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KLDiscovery Inc. Announces Fourth Quarter 2020 Financial Results

Revenue, Net Loss, EBITDA Improve Compared to Third Quarter 2020

MCLEAN, Va.–(BUSINESS WIRE)–KLDiscovery Inc. (“KLDiscovery” or the “Company”), a leading global provider of electronic discovery, information governance and data recovery services, announced today that revenue for the fourth quarter ended December 31, 2020 was $74.6 million versus $72.3 million in the third quarter of 2020, a 3% increase quarter-over-quarter and a decrease of 7% year-over-year compared to the fourth quarter 2019. Net loss for the fourth quarter of 2020 was $9.8 million compared to $12.7 million in the third quarter of 2020, an improvement of 23% quarter-over-quarter and an improvement of 45% compared to the fourth quarter 2019 net loss of $17.8 million.

EBITDA for the fourth quarter of 2020 was $14.3 million versus $12.3 million in the third quarter of 2020, an increase of 16% quarter-over-quarter and was similar to the $14.4 million in the fourth quarter of 2019. Adjusted EBITDA (which excludes management fees and stock-based compensation, acquisition financing and transaction costs and other items as described below) for the fourth quarter of 2020 was $19.4 million compared to $16.7 million in the third quarter of 2020, an increase of 16% quarter-over-quarter and 13% compared to the fourth quarter of 2019. Reconciliations of EBITDA and Adjusted EBITDA to their comparable GAAP measure are shown in detail below, along with definitions for those terms.

“2020 was an extraordinary year of change and challenges but I am very proud of the accomplishments of the team at KLDiscovery as their efforts and dedication resulted in an excellent fourth quarter,” said Christopher Weiler, CEO of KLDiscovery Inc. “We achieved outstanding improvement in our financial results in the fourth quarter of 2020 compared to the second quarter of 2020 when the COVID-19 pandemic severely impacted the economy. We have done an excellent job managing costs while growing revenue. In Q4 2020 compared to Q2 2020, revenue increased 16%, net loss improved 34%, EBITDA was up 37%, and Adjusted EBITDA increased 59%. We achieved our highest Adjusted EBITDA in six quarters. We ended 2020 with $51.2 million in cash and cash equivalents on our balance sheet and a 579% increase in cash flow from operations compared to 2019 due to continued high cash receipts, cost reductions and tax deferral and credits. All of these improvements came as we implemented permanent cost savings with our data recovery integration and real estate footprint reduction while still investing in technology and research & development.”

Mr. Weiler continued, “We are in the process of evolving KLDiscovery into a company that will service industries beyond the confines of traditional eDiscovery and data recovery. In 2021, we are in the process of making significant technology investments that will change the way our customers interact with our products and services. We are investing to further develop our Nebula platform, which we believe is industry-changing and continues to gain customers and terabytes hosted. Our clients are being driven to cloud-only based hosting solutions, while our competitors use third-party applications exclusively for collections, data processing, data hosting, advanced analytics and natural language processing. We believe we will be the company that can deliver outstanding customer service while providing our best of class hosting platform through a number of different delivery vehicles intentionally designed to meet diverse geographic and data control needs. We are on a client-centric mission seamlessly delivering a full suite of proprietary software/hardware products and services in a bespoke manner built for and by our clients, wherever and however the client desires. I believe these changes will give our customers unprecedented levels of optionality in how they manage their data and truly differentiate our company while significantly expanding our total addressable market.”

Year 2019-2020 Quarterly Results – Unaudited
2019 (unaudited)     2020 (unaudited)
Q1   Q2   Q3   Q4     Q1   Q2   Q3   Q4
Revenue

75.0

 

78.3

 

78.2

 

80.5

   

78.3

 

64.4

 

72.3

 

74.6

Net loss

(13.5)

 

(11.4)

 

(11.3)

 

(17.8)

   

(12.5)

 

(14.9)

 

(12.7)

 

(9.8)

                 
Net loss per share (basic and diluted)

$ (0.32)

 

$ (0.27)

 

$ (0.26)

 

$ (0.42)

   

$ (0.29)

 

$ (0.35)

 

$ (0.30)

 

$ (0.23)

Weighted average outstanding shares (basic and diluted)

42.3

 

42.4

 

42.5

 

42.5

   

42.5

 

42.5

 

42.5

 

42.5

                 
EBITDA

11.2

 

13.7

 

13.4

 

14.4

   

12.5

 

10.4

 

12.3

 

14.3

Adjusted EBITDA

15.1

 

19.6

 

16.8

 

17.2

   

15.0

 

12.2

 

16.7

 

19.4

(in millions except per share data)                

2021 Outlook

As previously announced, KLDiscovery is currently limited in its ability to accurately predict what the financial impact will be from the COVID-19 pandemic. KLDiscovery is not providing full-year 2021 guidance until it gains additional data points about the total operational impact of this global pandemic.

Earnings Conference Call

Management will conduct a conference call at 8:30 AM ET on Thursday, March 18, 2021 to discuss results for the fourth quarter of 2020. 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:

http://www.directeventreg.com/registration/event/3093296

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) 585-8367 (from the U.S. and Canada) or (416) 621-4642 (from all other countries) using access code 3093296 or visit the Investors section of the KLDiscovery website at https://investors.kldiscovery.com.

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

2020

2019

2020

2019

(unaudited) (unaudited)
 
Revenues

$ 74,592

$ 80,527

$ 289,545

$ 312,054

Cost of revenues

36,260

41,908

147,732

160,845

Gross profit

38,332

38,619

141,813

151,209

 
 
Operating expenses
General and administrative

15,975

13,126

58,509

55,005

Research and development

2,033

1,490

7,167

5,945

Sales and marketing

8,935

12,305

38,395

48,517

Depreciation and amortization

8,820

9,906

35,955

39,149

Total operating expenses

35,763

36,827

140,026

148,616

 
Income from operations

2,569

1,792

1,787

2,593

 
Other expenses
Other expense

16

7,389

118

7,511

Interest expense

12,356

11,890

50,659

48,377

Loss before income taxes

(9,803)

(17,487)

(48,990)

(53,295)

Income tax benefit (provision)

(28)

328

936

719

 
Net loss

$ (9,775)

$ (17,815)

$ (49,926)

$ (54,014)

 
Other comprehensive income, net of tax
Foreign currency translation

4,400

2,604

4,947

311

Total other comprehensive income, net of tax

4,400

2,604

4,947

311

Comprehensive loss

$ (5,375)

$ (15,211)

$ (44,979)

$ (53,703)

 
Net loss per share – basic and diluted

$ (0.23)

$ (0.42)

$ (1.17)

$ (1.27)

 
Weighted average shares outstanding – basic and diluted

42,529,017

40,835,186

42,529,017

42,425,295

 
Reconciliation of Non-GAAP Financial Matters
(In thousands)
(Unaudited)
 
Three Months Ended December 31, For The Year Ended December 31,

2020

2019

2020

2019

Net loss

$ (9,774)

$ (17,815)

$ (49,926)

$ (54,014)

Interest expense

12,356

11,890

50,659

48,377

Income tax (benefit) expense

(28)

328

936

719

Depreciation and amortization expense

11,698

12,793

47,761

50,407

Loss on debt extinguishment

7,203

7,203

EBITDA

$ 14,252

$ 14,399

$ 49,430

$ 52,692

Acquisition, financing and transaction costs

3,629

121

5,210

3,626

Strategic Initiatives:
Sign-on bonus amortization

113

188

413

Non-recoverable draw

840

304

3,714

Total strategic initiatives

953

492

4,127

Management fees, stock compensation and other

933

671

3,658

3,515

Restructuring costs

231

573

2,530

2,209

Systems establishment

403

443

1,969

2,554

Adjusted EBITDA

$ 19,448

$ 17,160

$ 63,289

$ 68,723

 

Note:

  • 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 with Pivotal Acquisition Corp in December 2019
  • Strategic initiatives include the amortization of one-time expenses related to the hiring of a team of sales personnel.
  • Management fees, stock compensation & other includes consulting fees, expenses related to the Company’s stock compensation plan, business insurance and other expenses.
  • 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.
Consolidated Balance Sheets
(in thousands, except share and per share data)
     
December 31, 2020 December 31, 2019
 
Current assets        
Cash and cash equivalents

 $                                51,201

 $                            43,407

Accounts receivable, net of allowance    
for doubtful accounts of $8,449 and $7,486, respectively

                                  83,985

                               96,994

Prepaid expenses  

                                    7,175

 

                                7,296

Other current assets

                                       709

                                   556

Total current assets  

                                 143,070

 

                             148,253

Property and equipment
Computer software and hardware  

                                  72,211

 

                               72,228

Leasehold improvements

                                  27,271

                               26,963

Furniture, fixtures and other equipment  

                                    3,365

 

                                3,794

Accumulated depreciation

                                 (77,697)

                              (64,682)

Property and equipment, net  

                                  25,150

 

                               38,303

Intangible assets, net

                                 109,733

                             130,568

Goodwill  

                                 399,085

 

                             395,171

Other assets

                                    2,708

                                2,617

Total assets  

 $                              679,746

 

 $                          714,912

Current liabilities
Current portion of long-term debt, net  

 $                                10,948

 

 $                            11,689

Accounts payable and accrued expense

                                  33,504

                               31,270

Current portion of contingent consideration  

                                       695

 

                                   340

Deferred revenue

                                    3,955

                                4,851

Total current liabilities  

                                  49,102

 

                               48,150

Long-term debt, net

                                 472,600

                             468,932

Deferred tax liabilities

                                    7,335

                                6,294

Other liabilities

                                    8,488

                                7,771

Total liabilities

                                 537,525

                             531,147

Commitments and contingencies
Stockholders’ equity
Common stock
$0.0001 par value, shares authorized – 200,000,000 shares authorized
as of December 31, 2020 and December 31, 2019; shares issued and
outstanding – 42,529,017 as of December 31, 2020 and December 31,
2019, respectively

                                          4

                                       4

Preferred Stock
$0.0001 par value, 1,000,000 shares authorized, zero issued and
outstanding as of December 31, 2020 and December 31, 2019, respectively

                                         —

                                     —

Additional paid-in capital

                                 385,387

                             381,952

Accumulated deficit

                                (255,424)

                            (205,498)

Accumulated other comprehensive income

                                  12,254

                                7,307

Total stockholders’ equity

                                 142,221

                             183,765

Total liabilities and stockholders’ equity

 $                              679,746

 $                          714,912

 

KLDiscovery Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
For The Year Ended December 31 

2020

2019

Operating activities
Net loss

 $                                   (49,926)

 $                                   (54,014)

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

                                       47,762

                                       50,407

Non-cash interest

                                       19,450

                                         5,320

Stock-based compensation

                                         3,435

                                         2,265

Provision for losses on accounts receivable

                                         4,088

                                         3,104

Deferred income taxes

                                         1,041

                                           219

Loss on extinguishment of debt

                                             —

                                         7,203

Change in fair value of contingent consideration

                                             98

                                             48

Changes in operating assets and liabilities:
Accounts receivable

                                       10,050

                                      (16,712)

Prepaid expenses and other assets

                                             87

                                         2,404

Accounts payable and accrued expenses

                                         4,675

                                        (8,937)

Deferred revenue

                                          (984)

                                           396

Net cash provided by (used) in operating activities

                                       39,776

                                        (8,297)

Investing activities
Acquisitions, net of cash

                                        (3,124)

                                        (1,950)

Purchases of property and equipment

                                      (10,935)

                                      (13,268)

Net cash used in investing activities

                                      (14,059)

                                      (15,218)

Financing activities
Recapitalization transaction

                                             —

                                     186,503

Revolving credit facility – draws

                                       29,000

                                       54,500

Revolving credit facility – repayments

                                      (29,000)

                                      (54,500)

Payments for capital lease obligations

                                        (1,595)

                                        (1,427)

Issuance of common stock

                                             —

                                           414

Payments on long-term debt

                                      (17,000)

                                    (142,000)

Net cash (used in) provided by financing activities

                                      (18,595)

                                       43,490

Effect of foreign exchange rates

                                           672

                                              (7)

Net increase in cash

                                         7,794

                                       19,968

Cash at beginning of period

                                       43,407

                                       23,439

Cash at end of period

 $                                    51,201

 $                                    43,407

Supplemental disclosure:
Cash paid for interest

 $                                    32,196

 $                                    42,693

Income taxes paid, net of refunds

 $                                        (195)

 $                                         470

Significant noncash investing and financing activities
Assumption of Pivotal Debentures

 $                                           –  

 $                                  200,000

Equity issued for acquisitions

 $                                           –  

 $                                      1,241

Purchases of property and equipment in accounts
    payable and accrued expenses on the
    consolidated balance sheets

 $                                         394

 $                                         129

 

About KLDiscovery

KLDiscovery provides technology-enabled services and software to help law firms, corporations, government agencies and consumers solve complex data challenges. The company has 32 locations, nine data centers and 18 data recovery labs across 18 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 Year™. Additionally, KLDiscovery is a Relativity Certified Partner and maintains ISO/IEC 27001 Certified data centers around the world. For more information, please email info@kldiscovery.com 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, attractiveness of KLDiscovery’s product offerings and platform and the value proposition of KLDiscovery’s products, 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; 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; 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 and Adjusted EBITDA.

Contacts

Investor Contacts:


Dawn Wilson

(703) 520-1498

dawn.wilson@kldiscovery.com

Richard Simonelli

(202) 450-9516

richard.simonelli@kldiscovery.com

Media Contact:

Krystina Jones

(888) 811-3789

krystina.jones@kldiscovery.com

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