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

EDEN PRAIRIE, Minn.--(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 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 [phone] (from the U.S. and Canada) or [phone] (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.

Contacts

Investor Contact:
Dawn Wilson
571-424-0818
[e-mail]

Media Contact:
Krystina Jones
[phone]
[e-mail]