Ross Wilkers

COMPANY OUTLOOK

How KeyW plans to break the $750M milestone

KeyW Corp. roughly doubled in size last year with the acquisition of Sotera Defense Solutions to climb higher up the middle tier and now has eyes set on the next sales milestone: $750 million.

That integration is complete and KeyW's focus this year is on execution with expectations of growth acceleration in 2019. Speaking Tuesday at KeyW's investor day, company executives further detailed their execution plan for this year, described in part by CEO Bill Weber as "focus is our friend."

KeyW became the largest publicly-traded contractor solely focused on the intelligence community and associated agencies through the Sotera combination. The deal was picked as one of the best of 2017 in Washington Technology’s recent M&A Special Report.

KeyW recorded $441.6 million in revenue last year and expects to break or come close to the $500 million barrier this year. Its sales guidance range for this year is $495 million-$515 million.

Its intel customer focus will continue this year as Weber and other company executives indicated KeyW will be more selective in the contracts it bids on but target larger "needle-moving opportunities" focused on technologies. The criteria for what to bid has a tighter filter now as well, Weber said.

"We make sure technology is in the solicitations we bid," Weber told analysts in attendance. "If it's not called out, we mentioned it."

Renewed expectations of cybersecurity, data and IT spending among defense and intelligence agencies could bode well for KeyW as it seeks to further cement itself as a leading mid-tier contractor. The target of $750 million in revenue by 2023 is all based on organic growth as well without additional acquisitions.

"We don't need to go acquire a company that has agency presence where we want to be, we don't need to acquire a contract vehicle because we're shut out of an agency," Weber said. "This company has a presence in the agencies with a great growth perspective (and) budget trajectory that allows KeyW to do the things that it needs to do."

Hanover, Maryland-based KeyW counts 16 intelligence community agencies as customers. The company also holds contracts to support Army intelligence and the Defense Information Systems Agency, among others.

KeyW has a lower bid submission rate "by design" this year than last year with its technology-focused criteria in place, Weber said. They submitted $3 billion last year and expect that range to be $2.5 billion-$3 billion this year. Also working in KeyW's favor this year is having near-zero recompete risk.

"For a company of our size for bid resources and budget we want to allocate to it, if our win rate is where it's proven to be since we put the two companies together, we don't have to bid on as much in order to get the growth," Weber said.

"The organization starts to go through some fundamental shakes if you try to do too much all throughout the year. We want to be very deliberate about making sure quality goes with any quantity decisions we make."

Another main task KeyW has for this and following years is to bolster its bottom line in tandem with the growth it is targeting. Its adjusted margin of earnings before interest, taxes, depreciation and amortization expenses came in at 9.2 percent last year.

KeyW leaders are targeting an adjusted EBITDA margin of 8.9-9.3 percent this year and further growth to around 12 percent by 2021.

Publicly-traded government IT and professional services companies currently average adjusted EBITDA margins of around 9.5 percent.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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