KLDiscovery Inc. Announces Second Quarter 2022 Financial Results

Rhea-AI Summary

KLDiscovery reported its Q2 2022 results, showing revenue of $75.2 million, a decline from $81.7 million in Q2 2021. The net loss increased to $(11.2) million compared to $(8.9) million the previous year. EBITDA was $9.7 million, down from $13.7 million, while adjusted EBITDA was $12.4 million, down from $17.7 million. Despite economic challenges, the company achieved its best Nebula revenue quarter, a 27% increase from Q1 2022, reflecting ongoing investments in R&D and sales. The Nebula client base grew by 8%. A conference call is scheduled for August 11, 2022, to discuss these results further.

Positive

• Best Nebula revenue quarter in company history, up 27% from Q1 2022.
• Increased Nebula clients by 8% and matters by 10% from Q1 2022.

Negative

• Revenue decreased by 8% year-over-year.
• Net loss increased by 26% compared to Q2 2021.
• EBITDA down by 29% year-over-year.

Q2 2022 Highest Nebula Revenue Quarter in Company History

MCLEAN, Va.--(BUSINESS WIRE)-- 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 second quarter ended June 30, 2022 was $75.2 million versus $81.7 million in the second quarter of 2021. Net loss for the second quarter of 2022 was $(11.2) million compared to $(8.9) million in the second quarter of 2021.

EBITDA¹ for the second quarter of 2022 was $9.7 million versus $13.7 million in the second quarter of 2021. Adjusted EBITDA¹ (which excludes stock-based compensation, acquisition financing and transaction costs and other items as described below) for the second quarter of 2022 was $12.4 million compared to $17.7 million in the first quarter of 2021, reflecting planned investments in research and development and sales and marketing.

“The second quarter of 2022 was a very good quarter for KLDiscovery,” said Christopher Weiler, CEO of KLDiscovery Inc. “Despite the headwinds we are experiencing from a weakening U.S. economy, as reflected by two consecutive quarters of declines in GDP in the first half of 2022, we continue to deliver solid revenue. We achieved the best quarter of Nebula revenue in our history, up 27% from the first quarter of 2022 as our investments in the platform and sales team are yielding measurable results. We increased the number of Nebula clients and Nebula matters in Q2 2022 vs. Q1 2022 by 8% and 10% respectively.²

Mr. Weiler continued, “I am very pleased with the Nebula results. Both Nebula and Client Portal are being extremely well received. The partnerships we have formed with Luminance, Canopy and Shield provide additional functionality that truly differentiates us from the competition and offer maximum value to our clients. As a Company, we remain laser-focused on the things we can control during these difficult economic times. Our team continues 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				Q2
Revenue			75.5				81.7				81.1				82.3				81.9				75.2
Net loss			(14.9	)			(8.9	)			(29.5	)			(7.3	)			(9.6	)			(11.2	)
Net loss per share (basic and diluted)		$	(0.35	)		$	(0.21	)		$	(0.69	)		$	(0.17	)		$	(0.22	)		$	(0.26	)
Weighted average outstanding shares (basic and diluted)			42.6				42.6				42.6				42.7				42.7				42.7
EBITDA (Non-GAAP)			15.1				13.7				14.7				13.8				11.3				9.7
Adjusted EBITDA (Non-GAAP)			15.4				17.7				16.8				15.3				14.1				12.4

__________________________________________

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

Earnings Conference Call

Management will conduct a conference call at 8:30 AM ET on Thursday, August 11, 2022, to discuss financial results for the second 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.

To join the conference call by telephone, please register via the following link: https://conferencingportals.com/event/OpzKpVWo

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 June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
	(unaudited)								(unaudited)
Revenues	$	75,191			$	81,650			$	157,089			$	157,100
Cost of revenues		39,626				40,887				82,898				78,309
Gross profit		35,565				40,763				74,191				78,791
Operating expenses
General and administrative		15,410				16,573				31,935				32,013
Research and development		3,638				2,400				6,706				4,571
Sales and marketing		10,309				10,116				21,153				19,573
Depreciation and amortization		4,891				7,483				9,805				15,124
Total operating expenses		34,248				36,572				69,599				71,281
Income from operations		1,317				4,191				4,592				7,510
Other expenses
Other (expense) income		(14	)			11				(14	)			25
Change in fair value of Private Warrants		(495	)			254				(686	)			(1,715	)
Interest expense		12,876				12,535				25,567				24,792
Loss on debt extinguishment		—				—				—				7,257
Loss before income taxes		(11,050	)			(8,609	)			(20,275	)			(22,849	)
Income tax provision		162				256				517				872
Net loss	$	(11,212	)		$	(8,865	)		$	(20,792	)		$	(23,721	)
Other comprehensive (loss) income, net of tax
Foreign currency translation		(5,683	)			715				(7,823	)			(1,747	)
Total other comprehensive (loss) income, net of tax		(5,683	)			715				(7,823	)			(1,747	)
Comprehensive loss	$	(16,895	)		$	(8,150	)		$	(28,615	)		$	(25,468	)
Net loss per share - basic and diluted	$	(0.26	)		$	(0.21	)		$	(0.49	)		$	(0.56	)
Weighted average shares outstanding - basic and diluted		42,717,097				42,560,117				42,709,200				42,555,105

• 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 and $0.8 million for the three and six months ended June 30, 2022, respectively. For the three and six months ended June 30, 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 and $0.4 million, respectively.

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 June 30,								Six Months Ended June 30,
			2022				2021				2022				2021
Net loss		$	(11,212	)		$	(8,865	)		$	(20,792	)		$	(23,721	)
Interest expense			12,876				12,535				25,567				24,792
Income tax provision			162				256				517				872
Extinguishment of debt			—				—				—				7,257
Depreciation and amortization expense			7,831				9,734				15,681				19,549
EBITDA		$	9,657			$	13,660			$	20,973			$	28,749
Acquisition, financing and transaction costs			1,559				1,235				2,923				2,017
Stock compensation and other			1,353				1,074				2,471				2,107
Change in fair value of Private Warrants			(495	)			254				(686	)			(1,715	)
Restructuring costs			21				1,027				78				1,032
Systems establishment			256				489				650				917
Adjusted EBITDA		$	12,351			$	17,739			$	26,409			$	33,107

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.
• Stock compensation and 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)
		June 30, 2022				December 31, 2021
		(unaudited)
Current assets
Cash and cash equivalents		$	37,537			$	46,468
Accounts receivable, net of allowance
for doubtful accounts of $7,027 and $9,774, respectively			91,223				93,273
Prepaid expenses			13,244				9,669
Other current assets			1,155				1,133
Total current assets			143,159				150,543
Property and equipment
Computer software and hardware			73,598				73,677
Leasehold improvements			26,249				26,796
Furniture, fixtures and other equipment			2,746				3,064
Accumulated depreciation			(82,950	)			(81,261	)
Property and equipment, net			19,643				22,276
Intangible assets, net			52,853				59,291
Goodwill			390,361				395,759
Other assets			8,316				8,535
Total assets		$	614,332			$	636,404
Current liabilities
Current portion of long-term debt, net		$	3,000			$	3,000
Accounts payable and accrued expense			28,762				27,067
Current portion of contingent consideration			664				646
Deferred revenue			2,844				4,800
Total current liabilities			35,270				35,513
Long-term debt, net			512,974				507,706
Deferred tax liabilities			7,109				6,772
Other liabilities			7,295				8,559
Total liabilities			562,648				558,550
Commitments and contingencies
Stockholders' equity
Common stock
$0.0001 par value, 200,000,000 shares authorized, 42,791,540 and 42,684,549 issued and outstanding as of June 30, 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 June 30, 2022 and December 31, 2021, respectively			—				—
Additional paid-in capital			388,473				386,028
Accumulated deficit			(336,759	)			(315,967	)
Accumulated other comprehensive (loss) income			(34	)			7,789
Total stockholders' equity			51,684				77,854
Total liabilities and stockholders' equity		$	614,332			$	636,404

KLDiscovery Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
	For The Six Months Ended June 30,
		2022				2021
	(unaudited)
Operating activities
Net loss	$	(20,792	)		$	(23,721	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		15,681				19,549
Non-cash interest		9,817				9,480
Loss on extinguishment of debt		—				7,257
Stock-based compensation		2,360				1,996
Provision for losses on accounts receivable		1,240				1,916
Deferred income taxes		337				522
Change in fair value of contingent consideration		18				37
Change in fair value of Private Warrants		(686	)			(1,715	)
Changes in operating assets and liabilities:
Accounts receivable		(579	)			(13,637	)
Prepaid expenses and other assets		(4,334	)			(3,109	)
Accounts payable and accrued expenses		697				(996	)
Deferred revenue		(1,882	)			(114	)
Net cash provided by (used in) operating activities		1,877				(2,535	)
Investing activities
Purchases of property and equipment		(7,429	)			(7,343	)
Net cash used in investing activities		(7,429	)			(7,343	)
Financing activities
Proceeds for exercise of stock options		—				38
Payments for capital lease obligations		(1,139	)			(572	)
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		(1,500	)			(750	)
Net cash (used in) provided by financing activities		(2,639	)			1,685
Effect of foreign exchange rates		(740	)			(129	)
Net decrease in cash		(8,931	)			(8,322	)
Cash at beginning of period		46,468				51,201
Cash at end of period	$	37,537			$	42,879
Supplemental disclosure:
Cash paid for interest	$	15,854			$	20,110
Net income taxes paid (refunded)	$	302			$	(450	)
Significant non-cash investing and financing activities
Purchases of property and equipment in accounts payable and accrued expenses on the consolidated balance sheets	$	51			$	159

About KLDiscovery

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 info@kldiscovery.com 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 Nebula and Client Portal, KLDiscovery’s focus and continuing delivery of world-class customer service, 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; 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; 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

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 and public offerings. 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.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220810005704/en/

Investor Contact:

Dawn Wilson

(703) 520-1498

dawn.wilson@kldiscovery.com



Media Contact:

Krystina Jones

(888) 811-3789

krystina.jones@kldiscovery.com

Source: KLDiscovery Inc.

FAQ

What were KLDiscovery's earnings for Q2 2022?

KLDiscovery reported earnings of $75.2 million in revenue and a net loss of $11.2 million for Q2 2022.

How did KLDiscovery perform compared to Q2 2021?

In Q2 2022, KLDiscovery's revenue declined by 8% compared to Q2 2021's $81.7 million.

What is KLDiscovery's adjusted EBITDA for Q2 2022?

The adjusted EBITDA for KLDiscovery in Q2 2022 was $12.4 million.

When will KLDiscovery discuss its Q2 2022 results?

KLDiscovery will hold a conference call on August 11, 2022, to discuss its financial results.