KLDiscovery Inc. Announces First Quarter 2022 Financial Results | Business & Finance

MCLEAN, Va.–(BUSINESS WIRE)–May 11, 2022–

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, 2022 was $81.9 million versus $75.5 million in the first quarter of 2021, a 9% increase year-over-year. Net loss for the first quarter of 2022 was $(9.6) million compared to $(14.9) million in the first quarter of 2021, an improvement of 36%. The first quarter of 2021 included a $7.2 million loss on debt extinguishment in connection with the retirement of our first lien debt that did not recur in the first quarter of 2022.

EBITDA 1 for the first quarter of 2022 was $11.3 million versus $15.1 million in the first quarter of 2021. Adjusted EBITDA 1 (which excludes stock-based compensation, acquisition financing and transaction costs and other items as described below) for the first quarter of 2022 was $14.1 million compared to $15.4 million in the first quarter of 2021, reflecting planned investments in research and development and sales and marketing.

“The first quarter of 2022 was an excellent quarter for KLDiscovery,” said Christopher Weiler, CEO of KLDiscovery Inc. “We continued our streak of 4 consecutive strong quarters of revenue with the first quarter of 2022 delivering $81.9 million of revenue, a 9% increase year-over-year. Our net loss improved by 36% year-over-year even as we continue our investment in research and development. Our Nebula platform continued to gain significant traction as the number of Nebula clients and Nebula matters in Q1 2022 vs. Q1 2021 increased by 31% and 24% respectively. 2 “

Mr. Weiler continued, “Our financial performance in the first quarter was strong and I am very pleased with the growth of Nebula as we continue to remain focused on what we can control in difficult macro-economic conditions. We continue to deliver world-class customer service to our clients combined with our fully integrated solution of full-stack AI and ML powered technology.”

2021-2022 Quarterly Results
(in millions except per share data)
 
2021 (unaudited) 2022 (unaudited)
Q1 Q2 Q3 Q4 Q1
Revenue

 

75.5

 

 

81.7

 

 

81.1

 

 

82.3

 

 

81.9

 

Net loss

 

(14.9

)

 

(8.9

)

 

(29.5

)

 

(7.3

)

 

(9.6

)

Net loss per share (basic and diluted)

$

(0.35

)

$

(0.21

)

$

(0.69

)

$

(0.17

)

$

(0.22

)

Weighted average outstanding shares (basic and diluted)

 

42.6

 

 

42.6

 

 

42.6

 

 

42.7

 

 

42.7

 

EBITDA (Non-GAAP)

 

15.1

 

 

13.7

 

 

14.7

 

 

13.8

 

 

11.3

 

Adjusted EBITDA (Non-GAAP)

 

15.4

 

 

17.7

 

 

16.8

 

 

15.3

 

 

14.1

 

1 Non-GAAP measure. See “Non-GAAP Financial Measures” below for additional information.

2 See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Quarterly Report on Form 10-Q for the first quarter of 2022 for information regarding how we calculate the number of Nebula clients and matters.

Management will conduct a conference call at 8:30 AM ET on Thursday, May 12, 2022 to discuss financial results for the first quarter of 2022. 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.

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 or visit the Investors section of the KLD website.

KLDiscovery Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands, except share and per share amounts)
 
Three Months Ended March 31,

 

2022

 

 

2021

 

(unaudited)
 
Revenues

$

81,898

 

$

75,450

 

Cost of revenues

 

43,272

 

 

37,422

 

Gross profit

 

38,626

 

 

38,028

 

Operating expenses
General and administrative

 

16,525

 

 

15,440

 

Research and development

 

3,068

 

 

2,171

 

Sales and marketing

 

10,844

 

 

9,457

 

Depreciation and amortization

 

4,914

 

 

7,641

 

Total opera
ting expenses

 

35,351

 

 

34,709

 

Income from operations

 

3,275

 

 

3,319

 

Other expenses
Other expense

 

 

 

14

 

Change in fair value of Private Warrants

 

(191

)

 

(1,969

)

Interest expense

 

12,691

 

 

12,257

 

Loss on debt extinguishment

 

 

 

7,257

 

Loss before income taxes

 

(9,225

)

 

(14,240

)

Income tax provision

 

355

 

 

616

 

Net loss

$

(9,580

)

$

(14,856

)

Other comprehensive loss, net of tax
Foreign currency translation

 

(2,140

)

 

(2,462

)

Total other comprehensive loss, net of tax

 

(2,140

)

 

(2,462

)

Comprehensive loss

$

(11,720

)

$

(17,318

)

Net loss per share – basic and diluted

$

(0.22

)

$

(0.35

)

 
Weighted average shares outstanding – basic and diluted

 

42,686,216

 

 

42,532,915

 

 
  • In Q1 2021, the Company determined that the 6,350,000 private warrants issued in connection with the consummation of the business combination in December 2019 between Pivotal Acquisition Corp. and LD Topco, Inc. (the “Business Combination”) which were originally accounted for using equity accounting, should be accounted for using liability accounting in accordance with Accounting Standard Codification ASC 815-40, Derivatives and Hedging: Contracts on an Entity’s Own Equity. The Company corrected this error in Q1 2021 and now measures these warrant liabilities at fair value on a recurring basis, with changes in fair value presented within change in fair value of private warrants in the Condensed Consolidated Statement of Comprehensive Loss.
  • In Q4 2021, the Company adopted Accounting Standards Update (“ASU”) No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. As a result, the amortization costs for capitalized implementation costs related to cloud computing arrangements are now included in general and administrative expense in the Company’s Consolidated Statement of Comprehensive Loss and totaled $0.4 million in Q1 2022. In Q1 2021 these costs were included in depreciation and amortization expense in the Company’s Condensed Consolidated Statement of Comprehensive Income and totaled $0.2 million.

Set forth below is a reconciliation of EBITDA and Adjusted EBITDA, 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.

 
Reconciliation of Non-GAAP Financial Matters
(In thousands)
(Unaudited)
 
Three Months Ended March 31,

 

2022

 

 

2021

 

Net loss

$

(9,580

)

$

(14,856

)

Interest expense

 

12,691

 

 

12,257

 

Income tax provision

 

355

 

 

616

 

Extinguishment of debt

 

 

 

7,257

 

Depreciation and amortization expense

 

7,850

 

 

9,816

 

EBITDA

$

11,316

 

$

15,090

 

Acquisition, financing and transaction costs

 

1,364

 

 

782

 

Stock compensation and other

 

1,118

 

 

1,034

 

Change in fair value of Private Warrants

 

(191

)

 

(1,969

)

Restructuring costs

 

57

 

 

4

 

Systems establishment

 

394

 

 

427

 

Adjusted EBITDA

$

14,058

 

$

15,368

 

  • 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.
  • Stock compensation & other includes expenses related to the Company’s stock compensation plan, business insurance and other expenses.
  • Change in fair value of warrants relates to changes in the fair market value of the private warrants issued in conjunction with the Business Combination.
  • 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.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
 
March 31, 2022 December 31, 2021
(unaudited)
Current assets
Cash and cash equivalents

$

38,403

 

$

46,468

< /td>

 

Accounts receivable, net of allowance
for doubtful accounts of $8,573 and $9,774, respectively

 

98,950

 

 

93,273

 

Prepaid expenses

 

15,678

 

 

9,669

 

Other current assets

 

1,070

 

 

1,133

 

Total current assets

 

154,101

 

 

150,543

 

Property and equipment
Computer software and hardware

 

72,719

 

 

73,677

 

Leasehold improvements

 

26,564

 

 

26,796

 

Furniture, fixtures and other equipment

 

2,819

 

 

3,064

 

Accumulated depreciation

 

(82,066

)

 

(81,261

)

Property and equipment, net

 

20,036

 

 

22,276

 

Intangible assets, net

 

56,245

 

 

59,291

 

Goodwill

 

394,226

 

 

395,759

 

Other assets

 

8,395

 

 

8,535

 

Total assets

$

633,003

 

$

636,404

 

Current liabilities
Current portion of long-term debt, net

$

3,000

 

$

3,000

 

Accounts payable and accrued expense

 

32,828

 

 

27,067

 

Current portion of contingent consideration

 

655

 

 

646

 

Deferred revenue

 

3,497

 

 

4,800

 

Total current liabilities

 

39,980

 

 

35,513

 

Long-term debt, net

 

510,301

 

 

507,706

 

Deferred tax liabilities

 

6,957

 

 

6,772

 

Other liabilities

 

8,533

 

 

8,559

 

Total liabilities

 

565,771

 

 

558,550

 

Commitments and contingencies
Stockholders’ equity
Common stock
$0.0001 par value, 200,000,000 shares authorized, 42,701,216 and 42,684,549 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

4

 

 

4

 

Preferred Stock
$0.0001 par value, 1,000,000 shares authorized, zero issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

 

 

Additional paid-in capital

 

387,126

 

 

386,028

 

Accumulated deficit

 

(325,547

)

 

(315,967

)

Accumulated other comprehensive income

 

5,649

 

 

7,789

 

Total stockholders’ equity

 

67,232

 

 

77,854

 

Total liabilities and stockholders’ equity

$

633,003

 

$

636,404

 

KLDiscovery Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
For The Three Months Ended March 31,

 

2022

 

 

2021

 

(unaudited)
 
Operating activities
Net loss

$

(9,580

)

$

(14,856

)

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

 

7,850

 

 

9,816

 

Non-cash interest

 

4,860

 

 

4,815

 

Loss on extinguishment of debt

 

 

 

7,257

 

Stock-based compensation

 

1,062

 

 

978

 

Provision for losses on accounts receivable

 

827

 

 

972

 

Deferred income taxes

 

185

 

 

342

 

Change in fair value of contingent consideration

 

9

 

 

19

 

Change in fair value of Private Warrants

 

(191

)

 

(1,969

)

Changes in operating assets and liabilities:
Accounts receivable

 

(6,822

)

 

(680

)

Prepaid expenses and other assets

 

(6,190

)

 

(5,087

)

Accounts payable and accrued expenses

 

5,631

 

 

(2,986

)

Deferred revenue

 

(1,287

)

 

(1,436

)

Net cash provided by operating activities

 

(3,646

)

 

(2,815

)

Investing activities
Purchases of property and equipment

 

(2,968

)

 

(3,088

)

Net cash used in investing activities

 

(2,968

)

 

(3,088

)

Financing activities
Proceeds for exercise of stock options

 

 

 

34

 

Payments for capital lease obligations

 

(531

)

 

(285

)

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

 

(750

)

 

 

Net cash (used in) provided by financing activities

 

(1,281

)

 

2,718

 

Effect of foreign exchange rates

 

(170

)

 

(208

)

Net decrease in cash

 

(8,065

)

 

(3,393

)

Cash at beginning of period

 

46,468

 

 

51,201

 

Cash at end of period

$

38,403

 

$

47,808

 

Supplemental disclosure:
Cash paid for interest

$

7,876

 

$

12,232

 

Net income taxes paid (refunded)

$

60

 

$

(591

)

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

$

1

 

$

682

 

KLDiscovery provides technology solutions to help law firms, corporations, insurance companies and individuals solve complex data challenges. With 31 locations, 9 data centers and 17 data recovery labs across 19 countries, KLDiscovery 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 [email protected] or visit https://investors.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 expectations regarding Nebula platform revenue 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; 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; KLDiscovery’s ability to develop and successfully grow revenues from new products such as Nebula; 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; difficulties resulting from KLDiscovery’s implementation of new consolidated business systems; t
he 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

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, financing and transaction costs, restructuring costs, and systems establishment costs 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. Because we do not acquire businesses on a predictable cycle, we do not consider the amount of acquisition- and integration-related 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.

KEYWORD: VIRGINIA UNITED STATES NORTH AMERICA

INDUSTRY KEYWORD: PROFESSIONAL SERVICES DATA MANAGEMENT TECHNOLOGY LEGAL FINANCE SOFTWARE

Copyright Business Wire 2022.

PUB: 05/11/2022 04:05 PM/DISC: 05/11/2022 04:06 PM

Copyright Business Wire 2022.

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