The KeyW Holding Corporation (NASDAQ:KEYW) today announced that it
has completed its acquisition of Sotera Defense Solutions,
Inc. (Sotera) in an all-cash transaction valued at
approximately $235 million, inclusive of tax assets acquired as a
result of the transaction. This transaction will augment the
strengths of both companies to create a leading pure-play products
and solutions provider to the Intelligence Community (IC) and
related customers. Integration is expected to be completed by
December 2017.
“The new KeyW offers a unique value proposition for
customers, employees and shareholders alike,” said Bill Weber,
KeyW’s chief executive officer. “We’ll purposely remain nimble to
deliver advanced solutions that address ever-evolving, complex
national security challenges. At the same time, we’ll have the
scale to provide highly competitive cost models to further drive
growth and create value for our customers and additional
opportunities for our employees.”
Sotera is an agile, mid-sized national security
technology company that delivers innovative systems, solutions and
services in support of the critical missions and programs of
Civilian Agencies, Department of Defense (DoD), Intelligence
Community, Department of Homeland Security (DHS), federal law
enforcement agencies and other parts of the federal government
charged with ensuring the safety and security of our nation. With
more than 1,100 employees, Sotera delivers essential enterprise IT,
cyber security systems and operations, data fusion and analytics,
intelligence analysis and C5ISR solutions to customers throughout
the federal government and is a prime contractor on approximately
80% of its work.
Together, KeyW and Sotera will deliver an advanced
portfolio of engineering and technology solutions, including cyber,
cloud and data analytics, geospatial, analysis and operations and
machine learning. The combined companies are expected to generate
approximately $535 million in revenue on a pro-forma basis and more
than $55 million in adjusted EBITDA in 2017 before synergies.
SUMMARY OF STRATEGIC AND FINANCIAL
BENEFITS
- Provides New and Enhanced Access to Agencies within the
IC: The combination expands the company’s footprint
into target agencies, including FBI, DHS and new areas within the
DoD.
- Adds Significant Scale, Creating Unique, IC-Focused
Provider: The transaction will create a pure-play IC
provider of scale with approximately 2,100 employees, of whom 80%
hold Top Secret and above clearances. The scale of the combined
companies will provide a more competitive cost model and drive
additional growth.
- Adds New and Complementary Capabilities for IC
Customers: The combined companies offer an expanded
portfolio with new and enhanced solutions for both KeyW and Sotera
legacy customers. Sotera will add complementary capabilities to
KeyW’s existing agile software and solution development, cyber
security and data analytics—and new capabilities in advanced
emerging technologies focused on machine learning and big data
solutions. KeyW brings new and complementary capabilities to
existing Sotera customers, including cyber operations and training,
affordable Intelligence Surveillance and Reconnaissance solutions,
sensor development, platform modification and end-to-end mission
solutions.
- Provides Access to Large Portfolio of Prime Contracts
and IDIQ Vehicles: Sotera brings more than 12 prime
IDIQ and GWAC contract vehicles, which will expand the combined
company’s overall presence in the IC and DoD. The combined contract
portfolio provides the opportunity to sell capabilities from each
company to new and existing customers with an enhanced business
development engine.
- Highly Achievable Cost Synergies: The
transaction is expected to yield approximately $3.5 million of cost
synergies within the fiscal year 2017 and approximately $7 million
within 12-18 months.
- Enhanced Cash Flow Profile and Accretive Earnings Per
Share (EPS): The transaction is expected to be immediately
accretive to FY2017 adjusted EPS and GAAP EPS accretive in FY2018.
The cash flow profile of the combined business will enable
deleveraging immediately. The anticipated tax attributes will
increase net cash flow through an expected reduction of cash tax
expense.
TRANSACTION STRUCTURE In addition
to funds provided by KeyW’s recently completed secondary common
stock offering, further financing for the transaction was supported
by a five year senior secured $135 million term loan and a $50
million revolving credit facility arranged by RBC Capital
Markets.
The combined companies will have pro-forma debt to
trailing 12-month adjusted EBITDA of approximately 4.4x. The merger
structure is expected to preserve certain tax attributes of Sotera
(subject to applicable U.S. Code 382 limitations on net operating
loss carryforwards), providing tax benefits with an expected net
present value of up to approximately $46 million.
GOVERNANCE AND LEADERSHIPKeyW’s
Bill Weber and Mike Alber will continue in their current respective
roles as chief executive officer and chief financial officer.
Additional leaders will be drawn from both companies and named as
the integration progresses—and KeyW’s current board of directors
will continue to provide executive oversight of the
organization.
ABOUT KeyWKeyW is a total
solutions provider for the Intelligence, Cyber and Counterterrorism
Communities' toughest challenges. We support the collection,
processing, analysis and dissemination of information across the
full spectrum of their missions. We employ and challenge more than
2,000 of the most talented professionals in the industry with
solving such complex problems as preventing cyber threats,
transforming data into intelligence and combating global
terrorism.
Forward-Looking
Statements Statements made in this press
release that are not historical facts constitute forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements include but are not limited to:
statements about our future expectations, plans and prospects;
statements regarding our strategies, plans, and operations;
and other statements containing the words "estimates," "believes,"
"anticipates," "plans," "expects," "will," "potential,"
"opportunities," and similar expressions. Our actual results,
performance or achievements or industry results may differ
materially from those expressed or implied in these forward-looking
statements. These statements involve numerous risks and
uncertainties, including but not limited to those risk factors set
forth in our Annual Report on Form 10-K, dated and filed March 15,
2017 with the Securities and Exchange Commission (SEC) as required
under the Securities Act of 1934, and other filings that we make
with the SEC from time to time. Due to such uncertainties and
risks, readers are cautioned not to place undue reliance on such
forward-looking statements. KeyW is under no obligation to (and
expressly disclaims any such obligation to) update or alter its
forward-looking statements whether as a result of new information,
future events or otherwise.
In addition to factors previously disclosed
in KeyW’s reports filed with the Securities and Exchange Commission
(“SEC”), the following factors could cause actual results to differ
materially from forward-looking statements: (i) KeyW being unable
to successfully implement integration strategies or realize the
anticipated benefits of the acquisition, including the possibility
that the expected synergies and cost reductions from the proposed
acquisition will not be realized or will not be realized within the
expected time period; (ii) the increased leverage and interest
expense of the combined company; (iii) general economic conditions
and/or conditions affecting the parties’ current and prospective
customers and/or (iv) difficulties with, or delays in, the
inability to achieve the parties’ and combined company’s revenue
and adjusted EBITDA guidance for 2017, due to, among other things,
unanticipated circumstances, trends or events affecting the
combined company's financial performance. Factors other than those
referred to above could also cause KeyW’s or Sotera’s results to
differ materially from expected results.
NON-GAAP FINANCIAL MEASURES
This press release contains forward looking
estimates of adjusted EBITDA, including adjusted EBITDA margin.
Adjusted EBITDA, as defined by KeyW, is a financial measure that is
not calculated in accordance with accounting principles generally
accepted in the United States of America, or U.S. GAAP. Adjusted
EBITDA should not be considered as an alternative to net income,
operating income or any other measure of financial performance
calculated and presented in accordance with U.S. GAAP. Our adjusted
EBITDA may not be comparable to similarly titled measures of other
companies because other companies may not calculate adjusted EBITDA
or similarly titled measures in the same manner as we do. We
prepare adjusted EBITDA to eliminate the impact of items that we do
not consider indicative of our core operating performance. We
encourage you to evaluate these adjustments and the reasons we
consider them appropriate.
We believe adjusted EBITDA is useful to investors
in evaluating our operating performance for the following
reasons:
- we have various non-recurring transactions or non-operating
transactions and expenses that directly impact our net income.
Adjusted EBITDA is intended to approximate the net cash provided by
operations by adjusting for non-recurring or non-operating items;
and
- securities analysts use adjusted EBITDA as a supplemental
measure to evaluate the overall operating performance of
companies.
Our board of directors and management use adjusted
EBITDA:
- as a measure of operating performance;
- to determine a significant portion of management's incentive
compensation;
- for planning purposes, including the preparation of our annual
operating budget; and
- to evaluate the effectiveness of our business strategies.
Although adjusted EBITDA is frequently used by
investors and securities analysts in their evaluations of
companies, adjusted EBITDA has limitations as an analytical tool,
and you should not consider it in isolation or as a substitute for
analysis of our results of operations as reported under GAAP. Some
of these limitations are:
- adjusted EBITDA does not reflect our cash expenditures or
future requirements for capital expenditures or other contractual
commitments;
- adjusted EBITDA does not reflect changes in, or cash
requirements for, our working capital needs;
- adjusted EBITDA does not reflect interest expense or interest
income;
- adjusted EBITDA does not reflect cash requirements for income
taxes;
- adjusted EBITDA does not include non-cash expenses related to
stock compensation;
- although depreciation and amortization are non-cash charges,
the assets being depreciated or amortized will often have to be
replaced in the future, and adjusted EBITDA does not reflect any
cash requirements for these replacements; and
- other companies in our industry may calculate adjusted EBITDA
or similarly titled measures differently than we do, limiting its
usefulness as a comparative measure.
As used in this press release, with respect to
estimated adjusted EBITDA, KeyW defines adjusted EBITDA as GAAP net
income before interest, income taxes, depreciation and
amortization, excluding stock-based compensation, transaction and
integration costs and other adjustments, as applicable, associated
with the proposed transaction. Reconciliations of estimated
adjusted EBITDA to GAAP net income is not provided because GAAP net
income generated by the Sotera operations for the applicable future
period is not accessible or estimable at this time. In this regard,
KeyW has not yet completed the necessary valuation of the various
assets to be acquired in the proposed acquisition, for accounting
purposes, or an allocation of the purchase price among the various
types of assets. In addition, the final interest and debt expense
associated with the transactions contemplated by the commitment
letter have not been finalized and are therefore unavailable.
Accordingly, the amount of depreciation and amortization, interest
and debt expense and other factors that will be included in the
additional GAAP net income assuming the proposed transaction is
consummated is not accessible or estimable at this time, and is
therefore not available without unreasonable effort. The amount of
such additional resulting depreciation and amortization, applicable
interest and debt expense, and other factors could be significant,
such that actual GAAP net income would vary substantially from the
estimated adjusted EBITDA included in this presentation.
Heather Williams
Corporate Media Relations
communications@keywcorp.com
443.733.1613
Chris Donaghey
Investor Relations
investors@keywcorp.com
443.733.1600
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