Exhibit 99.2
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On June 4, 2016, Hexis Cyber Solutions, Inc. (“Hexis”), a wholly-owned subsidiary of The KEYW Holding Corporation (“KEYW” or the “Company”), completed the sale of Hexis’ HawkEye G business and product line (the “HawkEye G Business”), including all of the contracts necessary to perform the HawkEye G Business, intellectual property rights relating to such contracts, and certain tangible property, records, files and other assets, to WatchGuard Technologies, Inc. (“WatchGuard”).
Previously, on May 2, 2016, Hexis and Hexis’ wholly-owned subsidiary SenSage, Inc. completed the sale of all of Hexis’ HawkEye AP business and product line (the “HawkEye AP Business”), including all of the contracts necessary to perform the HawkEye AP Business, intellectual property rights relating to such contracts, and certain tangible property, records, files and other assets, to Ignite Analytics, Inc. The sale of the HawkEye G business and the HawkEye AP business comprised our entire former Commercial Cyber Solutions reportable segment.
The following unaudited pro forma condensed consolidated statements of operations of KEYW for the three months ended March 31, 2016 and for each of the three fiscal years ended December 31, 2015, 2014, and 2013 reflect KEYW’s results of operations as if the sales had occurred on January 1, 2013. The following unaudited pro forma condensed consolidated balance sheet of KEYW as of March 31, 2016 assumes that the sales had occurred on March 31, 2016. In our condensed consolidated financial statements for the quarter ended March 31, 2016, contained in our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 10, 2016, the assets and liabilities of our Commercial Cyber Solutions segment were classified as held for sale and the results of operations were classified as discontinued operations.
The unaudited pro forma condensed consolidated financial statements are presented based on information currently available, are intended for informational purposes and are not intended to represent what KEYW’s financial position and results of operations actually would have been had these divestitures occurred on the dates indicated. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable under the circumstances; however, actual amounts could differ. In addition, the unaudited pro forma condensed consolidated financial statements are not necessarily indicative of KEYW’s financial position and results of operations for any future period.
The unaudited pro forma condensed consolidated financial statements are based upon, and should be read in conjunction with, our historical consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed on March 15, 2016.
The Historical column in the unaudited pro forma condensed consolidated financial statements reflects KEYW’s historical financial statements for the periods presented and does not reflect any adjustments related to the divestitures and related events.
The Hexis Divestiture column in the unaudited pro forma condensed consolidated financial statements represent our former Commercial Cyber Solutions' assets, liabilities and results of operations.
The pro forma adjustments are based on available information and assumptions that KEYW’s management believes are reasonable, that reflect the impacts of events directly attributable to the divestitures and related transaction agreements that are factually supportable, and for purposes of the statements of earnings, are expected to have a continuing impact on KEYW.
In connection with these divestitures, KEYW received aggregate consideration consisting of: (i) an aggregate of $5.0 million in closing cash; (ii) approximately $2.0 million of retained trade receivables; (iii) 1.7 million shares of the common stock of the privately held parent of WatchGuard (“Parent Stock”) with a GAAP fair value of $0.34 million which is estimated to be liquidated eventually for $10 to $12 million assuming revenue growth and multiples of comparable companies offering similar security products and services; (iv) $3.0 million to be paid by WatchGuard Technologies, Inc. to Hexis on January 31, 2017; and (v) a potential earnout payment equal to the amount of all new HawkEye AP license sales in excess of an aggregate $4.0 million in the one year period following the closing of the HawkEye AP Business sale. In connection with the Hawkeye G Business sale, Hexis is obligated to pay approximately $3.85 million of operating expenses of the Hawkeye G Business for the period beginning on the closing date of the transaction and ending December 31, 2016.
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Three months ended March 31, 2016
(In thousands, except per share amounts)
|
| | | | | | | | | | | | | | | |
| | Historical | | Hexis Divestiture | | Pro Forma Adjustments | | Pro Forma KEYW |
| Revenues | $ | 75,720 |
| | $ | (2,078 | ) | | $ | — |
| | $ | 73,642 |
|
| Costs of Revenues, excluding amortization | 51,773 |
| | (976 | ) | | — |
| | 50,797 |
|
| Gross Profit | 23,947 |
| | (1,102 | ) | | — |
| | 22,845 |
|
| Operating Expenses | | | | | | | |
| Operating expenses | 25,714 |
| | (10,173 | ) | | 898 |
| (a) | 16,439 |
|
| Impairment of goodwill | 6,980 |
| | (6,980 | ) | | — |
| | — |
|
| Estimated cost to sell disposal group | 2,275 |
| | (2,275 | ) | | — |
| | — |
|
| Intangible amortization expense | 1,848 |
| | (381 | ) | | — |
| | 1,467 |
|
| Total | 36,817 |
| | (19,809 | ) | | 898 |
| | 17,906 |
|
| Operating (Loss) Income | (12,870 | ) | | 18,707 |
| | (898 | ) | | 4,939 |
|
| Non-Operating Expense, net | 1,634 |
| | — |
| | — |
| | 1,634 |
|
| (Loss) Income before Income Taxes | (14,504 | ) | | 18,707 |
| | (898 | ) | | 3,305 |
|
| Income Tax Expense, net | 906 |
| | 490 |
| | — |
| | 1,396 |
|
| Net (Loss) Income | $ | (15,410 | ) | | $ | 18,217 |
| | $ | (898 | ) | | $ | 1,909 |
|
| | | | | | | | |
| Weighted Average Common Shares Outstanding | | | | | | | |
| Basic | 39,850,003 |
| | 39,850,003 |
| | 39,850,003 |
| | 39,850,003 |
|
| Diluted | 39,850,003 |
| | 39,850,003 |
| | 39,850,003 |
| | 39,850,003 |
|
| (Loss) Income per Share | | | | | | | |
| Basic | $ | (0.39 | ) | | $ | 0.46 |
| | $ | (0.02 | ) | | $ | 0.05 |
|
| Diluted | $ | (0.39 | ) | | $ | 0.46 |
| | $ | (0.02 | ) | | $ | 0.05 |
|
See Accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Year ended December 31, 2015
(In thousands, except per share amounts)
|
| | | | | | | | | | | | | | | |
| | Historical | | Hexis Divestiture | | Pro Forma Adjustments | | Pro Forma KEYW |
| Revenues | $ | 311,810 |
| | $ | (13,875 | ) | | $ | — |
| | $ | 297,935 |
|
| Costs of Revenues, excluding amortization | 212,220 |
| | (4,014 | ) | | — |
| | 208,206 |
|
| Gross Profit | 99,590 |
| | (9,861 | ) | | — |
| | 89,729 |
|
| Operating Expenses | | | | | | | |
| Operating expenses | 106,907 |
| | (43,520 | ) | | 3,125 |
| (a) | 66,512 |
|
| Impairment of goodwill | 8,000 |
| | (8,000 | ) | | — |
| | — |
|
| Intangible amortization expense | 11,449 |
| | (4,362 | ) | | — |
| | 7,087 |
|
| Total | 126,356 |
| | (55,882 | ) | | 3,125 |
| | 73,599 |
|
| Operating (Loss) Income | (26,766 | ) | | 46,021 |
| | (3,125 | ) | | 16,130 |
|
| Non-Operating Expense, net | 10,258 |
| | — |
| | — |
| | 10,258 |
|
| (Loss) Income before Income Taxes | (37,024 | ) | | 46,021 |
| | (3,125 | ) | | 5,872 |
|
| Income Tax Expense, net | 21,598 |
| | (2,730 | ) | | (1,094 | ) | (a) | 17,774 |
|
| Net Loss | (58,622 | ) | | 48,751 |
| | (2,031 | ) | | (11,902 | ) |
| | | | | | | | |
| Weighted Average Common Shares Outstanding | | | | | | | |
| Basic | 38,722,340 |
| | 38,722,340 |
| | 38,722,340 |
| | 38,722,340 |
|
| Diluted | 38,722,340 |
| | 38,722,340 |
| | 38,722,340 |
| | 38,722,340 |
|
| Loss per Share | | | | | | | |
| Basic | $ | (1.51 | ) | | $ | 1.26 |
| | $ | (0.05 | ) | | $ | (0.31 | ) |
| Diluted | $ | (1.51 | ) | | $ | 1.26 |
| | $ | (0.05 | ) | | $ | (0.31 | ) |
See Accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Year ended December 31, 2014
(In thousands, except per share amounts)
|
| | | | | | | | | | | | | | | |
| | Historical | | Hexis Divestiture | | Pro Forma Adjustments | | Pro Forma KEYW |
| Revenues | $ | 290,574 |
| | $ | (11,324 | ) | | $ | — |
| | $ | 279,250 |
|
| Costs of Revenues, excluding amortization | 195,401 |
| | (2,493 | ) | | — |
| | 192,908 |
|
| Gross Profit | 95,173 |
| | (8,831 | ) | | — |
| | 86,342 |
|
| Operating Expenses | | | | | | | |
| Operating expenses | 96,364 |
| | (39,502 | ) | | 2,993 |
| (a) | 59,855 |
|
| Intangible amortization expense | 12,162 |
| | (4,425 | ) | | — |
| | 7,737 |
|
| Total | 108,526 |
| | (43,927 | ) | | 2,993 |
| | 67,592 |
|
| Operating (Loss) Income | (13,353 | ) | | 35,096 |
| | (2,993 | ) | | 18,750 |
|
| Non-Operating Expense, net | 8,804 |
| | — |
| | — |
| | 8,804 |
|
| (Loss) Income before Income Taxes | (22,157 | ) | | 35,096 |
| | (2,993 | ) | | 9,946 |
|
| Income Tax (Expense) Benefit, net | (8,622 | ) | | 13,026 |
| | (1,048 | ) | (a) | 3,356 |
|
| Net (Loss) Income | $ | (13,535 | ) | | $ | 22,070 |
| | $ | (1,945 | ) | | $ | 6,590 |
|
| | | | | | | | |
| Weighted Average Common Shares Outstanding | | | | | | | |
| Basic | 37,442,680 |
| | 37,442,680 |
| | 37,442,680 |
| | 37,442,680 |
|
| Diluted | 37,442,680 |
| | 37,442,680 |
| | 37,442,680 |
| | 37,442,680 |
|
| (Loss) Income per Share | | | | | | | |
| Basic | $ | (0.36 | ) | | $ | 0.59 |
| | $ | (0.05 | ) | | $ | 0.18 |
|
| Diluted | $ | (0.36 | ) | | $ | 0.59 |
| | $ | (0.05 | ) | | $ | 0.18 |
|
See Accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Year ended December 31, 2013
(In thousands, except per share amounts)
|
| | | | | | | | | | | | | | | |
| | Historical | | Hexis Divestiture | | Pro Forma Adjustments | | Pro Forma KEYW |
| Revenues | $ | 298,732 |
| | $ | (9,823 | ) | | $ | — |
| | $ | 288,909 |
|
| Costs of Revenues, excluding amortization | 199,220 |
| | (1,840 | ) | | — |
| | 197,380 |
|
| Gross Profit | 99,512 |
| | (7,983 | ) | | — |
| | 91,529 |
|
| Operating Expenses | | | | | | | |
| Operating expenses | 85,670 |
| | (19,659 | ) | | 634 |
| (a) | 66,645 |
|
| Intangible amortization expense | 24,658 |
| | (4,125 | ) | | — |
| | 20,533 |
|
| Total | 110,328 |
| | (23,784 | ) | | 634 |
| | 87,178 |
|
| Operating (Loss) Income | (10,816 | ) | | 15,801 |
| | (634 | ) | | 4,351 |
|
| Non-Operating Expense, net | 9,792 |
| | — |
| | — |
| | 9,792 |
|
| Loss before Income Taxes | (20,608 | ) | | 15,801 |
| | (634 | ) | | (5,441 | ) |
| Income Tax Expense, net | (9,389 | ) | | 7,132 |
| | (222 | ) | (a) | (2,479 | ) |
| Net Loss | $ | (11,219 | ) | | $ | 8,669 |
| | $ | (412 | ) | | $ | (2,962 | ) |
| | | | | | | | |
| Weighted Average Common Shares Outstanding | | | | | | | |
| Basic | 36,618,919 |
| | 36,618,919 |
| | 36,618,919 |
| | 36,618,919 |
|
| Diluted | 36,618,919 |
| | 36,618,919 |
| | 36,618,919 |
| | 36,618,919 |
|
| Loss per Share | | | | | | | |
| Basic | $ | (0.31 | ) | | $ | 0.24 |
| | $ | (0.01 | ) | | $ | (0.08 | ) |
| Diluted | $ | (0.31 | ) | | $ | 0.24 |
| | $ | (0.01 | ) | | $ | (0.08 | ) |
See Accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Balance Sheets
As of March 31, 2016
(In thousands, except per share amounts) |
| | | | | | | | | | | | | | | |
| | Historical | | Hexis Divestiture | | Pro Forma Adjustments | | Pro Forma KEYW |
| ASSETS | | | | | | |
|
| Current assets: | | | | | | |
|
| Cash and cash equivalents | $ | 31,854 |
| | $ | — |
| | $ | 2,725 |
| (b) | $ | 34,579 |
|
| Receivables | 53,874 |
| | (2,547 | ) | | 5,208 |
| (c) | 56,535 |
|
| Inventories, net | 18,938 |
| | (3,252 | ) | | — |
| | 15,686 |
|
| Prepaid expenses | 2,493 |
| | (1,175 | ) | | — |
| | 1,318 |
|
| Estimated cost to sell disposal group | (2,275 | ) | | 2,275 |
| | — |
| | — |
|
| Income tax receivable | 306 |
| | — |
| | — |
| | 306 |
|
| Total current assets | 105,190 |
| | (4,699 | ) | | 7,933 |
| | 108,424 |
|
| | | | | | | |
|
| Property and equipment, net | 32,922 |
| | (4,964 | ) | | — |
| | 27,958 |
|
| Goodwill | 290,477 |
| | (487 | ) | | — |
| | 289,990 |
|
| Other intangibles, net | 11,709 |
| | (2,219 | ) | | — |
| | 9,490 |
|
| Other assets | 1,305 |
| | — |
| | 340 |
| (d) | 1,645 |
|
| TOTAL ASSETS | $ | 441,603 |
| | $ | (12,369 | ) | | $ | 8,273 |
| | $ | 437,507 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |
| |
| |
|
| Current liabilities: |
| |
| |
| |
|
| Accounts payable | $ | 10,871 |
| | $ | (1,654 | ) | | $ | 1,654 |
| (e) | $ | 10,871 |
|
| Accrued expenses | 14,140 |
| | (5,391 | ) | | 3,977 |
| (f) | 12,726 |
|
| Accrued salaries and wages | 11,375 |
| | (2,259 | ) | | — |
| | 9,116 |
|
| Deferred income taxes | 965 |
| | — |
| | — |
| | 965 |
|
| Total current liabilities | 37,351 |
| | (9,304 | ) | | 5,631 |
| | 33,678 |
|
| Long-term liabilities: | | | | | | | |
| Convertible senior notes, net of discount | 127,742 |
| | — |
| | — |
| | 127,742 |
|
| Non-current deferred tax liability | 27,758 |
| | — |
| | — |
| | 27,758 |
|
| Other non-current liabilities | 11,762 |
| | — |
| | — |
| | 11,762 |
|
| TOTAL LIABILITIES | 204,613 |
| | (9,304 | ) | | 5,631 |
| | 200,940 |
|
| Commitments and contingencies | — |
| | | | | | |
| Stockholders’ equity: | | | | | | | |
| Preferred stock, $0.001 par value; 5 million shares authorized, none issued | — |
| | — |
| | — |
| | — |
|
| Common stock, $0.001 par value; 100 million shares authorized, 39,881,064 and 39,940,667 shares issued and outstanding | 40 |
| | — |
| | — |
| | 40 |
|
| Additional paid-in capital | 327,620 |
| | — |
| | — |
| | 327,620 |
|
| Accumulated deficit / KEYW net investment in Hexis | (90,670 | ) | | (3,065 | ) | | 2,642 |
| (g) | (91,093 | ) |
| Total stockholders’ equity | 236,990 |
| | (3,065 | ) | | 2,642 |
| | 236,567 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 441,603 |
| | $ | (12,369 | ) | | $ | 8,273 |
| | $ | 437,507 |
|
See Accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.
THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Adjustments
| |
| (a) | This adjustment reflects general corporate overhead costs which were historically allocated to our Commercial Cyber Solution segment and the related tax impact. |
| |
| (b) | This adjustment represents the receipt of $5.0 million in closing cash net of the estimated costs to sell the disposal group. |
| |
| (c) | This adjustment represents $3.0 million of cash consideration to be paid on January 31, 2017 and $2.2 million of receivables related to Commercial Cyber Solution segment that were excluded from the divestitures. As of the divestiture transaction date the excluded receivable balance was $1.7 million. |
| |
| (d) | This adjustment represents the estimated fair value of the 1.7 million shares of the common stock of Gladiator Corporation. |
| |
| (e) | This adjustment represents the accounts payable related to Commercial Cyber Solution segment that were excluded from the divestitures. |
| |
| (f) | This adjustment represents the estimated operating expenses of the Hawkeye G Business for the period beginning on the closing date of the transaction and ending December 31, 2016, that Hexis is obligated to pay. |
| |
| (g) | This adjustment represents KEYW's net equity position in Hexis, which was eliminated as part of the closing of the Hexis transactions and an estimated loss of approximately $0.4 million arising from the divestitures. This estimated loss has not been reflected in the pro forma condensed consolidated statement of operations as it is considered to be nonrecurring in nature. The estimated loss assumes that both divestitures occurred on March 31, 2016. |
