Name: KLDiscovery Inc. Q2 2024 Earnings Call
Start: 2024-08-08T12:31:00.000Z

Executive Summary

Revenue declined 12.2% year-over-year to $79.0 million, with net loss widening to $(25.3) million; GAAP EBITDA turned negative $(0.5) million while Adjusted EBITDA remained positive at $13.3 million .
Nebula continued strong adoption: Q2 Nebula revenue was $14.1 million, up 51% year-over-year and 29% quarter-over-quarter; legal technology revenue was $72.1 million and data recovery revenue was $6.9 million .
Balance sheet restructuring advanced: Transaction Support Agreement (July 3) to equitize debentures into ~96% of equity and extend term loan maturity to August 2027; transaction closed August 14, 2024; a new $50 million second lien (17% PIK) was executed and governance restructured .
No formal revenue/EPS guidance was provided; management highlighted continued Nebula expansion, regulatory and medical record use cases, and client portal enhancements as growth drivers .
Near-term stock catalysts: completion of capital restructuring (closed Aug 14) and continued Nebula mix shift could support margin structure and cash generation; however elevated interest expense and higher G&A weighed on Q2 profitability .

What Went Well and What Went Wrong

Nebula acceleration: “Nebula continues to shine... with revenue growth of 51% year-over-year and 29% quarter-over-quarter” (CEO) .
Product momentum: Management expects expanded Nebula use in regulatory (DOJ/FTC second requests) and medical records management; client portal adding invoice availability in Q3 2024 .
Strategic deleveraging: “Milestone transaction... will significantly decrease long-term debt and costly interest payments” (CFO) and extend term loan maturity; transaction closed Aug 14 .

Top-line pullback: Revenue down 12.2% YoY to $78.969 million versus $90.007 million in Q2 2023 .
Profitability pressure: Net loss widened to $(25.300) million (vs. $(4.680) million); GAAP EBITDA $(0.465) million (vs. $18.460 million) amid higher G&A and transaction-related costs .
Interest burden: Interest expense rose to $17.750 million (vs. $16.192 million), contributing to a larger net loss and cash burn (six-month cash from operations: $(10.959) million) .

Metric	Q2 2023	Q1 2024	Q2 2024
Revenue ($USD Millions)	$90.007	$80.172	$78.969
Gross Profit ($USD Millions)	$45.012	$38.104	$38.654
Operating Income ($USD Millions)	$11.374	$0.957	$(7.017)
Interest Expense ($USD Millions)	$16.192	$17.508	$17.750
Net Loss ($USD Millions)	$(4.680)	$(16.879)	$(25.300)
Diluted EPS ($USD)	$(0.11)	$(0.39)	$(0.58)
EBITDA (Non-GAAP, $USD Millions)	$18.460	$7.379	$(0.465)
Adjusted EBITDA (Non-GAAP, $USD Millions)	$20.087	$10.566	$13.296
Cash & Equivalents ($USD Millions, period-end)	N/A	$18.361	$33.804

Segment revenue breakdown:

Key KPIs:

KPI	Q4 2023	Q1 2024	Q2 2024
Nebula revenue ($MM)	$14.1	$14.9	$14.1
Nebula matters (count)	N/A	1,320	1,381
Legal Tech matters (count)	N/A	8,283	7,650
Nebula clients (count)	1,673	N/A	1,708
Legal Tech net revenue retention	104% FY23	98% LTM to 3/31/24	90% LTM to 6/30/24
Cash (period-end, $MM)	$15.351	$18.361	$33.804
Revolver drawn ($MM)	$15 (as of Mar 31)	$15 (as of Q1 call)	$38 (as of Q2 call date)

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY/Q3 outlook	None provided	None provided	Maintained (no guidance)
EBITDA/Adj. EBITDA	FY/Q3 outlook	None provided	None provided	Maintained (no guidance)
Capital structure actions	Q3 2024 close	Agreement in principle to equitize debentures and extend term loan (May 2)	Closed Aug 14; 96% equity issued to debenture holders; term loan extended to Aug 2027; $50MM second lien @ 17% PIK; governance changes	Raised (executed)

Topic	Previous Mentions (Q4 2023, Q1 2024)	Current Period (Q2 2024)	Trend
AI/technology initiatives (Nebula)	Detailed AI roadmap; 2024–2025 feature rollouts; Nebula revenue $46.1MM FY23; Q4 Nebula $14.1MM; strong adoption	Nebula revenue $14.1MM; +51% YoY; expanded processing adds $8.4MM YTD; active users/data volumes rising	Strengthening
Regulatory use cases (DOJ/FTC second requests)	Not highlighted in Q4; focus on platform and client portal	Expect offering Nebula for DOJ/FTC second requests late Q3; confidence in footprint expansion	Emerging growth driver
Medical records management	Not highlighted	Introducing AI-driven Nebula solutions for medical records use cases; expect demand	Emerging growth driver
Client Portal	Alerting features released in Q4; strong user value	Invoices to be available in Q3; continued enhancements	Improving
Capital structure / liquidity	FY23 liquidity: cash $15.4MM, revolver undrawn at 12/31; $15MM drawn as of Q1	Cash $33.8MM; $38MM revolver drawn; TSA and closing in Q3 with debt equitization and extension	Deleveraging underway

“Our financial results have been solid through this period... Nebula continues to shine... with revenue growth of 51% year-over-year and 29% quarter-over-quarter.” – CEO Christopher Weiler .
“This will provide a significant reduction in our long-term debt and costly interest rate payments as we strengthen our balance sheet.” – CFO Dawn Wilson .
“We expect to begin offering Nebula for DOJ and FTC second requests in late Q3... and introducing Nebula into medical records management.” – CEO Christopher Weiler .

The call focused on Nebula adoption drivers, regulatory and medical records product extensions, and progress on capital restructuring; management reiterated confidence in platform-driven growth and deleveraging benefits .
Liquidity and revolver utilization were clarified: cash $33.8MM and $38MM revolver drawn as of the call date .
No quantified revenue or margin guidance was provided; emphasis remained on product roadmap and balance sheet actions .

Wall Street consensus estimates (S&P Global) for Q2 2024 were unavailable for KLDI due to missing mapping; as a result, a formal beat/miss versus consensus cannot be assessed at this time.
We recommend revisiting post-mapping to anchor revisions and narrative momentum on revenue/EPS consensus.

Nebula mix shift is accelerating and should support medium-term margin resilience; Q2 Nebula revenue was $14.1MM with strong YoY/QoQ momentum .
Profitability remains pressured by higher G&A and transaction-related costs; GAAP EBITDA turned negative and interest expense stayed elevated, widening net loss .
Capital structure de-risking completed Aug 14 (debenture equitization, term loan extension, second lien financing); governance reconstituted—reduces refinancing risk and aligns stakeholders .
Near-term narrative catalysts: DOJ/FTC second request deployment and medical records management features, plus client portal invoice rollout, can deepen enterprise adoption .
Liquidity improved (cash $33.8MM), but cash from operations was negative for six months; watch working capital, collections, and interest outflows as margin initiatives scale .
Segment stability: Legal Technology remained ~91% of revenue with Nebula contributing 18% of YTD revenue; Data Recovery steady at ~$7MM per quarter .
With no formal guidance and S&P estimates unavailable, focus on execution: Nebula utilization, pipeline in regulatory work, and operating expense discipline will drive the medium-term thesis .