adjusted EBITDA of $14.1 million, or 14.0% of revenue, and EPS of $0.32, which includes the one time tax benefit from the Tax Cuts and Jobs Act.
For the full year, KeyW reported revenue of $506.8 million, adjusted EBITDA of $49.7 million, or 9.8% of revenue, and a net loss of $22.3 million, or $0.45 per share. The $65.3 million, or 14.8%, increase in revenue year-over-year was primarily attributable to contracts relating to the Sotera acquisition. The full year GAAP loss includes some $24.4 million of non-recurring expenses including $11.7 million from a loss on extinguishment of debt and a $4.3 million asset impairment charge.
Government Shutdown a Non-event
Given the mission critical nature of its work for the FBI and Department of Homeland Security, the recent government partial shutdown had a negligible impact on the Company&#8217;s fourth quarter results. However, the partial shutdown did result in some administrative delays in terms of longer ramp-up times for awards won in prior quarters, delays in contracting actions and new award activity, and a longer cash collection cycle. While none of these should impact the 2019 full year, the first quarter of the year may see some pressure on revenue and cash collections.&nbsp;&nbsp;
Record Awards Position KeyW for Profitable Growth in 2019
In the fourth quarter of 2108, KeyW generated $112 million of awards, resulting in a book-to-bill of 0.9x. Fourth quarter awards were largely focused on such key areas as the development of advanced sensor payloads, intelligence fusion, intelligence analysis, and operational cyber training. Some 56% of fourth quarter awards were new business, with 42% from on-contract growth. The new business is expected to ramp up over a six month time frame and should begin contributing to results in the second half of 2019.
For the full year, KeyW generated $675 million of awards, a record level, resulting in a full year book-to-bill of 1.3x. The level of awards positions the Company for profitable growth in its core business for 2019. Of the full year total awards, some 61%, or $411 million, is new business and 15%, or $104 million, is on-contract growth. Win rate for the year was 48%, also a record level, and well above the industry average in the 25% to 33% range. KeyW won 43% of its new business bids and 90% on its recompete work.&nbsp;
KeyW submitted a record level of proposals in the fourth quarter with full year submissions up to $2.4 billion, as the overall business environment remains strong. Significantly, KeyW is seeing solid RFP activity in the areas of signals intelligence, cyber operations, and sensor development for space applications, all core strategic areas of advantage for the Company.
The Company enters 2019 with a qualified pipeline of $8 billion in opportunities, up from $7.2 billion at the beginning of 2018. KeyW expects to submit approximately $2.9 billion of bids during the year, a similar level as in 2018, with more than 85% potential new business and base growth and almost 90% as the prime contractor. Total backlog as of year-end was $1.1 billion, level with September 30, 2018. As of year-end, the total of bids submitted and awaiting awards was $1.9 billion. Management expects significant award announcements in the second and third quarters of 2019. Notably, excluding product sales, the pending awards include more than 50 bids, lessening the reliance on any single award.
Mega Contracts Provide Potential Upside
Mega contracts provide upside potential to KeyW. The Company has identified 14 awards that are $100 million or greater, with bids submitted on at least eight of those and the remainder to be submitted in the first part of 2019. Some of these contracts should be awarded in 2019, although the number and timing are still not known. While we would not expect KeyW to win these larger contracts at the 48% contract win rate the Company achieved in 2018, we believe a win rate in the 25% range is achievable and, if it comes to fruition, would boost the Company growth rate.
2019 Projections
KeyW&#8217;s strong 2018 contract wins position the Company to meet or exceed 2019 revenue targets. At management&#8217;s revenue guidance mid-point, some 81% is in existing business, with only 5% of revenue from 2019 recompetes, 6% from new service awards, and 8% from product sales. Although loss of the flight services contract provides a revenue headwind of some $30-plus million in 2019, organic growth in KeyW&#8217;s core businesses should exceed 10% in 2019. We are projecting first quarter revenue of $122 million with adjusted EBITDA of $10.4 million and an EPS loss of $0.03. With the back half of the year expected to be stronger than the first, for the full year we are projecting revenue of $516 million, adjusted EBITDA of $48.9 million, and EPS of $0.03 per share.

The KEYW Holding Corporation (KEYW)

Are Needle Moving Contracts on the Horizon?

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Jacobs Completes Tender Offer; Receives 80% of Outstanding Shares; Terminating Coverage (KEYW)

Does First Quarter Miss Matter? (KEYW)

Could It Go Higher? (KEYW)

Are Needle Moving Contracts on the Horizon? (KEYW)

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