Agreement in principle reached with debenture
holders and term loan lender to reduce Company’s long-term debt and
strengthen financial position
Nebula adoption accelerating with Nebula
revenue up 82% year-over-year
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 first quarter ended March 31, 2024, was $80.2 million
compared to $90.7 million in the first quarter of 2023. Net loss
for the first quarter of 2024 was $(16.9) million compared to
$(4.5) million in the first quarter of 2023.
EBITDA1 for the first quarter of 2024 was $7.4 million compared
to $18.2 million in the first quarter of 2023. Adjusted EBITDA1
(which excludes stock-based compensation, acquisition financing and
transaction costs and other items as described below) for the first
quarter of 2024 was $10.6 million compared to $20.9 million in the
first quarter of 2023.
As announced on May 02, 2024, KLDiscovery reached an agreement
in principle with its principal convertible debenture holders and
its principal term loan lender to significantly reduce the
Company’s long-term debt and strengthen its financial position,
enabling KLDiscovery to focus on its growth model and drive
investment in its market-leading client solutions. This agreement
in principle reflects the strong support of KLDiscovery’s debenture
holders and term loan lender and positions the Company to continue
its focus on investing in growth and technology-enabled services
and software. This agreement in principle is subject to definitive
documentation of the transaction.
“Nebula continues to be a powerful component of the KLD offering
as we introduce new product capabilities and cross-sell Nebula to
our existing clients,” said Christopher Weiler, CEO of KLDiscovery
Inc. “Nebula is a steady component of our revenue base, now
comprising 19% of our revenue in the first quarter of 2024 compared
to 9% in the first quarter of 2023. Nebula revenue includes $5.7
million for Nebula Processing Services within Nebula for non-Nebula
hosted engagements. Active data hosted in Nebula is up 24% and
active users are up 11% compared to the same quarter in the prior
year. Additionally, our Client Portal continues to deliver
exceptional user experiences, further strengthening the bond
between KLD and our customers.”
Weiler continued, “Last week, we reached an agreement in
principle with our principal convertible debenture holders and our
principal term loan lender, who are both aligned with our vision,
to significantly reduce our long-term debt and strengthen our
financial position. With a solid capital structure, we will remain
laser-focused on our clients and pushing forward with the
exceptionally high levels of innovation and service that they have
come to expect from KLD.”
1 Non-GAAP measure. See “Non-GAAP Financial Measures” and
“Reconciliation of Non-GAAP Financial Measures” below for
additional information and a reconciliation to the most directly
comparable GAAP measure.
2023-2024 Quarterly Results (in millions)
2023 (unaudited)
2024
(unaudited)
Q1
Q2
Q3
Q4
Q1
Revenue
90.7
90.0
79.3
85.8
80.2
Net loss
(4.5
)
(4.7
)
(11.4
)
(14.3
)
(16.9
)
Net loss per share (basic and diluted)
$
(0.11
)
$
(0.11
)
$
(0.26
)
$
(0.33
)
$
(0.39
)
Weighted average outstanding shares (basic and diluted)
42.9
43.0
43.1
43.1
43.1
EBITDA (Non-GAAP)
18.2
18.5
13.9
12.0
7.4
Adjusted EBITDA (Non-GAAP)
20.9
20.1
15.9
17.2
10.6
Earnings Conference Call
Management will conduct a conference call at 8:30 AM ET on May
9, 2024, to discuss financial results for the first quarter of
2024. 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: KLDiscovery Q1 2024 Financial Results
Conference Call
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 82270 or visit the Investors
section of the KLD website.
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(in thousands, except share and per share amounts)
Three Months Ended March
31,
2024
2023
Revenues
$
80,172
$
90,659
Cost of revenues
42,068
43,587
Gross profit
38,104
47,072
Operating expenses General and administrative
18,147
17,301
Research and development
3,356
3,200
Sales and marketing
11,268
10,391
Depreciation and amortization
4,376
4,813
Total operating expenses
37,147
35,705
Income from operations
957
11,367
Other expenses Change in fair value of Private Warrants
32
(191
)
Interest expense
17,508
15,771
Loss before income taxes
(16,583
)
(4,213
)
Income tax provision
296
295
Net loss
$
(16,879
)
$
(4,508
)
Other comprehensive (loss) income, net of tax Foreign currency
translation
(1,912
)
825
Total other comprehensive (loss) income, net of tax
(1,912
)
825
Comprehensive loss
$
(18,791
)
$
(3,683
)
Net loss per share - basic and diluted
$
(0.39
)
$
(0.11
)
Weighted average shares outstanding - basic and diluted
43,086,267
42,920,321
KLDiscovery Inc. Condensed Consolidated Balance Sheets (in
thousands, except share and per share data)
March 31,
2024 December 31, 2023 (unaudited) Current assets
Cash and cash equivalents
$
18,361
$
15,351
Accounts receivable, net of allowance for credit losses of $3,031
and $3,642, respectively
106,279
101,257
Prepaid expenses
18,866
15,787
Other current assets
1,806
1,585
Total current assets
145,312
133,980
Property and equipment Computer software and hardware
61,762
61,731
Leasehold improvements
26,424
26,313
Furniture, fixtures and other equipment
2,162
2,262
Accumulated depreciation
(75,049
)
(73,045
)
Property and equipment, net
15,299
17,261
Operating lease right of use assets, net
9,045
10,078
Intangible assets, net
39,152
39,729
Goodwill
394,559
396,283
Other assets
7,539
8,262
Total assets
$
610,906
$
605,593
Current liabilities Current portion of long-term debt, net
$
565,691
$
546,845
Accounts payable and accrued expense
31,944
25,957
Operating lease liabilities
5,416
5,906
Current portion of contingent consideration
650
650
Deferred revenue
3,094
3,181
Total current liabilities
606,795
582,539
Deferred tax liabilities
9,218
8,941
Long term operating lease liabilities
6,713
7,870
Other liabilities
2,123
2,176
Total liabilities
624,849
601,526
Commitments and contingencies Stockholders' equity Common stock
$0.0001 par value, 200,000,000 shares authorized, 43,086,267 issued
and outstanding as of March 31, 2024 and December 31, 2023,
respectively
4
4
Preferred Stock $0.0001 par value, 1,000,000 shares authorized,
zero issued and outstanding as of March 31, 2024 and December 31,
2023, respectively
-
-
Additional paid-in capital
396,242
395,461
Accumulated deficit
(410,833
)
(393,954
)
Accumulated other comprehensive income
644
2,556
Total stockholders' equity
(13,943
)
4,067
Total liabilities and stockholders' equity
$
610,906
$
605,593
Set forth below is a reconciliation of EBITDA and Adjusted
EBITDA, which are non-GAAP measures, to net (loss), the most
directly comparable GAAP measure. See “Non-GAAP Financial Measures”
below for additional information on these measures, including why
we believe they are useful to investors and certain limitations
thereof.
KLDiscovery Inc. Reconciliation of Non-GAAP Financial Matters (In
thousands) (Unaudited)
Three Months Ended March
31,
2024
2023
Net loss
$
(16,879
)
$
(4,508
)
Interest expense
17,508
15,771
Income tax provision
296
295
Depreciation and amortization expense
6,454
6,610
EBITDA
$
7,379
$
18,168
Acquisition, financing and transaction costs
2,506
1,762
Stock compensation and other
747
833
Change in fair value of Private Warrants
32
(191
)
Restructuring (gains) costs
(98
)
163
Systems establishment costs
—
180
Adjusted EBITDA
$
10,566
$
20,915
Note:
- Acquisition, financing and transaction costs generally
represent earn-out payments, rating agency fees and letter of
credit and revolving facility fees, as well as professional service
fees and direct expenses related to acquisitions and public
offerings and cost associated with reviewing potential alternative
sources for cash or financing related to our debt maturities.
- Stock compensation and other primarily represents portions of
compensation paid to our employees and executives through
stock-based instruments.
- Change in fair value of Private Warrants relates to changes in
the fair market value of the Private Warrants issued in conjunction
with the December 2019 business combination.
- 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, such as severance payments, recruiting fees and
retention charges.
- Systems establishment costs relate to non-ordinary course
expenses incurred to develop our IT infrastructure, including
system automation and enterprise resource planning system
implementation.
KLDiscovery Inc. Condensed Consolidated Statements of Cash Flows
(Unaudited) (in thousands)
Three Months
Ended March 31,
2024
Three Months
Ended March 31,
2023
Operating activities Net loss
$
(16,879
)
$
(4,508
)
Adjustments to reconcile net loss to net cash used in
operatingactivities: Depreciation and amortization
6,454
6,610
Paid in kind interest
6,184
5,156
Stock-based compensation
747
833
Provision for losses on accounts receivable
1,110
797
Deferred income taxes
279
118
Change in fair value of Private Warrants
32
(191
)
Changes in operating assets and liabilities: Accounts receivable
(6,326
)
(7,186
)
Prepaid expenses and other assets
(2,179
)
(7,018
)
Accounts payable and accrued expenses
2,743
3,318
Deferred revenue
(66
)
(975
)
Net cash used in operating activities
(7,901
)
(3,046
)
Investing activities Purchases of property and equipment
(3,011
)
(2,072
)
Net cash used in investing activities
(3,011
)
(2,072
)
Financing activities Revolving credit facility draws
15,000
—
Payments for capital lease obligations
—
(533
)
Payments on long-term debt
(750
)
(750
)
Net cash provided by (used in) financing activities
14,250
(1,283
)
Effect of foreign exchange rates
(328
)
117
Net increase (decrease) in cash
3,010
(6,284
)
Cash at beginning of period
15,351
32,629
Cash at end of period
$
18,361
$
26,345
Supplemental disclosure: Cash paid for interest
$
11,352
$
10,842
Net income taxes paid
$
690
$
263
Significant noncash investing and financing activities Purchases of
property and equipment in accounts payable and accrued expenses on
the condensed consolidated balance sheets
$
276
$
751
About KLDiscovery
KLDiscovery provides technology-enabled services and software to
help law firms, corporations, and government agencies solve complex
data challenges. With offices in 26 locations across 17 countries,
KLDiscovery is a global leader in delivering best-in-class data
management, information governance, and eDiscovery solutions to
support the litigation, regulatory compliance, and internal
investigation needs of clients. Serving clients for over 30 years,
KLDiscovery offers data collection and forensic investigation,
early case assessment, data processing, application software and
data hosting for web-based document reviews, and managed document
review services. In addition, through its global Ontrack data
management business, KLDiscovery delivers world-class data
recovery, disaster 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 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. Visit www.kldiscovery.com to learn
more.
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 the benefits of KLDiscovery’s products and Client Portal
for its clients and the benefits of the Company’s agreement in
principle with its principal debenture holders and principal term
loan lender 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: consequences of KLDiscovery’s substantial levels
of indebtedness, including the pending maturity and potential
acceleration thereof in June 2024, and its ability to repay its
debt obligations as they become due or to secure alternative
sources of financing; entry into definitive agreements with respect
to and closing of a transaction in respect of the agreement in
principle described above with KLDiscovery’s principal debenture
holders and principal term loan lender; KLDiscovery’s potential
failure to comply with privacy and information security regulations
governing the client datasets it processes and stores;
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; 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 and
successfully grow revenues from new products such as Nebula,
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; potential disruption of KLDiscovery’s
products, offerings, website and networks; difficulties resulting
from KLDiscovery’s implementation of new consolidated business
systems; the ability to deliver products and services following a
disaster or business continuity event; disease or similar public
health threat, such as COVID-19; potential unauthorized use of our
products and technology by third parties and/or data security
breaches and other incidents; potential intellectual property
infringement claims; and the ability to comply with various trade
restrictions, such as sanctions and export controls, resulting from
KLDiscovery’s international operations.
These risks and other factors discussed in the “Risk Factors”
section of KLDiscovery’s Annual Report on Form 10-K and Quarterly
Report on Form 10-Q 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
We prepare financial statements in accordance with U.S. GAAP. We
also disclose and discuss other non-U.S. GAAP financial measures
such as EBITDA and adjusted EBITDA. Our management believes that
these measures are relevant and provide useful supplemental
information to investors by providing a baseline for evaluating and
comparing our operating performance against that of other companies
in our industry.
Our management believes EBITDA and Adjusted EBITDA 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 our U.S. GAAP financial measures and compare them
with our EBITDA and adjusted EBITDA. The non-U.S. 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-U.S. 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.
EBITDA and Adjusted EBITDA
We define EBITDA as net income (loss) plus interest (income)
expense, income tax expense (benefit), extinguishment of debt,
impairment losses, and depreciation and amortization. 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:
- Acquisition, financing and transaction costs generally
represent earn-out payments, rating agency fees and letter of
credit and revolving facility fees, as well as professional service
fees and direct expenses related to acquisitions and public
offerings and cost associated with reviewing potential alternative
sources for cash or financing related to our debt maturities.
- Because we do not acquire businesses or effect financings on a
regular or predictable cycle, we do not consider the amount of
these costs to be a representative component of the day-to-day
operating performance of our business.
- Stock compensation and other primarily represent portions 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. Additionally, stock compensation is a
non-cash expense. 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 Private 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, such as severance payments, recruiting fees and
retention charges. 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240508954665/en/
Investor Contact: Dawn Wilson (703) 520-1498
dawn.wilson@kldiscovery.com
Media Contact: Danny Zambito (888) 811-3789
danny.zambito@kldiscovery.com