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KLDiscovery Inc. Announces First Quarter 2024 Financial Results

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 operating

activities:
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.

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