Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - KEYW HOLDING CORP | a201738sonicexhibit992.htm |
| EX-99.1 - EXHIBIT 99.1 - KEYW HOLDING CORP | a20161231erexhibit991.htm |
| 8-K - 8-K - KEYW HOLDING CORP | keyw-20161231x8kearningsre.htm |
Acquisition of
Sotera Defense
Solutions
March 8, 2017
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This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995, including, but not limited to, statements regarding KeyW’s future prospects, projected financial results,
estimated integration costs and acquisition related amortization expenses, business plans and the benefits of the
business combination transaction involving KeyW and Sotera, including future financial and operating results such as
fiscal year 2017 expected or projected revenue, adjusted EBITDA and debt to adjusted EBITDA ratio, the combined
company’s plans, objectives, expectations and intentions and other statements that are not historical facts. Words
such as “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates” and
similar expressions are also used to identify these forward-looking statements. These statements are based on the
current beliefs and expectations of KeyW’s management and are subject to significant risks and uncertainties. Actual
results may differ from those set forth in the forward-looking statements. Forward-looking statements are made only as
of the date hereof, and KeyW does not undertake any obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise, except as required by law. In addition, historical
information should not be considered as an indicator of future performance.
In addition to factors previously disclosed in KeyW’s reports filed with the Securities and Exchange Commission
(“SEC”), the following factors could cause actual results to differ materially from forward-looking statements: (i) the
Sotera transaction not being timely completed, if completed at all, including the ability to obtain regulatory approvals
and meet other closing conditions to the transaction in a timely manner, if at all; (ii) risks associated with obtaining the
financing for the transaction on the expected terms and schedule, or at all; (iii) KeyW’s or Sotera’s respective
businesses experiencing disruptions due to transaction-related uncertainty or other factors making it more difficult to
maintain relationships with employees, business partners or governmental entities; (iv) the parties being unable to
successfully implement integration strategies or realize the anticipated benefits of the acquisition, including the
possibility that the expected synergies and cost reductions from the proposed acquisition will not be realized or will not
be realized within the expected time period; (v) the increased leverage and interest expense of the combined
company; (vi) general economic conditions and/or conditions affecting the parties’ current and prospective customers
and/or (vii) difficulties with, delays in or the inability to achieve the parties’ and combined company’s revenue and
adjusted EBITDA guidance for 2017, due to, among other things, unanticipated circumstances, trends or events
affecting the combined company's financial performance. Factors other than those referred to above could also cause
KeyW’s or Sotera’s results to differ materially from expected results.
Forward Looking Statements
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Non-GAAP Financial Measures
This presentation contains forward looking estimates of adjusted EBITDA, including adjusted EBITDA margin. Adjusted EBITDA, as defined by KeyW, is a financial measure that
is not calculated in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Adjusted EBITDA should not be considered as an
alternative to net income, operating income or any other measure of financial performance calculated and presented in accordance with U.S. GAAP. Our adjusted EBITDA may
not be comparable to similarly titled measures of other companies because other companies may not calculate adjusted EBITDA or similarly titled measures in the same manner
as we do. We prepare adjusted EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. We encourage you to evaluate
these adjustments and the reasons we consider them appropriate.
We believe adjusted EBITDA is useful to investors in evaluating our operating performance for the following reasons:
– we have various non-recurring transactions or non-operating transactions and expenses that directly impact our net income. Adjusted EBITDA is intended to approximate
the net cash provided by operations by adjusting for non-recurring or non-operating items; and
– securities analysts use adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies.
Our board of directors and management use adjusted EBITDA:
as a measure of operating performance;
– to determine a significant portion of management's incentive compensation;
– for planning purposes, including the preparation of our annual operating budget; and
– to evaluate the effectiveness of our business strategies.
Although adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, adjusted EBITDA has limitations as an analytical tool, and
you should not consider it in isolation or as a substitute for analysis of our results of operations as reported under GAAP. Some of these limitations are:
– adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or other contractual commitments;
– adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
– adjusted EBITDA does not reflect interest expense or interest income;
– adjusted EBITDA does not reflect cash requirements for income taxes;
– adjusted EBITDA does not include non-cash expenses related to stock compensation;
Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and adjusted EBITDA does
not reflect any cash requirements for these replacements; and
– other companies in our industry may calculate adjusted EBITDA or similarly titled measures differently than we do, limiting i ts usefulness as a comparative measure.
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Presenters
Bill Weber
President & Chief Executive Officer, KeyW
Mike Alber
Executive Vice President, Chief Financial Officer, KeyW
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Approvals and Timing
Approved by KeyW and Sotera’s Board of Directors
Expected transaction close during early part of Q2 2017, subject to customary regulatory
approvals
Overview
Total cash purchase price of $235 million, subject to customary pre- and post-closing
adjustments
Represents 9.8x 2017E adjusted EBITDA, net of expected present value of tax benefits
of ~$46 million
Transaction Overview
Transaction Structure
KeyW intends to fund the transaction with a new secured credit facility and cash on hand
Pro forma net debt to trailing twelve months adjusted EBITDA of 4.4x
Transaction structure preserves tax attributes, subject to applicable §382 limitation
Leadership Team
Bill Weber (KeyW CEO) and Mike Alber (KeyW CFO) to remain CEO and CFO,
respectively, of combined company
Key leadership personnel from Sotera will remain in place following the acquisition
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Defense Intelligence
Counterterrorism
Other Fed. / Comm.
National
Intelligence
17%
FBI CT
28%
DHS CT
2%
DoD Intel
31%
DoD S&T
18%
Other Federal &
Commercial
4%
Sotera: Overview
A pure-play provider of innovative technology systems, solutions and services
for critical U.S. national security missions
Overview Core Competencies & Capabilities
Sotera delivers systems, solutions and services to the
Intelligence Community, Department of Defense,
Department of Homeland Security and federal law
enforcement agencies
− Key customers include FBI and DoD intelligence
agencies
− 1,100 employees, with ~80% of direct employees with
TS or greater clearance levels
− 79% of revenues derived from prime contracts
− 50% Cost Plus / 45% T&M and Fixed Price
Segment Overview Revenue Mix by End-Customer
Analytics / Visualization
Agile Development
Cyber Security
Internet of Things
Cloud Computing
Big Data
Machine Learning /
Artificial Intelligence
National Intelligence National
Intelligence
Defense
Intelligence
Advanced Programs
& Technologies
Counterterrorism
Watchlisting
Agile Software
Development
Classified
Networks
Next Generation
IT Solutions
Cloud Migration
Scientific Services
Life-Cycle
Software Support
Secure IT /
Communications
Networks
Systems
Integration
Cyber Solutions
Big Data Analytics
& Fusion
Cloud
Engineering
Agile Lifecycle
Engineering
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Transaction Rationale: Strategic
Adds New and Complementary Capabilities
Adds Significant Scale, Creating Unique, IC-focused Provider
Provides Access to Large Portfolio of Prime Contracts and IDIQ Vehicles
Provides New and Enhanced Access to Agencies within the IC
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Provides New and Enhanced Access to Target
Agencies within the IC
Sotera Customers Increased Access to the IC
FBI
NAVY
ARMY
USMC
NSA
USASAC
DISA
ARCYBER
DARPA
DIA
25%
60%
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Adds Significant Scale, Creating Unique, IC-
focused Provider
The acquisition of Sotera creates a pure-play, IC-focused
services provider of scale
– ~2,100 skilled employees, of which ~80% will have Top
Secret or greater clearance
Scale provides a more competitive cost model to drive
additional growth
Sotera also provides greater access to traditional
Department of Defense intelligence customers
– Creates opportunity to cross-sell KeyW’s solutions to
additional IC customers
Combined Company Pro Forma FY2017 Revenue Overview
IC
87%
DoD &
Other
13%
IC
78%
DoD &
Other
22%
IC
83%
DoD &
Other
17%
$310 (1)
$225
$535
(1) Represents midpoint of FY2017 KeyW revenue guidance.
($ in millions)
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Adds New and Complementary Capabilities
Agile Development
Designs, develops, documents, tests, integrates and implements custom software modules and solutions focused on C4ISR
and intelligence-related applications
Services range from firmware development for weapons systems to web-based portal development for network operations
centers
Cloud Computing
Provides leading edge cloud architecture and software engineering solutions to the IC / DoD
Combines cloud capabilities with data fusion and visual analytics to create new capabilities for intelligence analysis
Big Data
Offers tools which provide multiple data science analytical capabilities including: distributed graph analytics, aggregate
micro-paths, social media analysis and community tracking
Analytics /
Visualization
Delivers data analytics, cyber and visualization solutions for IC and DoD Tactical ISR mission systems operating in a cloud
computing environment
Analytic capabilities include all-source analysis, watchlisting, targeting and DOMEX utilizing community standard messing
handling, data visualization and collaboration tools
Machine Learning /
Artificial Intelligence
Design deep learning (Neural Network)
Develop Learning Models (Supervised, Semi-Supervised, Unsupervised)
Correlation, Discovery, Pattern of Life
Internet of Things
(“IoT”)
Exploration of IoT data for information discovery
Modeling IoT data for Extract Transform and Load
Developing predictive analytics for IoT challenge problems
Cyber Security
Supports cyber signals intelligence and cyber warfare priorities by leveraging systems engineering, network architecture,
software development, intelligence analysis and IT security capabilities to defend or exploit vital information
Protects against threats including bot net attacks, network infiltration and attacker reconnaissance
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Provides Access to Large Portfolio of Prime
Contracts and IDIQ Vehicles
Enhanced BD engine will accelerate KeyW’s solutions growth strategy
GSA Schedules ID/IQs & GWACs Prime / Sub Mix
GSA Schedules Professional Engineering Services
GSA Schedules MOBIS
GSA Schedules IT Schedule 70
GSA Schedules Schedule 56
Existing Sotera Existing KeyW & Sotera
GSA Schedules INSCOM GISS
GSA Schedules CIO-SP3
GSA Schedules SSE NexGen
GSA Schedules NRL ITD
GSA Schedules Army TIES
GSA Schedules ITSSS
GSA Schedules DHS EAGLE II
58%
79%
67%
42%
21%
33%
Prime Sub
BPAs
GSA Schedules DONCJIS
GSA Schedules IATI
GSA Schedules DIA E-SITE
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Only public pure-play provider to the Intelligence Community and its mission
High-end portfolio of products and services in support of the most difficult and
complex national security and counterterrorism missions
Proprietary and highly-engineered solutions to address a larger segment of the
Intelligence Community
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Highly-Achievable
Cost Synergies
$3.5 million of synergies expected to be realized in the 2nd half of 2017
Total expected long-term synergies of $7 – $10 million
Transaction Rationale: Financial
Enhanced Cash Flow
Profile
Projected cash flow profile of the combined business enables rapid deleveraging: ~$43
million of pro forma 2017 operating cash flow
Tax attributes of an expected $46 million at NPV increase net cash flow through reduction
of cash tax expense
Accretive to Earnings
per Share (EPS)
Expect immediate accretion to EPS (GAAP excluding transaction expenses and before
amortization of acquired intangibles) in FY2017
Expect significant accretion to EPS (both GAAP and before amortization of acquired
intangibles) in FY2018
Creates IC-Focused
Company of Scale
Combined pro forma 2017 revenues of $535 million
Combined pro forma 2017 adjusted EBITDA of $62 million
Maintains long-term adjusted EBITDA margin profile of 10+%
Further diversifies contract base
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Capitalization and Leverage
Commentary Pro Forma Capitalization Table
The acquisition of Sotera is expected to
be funded through existing balance sheet
cash and a new $135 million 5-year Term
Loan
Committed financing in place
Provides a well-balanced capital structure
with flexibility for continued capital
deployment and debt repayment
Attractive interest rates and acquired tax
assets expected to provide strong and
stable cash flow
Amount (1) Leverage (2)
Cash $10.0
New Term Loan 135.0
Existing Debt 149.5
Total Net Debt $274.5 4.4x
(1) PF as of Dec-31-2016.
(2) Based on ~$62 million of Adj. EBITDA.
($ in millions)
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Summary
Creates differentiated, pure-play intelligence services provider with pro forma
2017 $535 million of revenue and $62 million of adjusted EBITDA
Accelerates KeyW management’s growth plan within the IC
Balances and diversifies customer base and capabilities, adds substantial scale,
and increases addressable market
Scale improves competitive dynamic in today’s budget environment
Enhances free cash flow and pro forma earnings