KLDiscovery Inc. Announces Fourth Quarter and Full-Year 2023 Financial Results

Annual Year-over-Year: Revenue Increases 9%, Net Loss Improves 19%,

EBITDA Increases 41%, Adjusted EBITDA Increases 27% and

Nebula Revenue Increases 62%

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 fourth quarter ended December 31, 2023 was $85.8 million, on par with $85.8 million in the fourth quarter of 2022. Net loss for the fourth quarter of 2023 was $(14.3) million compared to $(5.0) million in the fourth quarter of 2022.

EBITDA1 for the fourth quarter of 2023 was $12.0 million compared to $18.3 million in the fourth quarter of 2022. Adjusted EBITDA1 (which excludes stock-based compensation, acquisition financing and transaction costs and other items as described below) for the fourth quarter of 2023 was $17.2 million compared to $20.4 million in the fourth quarter of 2022.

“2023 was our best year ever at KLD despite macroeconomic headwinds. We delivered outstanding financial results for the full year of 2023, setting all-time Company records with our highest revenue of $345.8 million, lowest net loss of $34.8 million, our highest EBITDA of $62.6 million and highest adjusted EBITDA of $74.0 million,” said Christopher Weiler, CEO of KLDiscovery Inc. “Q4 2023 was also strong with revenue of $85.8 million, which is an increase of 8% compared to the third quarter of 2023. As a result of our investment in technology, back-end infrastructure, and optimization of our operations, we have created a scalable infrastructure that in 2023 resulted in higher margins as revenue increased over 2022.

Mr. Weiler continued. “I am extremely pleased with the difference Nebula is making for our clients and to our financial results. Our clients are seeing the benefits this tool has on their eDiscovery workflows. Nebula represented 13% of our total revenue in 2023 and grew 62% compared to 2022. Nebula revenue includes $14.2 million for Nebula processing services within Nebula for non-Nebula hosted engagements. We continue to drive significant year-over-year growth in Nebula customers, matters, active data hosted, users, and repositories. Additionally, our Client Portal—a business intelligence platform providing instantaneous access to vital case information and metrics—continues to deliver exceptional user experiences. This combination of technology, people and processes around the world is driving our financial results and demonstrates our commitment to delivering exceptional service and innovation to our clients.”

2022-2023 Quarterly Results
(in millions)
 
2022 (unaudited) 2023 (unaudited)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Revenue

 

81.9

 

 

75.2

 

 

74.5

 

 

85.8

 

 

90.7

 

 

90.0

 

 

79.3

 

 

85.8

 

Net loss

 

(9.6

)

 

(11.2

)

 

(17.4

)

 

(5.0

)

 

(4.5

)

 

(4.7

)

 

(11.4

)

 

(14.3

)

Net loss per share (basic and diluted)

$

(0.22

)

$

(0.26

)

$

(0.41

)

$

(0.12

)

$

(0.11

)

$

(0.11

)

$

(0.26

)

$

(0.33

)

Weighted average outstanding shares (basic and diluted)

 

42.7

 

 

42.7

 

 

42.8

 

 

42.9

 

 

42.9

 

 

43.0

 

 

43.1

 

 

43.1

 

EBITDA (Non-GAAP)

 

11.3

 

 

9.7

 

 

5.1

 

 

18.3

 

 

18.2

 

 

18.5

 

 

13.9

 

 

12.0

 

Adjusted EBITDA (Non-GAAP)

 

14.1

 

 

12.4

 

 

11.3

 

 

20.4

 

 

20.9

 

 

20.1

 

 

15.9

 

 

17.2

 

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.

The Company is reviewing potential alternatives regarding the pending maturity of its debt in June 2024. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for additional information.

Earnings Conference Call

Management will conduct a conference call at 8:30 AM ET on Thursday, March 28, 2024, to discuss financial results for the fourth quarter and full-year 2023. 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://KLDiscovery Q42023 Financial Results

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 49430 or visit the Investors section of the KLD website.

KLDiscovery Inc.
Consolidated Statements of Comprehensive Loss
(in thousands, except share and per share amounts)
 

Three Months Ended December 31,

 

Year Ended December 31,

2023

 

2022

 

2023

 

2022

(unaudited) (unaudited)
 
Revenues

$

85,797

 

$

85,799

 

$

345,799

 

$

317,432

 

Cost of revenues

 

43,687

 

 

41,726

 

 

171,912

 

 

165,454

 

Gross profit

 

42,110

 

 

44,073

 

 

173,887

 

 

151,978

 

Operating expenses
General and administrative

 

18,327

 

 

14,591

 

 

65,159

 

 

63,294

 

Research and development

 

3,382

 

 

3,183

 

 

13,133

 

 

13,486

 

Sales and marketing

 

10,400

 

 

11,084

 

 

41,165

 

 

43,570

 

Depreciation and amortization

 

5,326

 

 

4,844

 

 

20,133

 

 

19,593

 

Total operating expenses

 

37,435

 

 

33,702

 

 

139,590

 

 

139,943

 

Income from operations

 

4,675

 

 

10,371

 

 

34,297

 

 

12,035

 

Other (income) expense
Other (income) expense

 

(12

)

 

61

 

 

(20

)

 

54

 

Change in fair value of Private Warrants

 

(13

)

 

(381

)

 

(572

)

 

(1,207

)

Interest expense

 

17,546

 

 

15,123

 

 

66,743

 

 

54,650

 

Loss before income taxes

 

(12,846

)

 

(4,432

)

 

(31,854

)

 

(41,462

)

Income tax provision

$

1,421

 

$

551

 

$

2,959

 

$

1,712

 

Net loss

 

(14,267

)

 

(4,983

)

 

(34,813

)

 

(43,174

)

Other comprehensive income (loss), net of tax
Foreign currency translation

 

3,460

 

 

5,601

 

 

1,705

 

 

(6,937

)

Total other comprehensive income (loss), net of tax

$

3,460

 

$

5,601

 

$

1,705

 

$

(6,937

)

Comprehensive (loss) gain

$

(10,807.00

)

$

618.00

 

$

(33,108.00

)

$

(50,111.00

)

Net loss per share - basic and diluted

 

(0.33

)

 

(0.12

)

 

(0.81

)

 

(1.01

)

Weighted average shares outstanding - basic and diluted

 

43,086,267

 

 

42,874,009

 

 

43,013,825

 

 

42,709,706

 

KLDiscovery Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
 
December 31, 2023 December 31, 2022
(unaudited)
Current assets
Cash and cash equivalents

$

15,351

 

$

32,629

 

Accounts receivable, net of allowance
for doubtful accounts of $3,642 and $5,403, respectively

 

101,257

 

 

95,727

 

Prepaid expenses

 

15,787

 

 

10,726

 

Other current assets

 

1,585

 

 

1,175

 

Total current assets

 

133,980

 

 

140,257

 

Property and equipment
Computer software and hardware

 

61,731

 

 

71,720

 

Leasehold improvements

 

26,313

 

 

25,869

 

Furniture, fixtures and other equipment

 

2,262

 

 

2,209

 

Accumulated depreciation

 

(73,045

)

 

(79,958

)

Property and equipment, net

 

17,261

 

 

19,840

 

Operating lease right of use assets, net

 

10,078

 

 

12,412

 

Intangible assets, net

 

39,729

 

 

46,862

 

Goodwill

 

396,283

 

 

391,114

 

Other assets

 

8,262

 

 

8,957

 

Total assets

$

605,593

 

$

619,442

 

Current liabilities
Current portion of long-term debt, net

$

546,845

 

$

3,000

 

Accounts payable and accrued expense

 

25,957

 

 

25,009

 

Operating lease liabilities

 

5,906

 

 

7,850

 

Current portion of contingent consideration

 

650

 

 

 

Deferred revenue

 

3,181

 

 

4,536

 

Total current liabilities

 

582,539

 

 

40,395

 

Long-term debt, net

 

 

 

524,529

 

Deferred tax liabilities

 

8,941

 

 

7,793

 

Long term operating lease liabilities

 

7,870

 

 

10,340

 

Other liabilities

 

2,176

 

 

2,694

 

Total liabilities

 

601,526

 

 

585,751

 

Commitments and contingencies
Stockholders' equity
Common stock
$0.0001 par value, 200,000,000 shares authorized, 43,086,267 and

42,920,136 issued and outstanding as of December 31, 2023 and December 31, 2022, respectively

 

4

 

 

4

 

Preferred Stock
$0.0001 par value, 1,000,000 shares authorized,

zero issued and outstanding as of December 31, 2023 and

December 31, 2022

 

 

 

 

Additional paid-in capital

 

395,461

 

 

391,977

 

Accumulated deficit

 

(393,954

)

 

(359,141

)

Accumulated other comprehensive income

 

2,556

 

 

851

 

Total stockholders' equity

 

4,067

 

 

33,691

 

Total liabilities and stockholders' equity

$

605,593

 

$

619,442

 

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 December 31,

 

Year Ended December 31,

2023

 

2022

 

2023

 

2022

Net loss

$

(14,267

)

$

(4,982

)

$

(34,813

)

$

(43,174

)

Interest expense

 

17,546

 

 

15,123

 

 

66,743

 

 

54,650

 

Income tax provision

 

1,421

 

 

551

 

 

2,959

 

 

1,712

 

Depreciation and amortization expense

 

7,347

 

 

7,652

 

 

27,719

 

 

31,237

 

EBITDA

$

12,047

 

$

18,344

 

$

62,608

 

$

44,425

 

Acquisition, financing and transaction costs

 

3,935

 

 

190

 

 

6,643

 

 

5,751

 

Stock compensation and other

 

815

 

 

1,518

 

 

3,365

 

 

5,341

 

Change in fair value of Private Warrants

 

(13

)

 

(381

)

 

(572

)

 

(1,207

)

Restructuring costs

 

246

 

 

513

 

 

1,403

 

 

2,777

 

Systems establishment

 

127

 

 

184

 

 

597

 

 

1,023

 

Adjusted EBITDA

$

17,158

 

$

20,368

 

$

74,044

 

$

58,110

 

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 as well as 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.
Consolidated Statements of Cash Flows
(in thousands)
 
Year ended

December 31, 2023
Year ended

December 31, 2022
(unaudited)
Operating activities
Net loss

$

(34,813

)

$

(43,174

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization

 

27,719

 

 

31,237

 

Paid in kind interest

 

22,551

 

 

19,995

 

Stock-based compensation

 

3,365

 

 

5,137

 

Provision for losses on accounts receivable

 

3,209

 

 

3,148

 

Deferred income taxes

 

2,057

 

 

771

 

Change in fair value of contingent consideration

 

(3

)

 

21

 

Change in fair value of Private Warrants

 

(572

)

 

(1,207

)

Changes in operating assets and liabilities:
Accounts receivable

 

(8,267

)

 

(6,672

)

Prepaid expenses and other assets

 

(5,526

)

 

(3,458

)

Accounts payable and accrued expenses

 

(3,299

)

 

2,320

 

Deferred revenue

 

(1,395

)

 

(168

)

Net cash provided by operating activities

 

5,026

 

 

7,950

 

Investing activities
Acquisitions, net of cash acquired

 

(3,029

)

 

 

Purchases of property and equipment

 

(14,314

)

 

(16,189

)

Net cash used in investing activities

 

(17,343

)

 

(16,189

)

Financing activities
Payments for finance lease obligations

 

(2,278

)

 

(1,981

)

Payment on long-term debt

 

(3,000

)

 

(3,000

)

Net cash used in financing activities

 

(5,278

)

 

(4,981

)

Effect of foreign exchange rates

 

317

 

 

(619

)

Net decrease in cash

 

(17,278

)

 

(13,839

)

Cash at beginning of period

 

32,629

 

 

46,468

 

Cash at end of period

$

15,351

 

$

32,629

 

Supplemental disclosure:
Cash paid for interest

$

44,639

 

$

34,869

 

Net income taxes paid

$

971

 

$

705

 

Significant noncash investing and financing activities
Contingent consideration related to acquisitions

$

1,300

 

$

-

 

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

$

54

 

$

125

 

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 platform for its clients and the Company’s review of alternatives regarding its debt 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; 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, as well as 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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