KEYW Holding Corp (KEYW) Q4 2018 Earnings Conference Call Transcript

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KEYW Holding Corp  (NASDAQ:KEYW)
Q4 2018 Earnings Conference Call
March 12, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to KeyW Fourth Quarter 2018 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

(Operator Instructions). Please note this conference is being recorded. I will now turn the conference over to your host Mark Zindler, Vice President of Investor Relations. Thank you, you may begin.

(Technical Difficulty).

Thank you for holding. Again, your host Mark Zindler, Vice President of Investor Relations.

Mark ZindlerVice President, Investor Relations and Treasury

Good morning and thank you for participating in KeyW’s conference call today. By now, you should have a copy of the press release we issued a short time ago. If not, it’s available on the newsroom page of our website, www.keywcorp.com. Speakers on today’s call are Bill Weber, our President and CEO and Mike Alber, our CFO, both of whom will deliver prepared remarks and then take your questions.

Before we begin our discussion, it’s important to remind you that management may make forward-looking statements regarding future events, anticipated future trends and anticipated future performance of the Company.

These forward-looking statements are not guarantees of future performance and involve risks and uncertainties difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These risk factors are described in our Form 10-K and other SEC filings.

Finally, I would like to remind listeners that KeyW is under no obligation to update any of the forward-looking statements made on this call.

I’ll now turn the call over to Bill Weber.

William J. WeberPresident and Chief Executive Officer

Thanks, Mark, and good morning, everyone and thanks for joining us on the call today. This morning we announced our results for the fourth quarter and full year of 2018. It was a very good quarter all around as we delivered revenue in line with our guidance expectations, adjusted EBITDA was higher than guidance, we generated solid awards and paid down another $5 million in debt.

For the full year, we met or exceeded all our financial and operational objectives. Similar to the quarter, we delivered revenue in line with guidance. Our adjusted EBITDA exceeded guidance and we achieved a record level of contract awards as a combined Company.

Our 2018 awards totaling $675 million for the year are predominantly for new business and positioned KeyW for profitable growth in our core business in 2019 and beyond. That number represents an all time high for KeyW and is a further testament that we are in full execution mode on the business development investments that we made as a Company over the last several years.

Moving to the agenda for this morning’s call, I will further highlight our performance this quarter and provide commentary on the partial government shutdown impact on KeyW, our views on the current federal spending environment, fourth quarter awards and highlights, KeyW’s sales pipeline and top opportunities and KeyW’s emphasis on our core business.

First, I’d like to address the partial government shutdown impact on KeyW. Our exposure to the government’s shutdown was limited to our FBI and Department of Homeland Security business. However, because our work at both agencies is deemed Mission Essential, the actual impact to revenue was negligible.

This is one of several key benefits of operating as a pure-play national security solutions provider for the intelligence community. We did however see an impact on the administrative side of the affected agencies. Longer ramp up times for awards won in prior quarters, delays in contracting actions and new award activity and longer cash fluxes (ph) cycles. Since the shutdown ended on January 25th, we do not foresee impacts to our business for the full-year, but may see some pressure on revenue and cash collections in the first quarter due to these issues.

We’re confident however that these matters will be successfully resolved and our full-year guidance reflects that assumption. Moving on to the federal spending environment, we continue to see strong activity and expect that to continue throughout the 2019 calendar year. We submitted a record level of proposals in the fourth quarter, bringing our bid submissions up to $2.4 billion for 2018.

Most importantly for KeyW, we’re seeing significant RFP activities in the areas of signals intelligence, cyber operations and sensor development for space application; all core strategic areas of advantage for KeyW. As we gear up for the fiscal year 2020 federal budget discussions, I would like to share our views on how this may impact KeyW.

As I’ve stated previously, and will continue to emphasize going forward, KeyW is in a great position being a pure-play solutions provider for the national security community.

I’m very confident there will continue to be significant demand for flexible, adaptable ISR solutions during times of peace or conflict. There is a growing requirement for our customers regardless to the political landscape to collect intelligence and maintain visibility around national security initiatives.

Moreover, there will continue to be heightened demand to transform the massive collection of raw data into actionable intelligence. Lastly, nation and state level of cyber activity continues to be a significant threat to US national security interests and addressing these threats will be a priority for the intelligence and cyber communities in any political environment.

To serve those needs from a contracting perspective, KeyW has access to a strong and growing portfolio of attractive IDIQ vehicles that allow for efficient procurement, and we’ve proven at depth (ph) competing for major new program start.

Consequently, I have no doubt in my mind that KeyW is competitively positioned, a direct result of the transformation we’ve gone through. 2019 is now about execution, continuing to win attractive awards and delivering profitable growth.

Moving on to awards for the quarter and the full year. We generated $112 million of contract awards in the fourth quarter resulting in $675 million for the full-year, as we stated earlier, an all time high for KeyW as a combined Company.

Off the full-year award totals, 61% or $411 million is new business and 15%, or $104 million is on-contract growth.

The strong level of new business awards is an affirmation of our bid proposal strategy and is the basis for our long term growth. The vast majority of these awards are considered differentiated programs in which the Company propose unique technical solutions against the largest competitors in our sector.

These programs were awarded in the intelligence community and high end defense science technology customer segments and will deliver unique mission capabilities for our customers. Our win rate for the year was 48%, a truly outstanding accomplishment, which was comprised of 43% for new business and 90% for our recompete work.

This win rate was also a record level for KeyW and at or above the highest levels in our sector. We’re extremely pleased with these results and will endeavor to maintain comparable win rates in 2019. Fourth quarter awards were largely focused on development of advanced sensor payloads, intelligence fusion, intelligence analysis and operational cyber training.

Fourth quarter wins were almost exclusively new business and base growth, 56% is new business and 42% is on-contract growth. The new business will ramp up over an approximate six-month time frame and will begin contributing to revenue late in the second quarter. The largest Q4 award is a 12-months, $25 million fixed price contract with expansions of an additional $15 million, all in 2019. Disclosed in our fourth quarter press release, this award represents exciting new work centered on developing and deploying advanced sensor payloads.

With these contract wins in 2018, we have significantly de-risked our 2019 revenue target. At the midpoint of our guidance, only 5% of 2019 revenue will come from current year recompetes and 14% from new business and product awards, very much in line with our historic mix heading into the calendar year.

Next up, let’s focus on our sales pipeline and top opportunities. We entered 2019 with a qualified pipeline of more than $8 billion in opportunities comprised of an attractive mix of task orders on existing IDIQ vehicles and large prime single award opportunities. Over the course of 2019, KeyW will submit approximately $2.9 billion in bids, of which more than 85% is potential new business and base growth and almost 90% will be bid as the prime contractor.

We’re also seeing increased demand for our growing portfolio of advanced sensor payloads as the market for KeyRadar and AgilePod solutions reaches maturity and are considered for full mission deployment. Our business capture proposal activities remain robust and based on the level of federal spending we are seeing, KeyW and the entire sector are set up well for another year of strong awards.

Another leading indicator I want to highlight is the significant progress we are making transitioning from proof-of-concept to prototype and then ultimately to large scale production round (ph). We’re competing and winning our share of awards against large, well-established competitors on the basis of our innovation and agility.

Particularly, in our ISR strategic focus area, we’ve increased visibility into potential future awards culminating in full scale production runs that may exceed $100 million of revenue on an annual basis. Again, 2019 is about execution, delivering outstanding innovation solutions to our customers and positioning KeyW for the next phase in our growth strategy.

Finally, I’ll close with comments on KeyW’s emphasis and focus on our core business. As you recall, we previously discussed the ramp down of the flight services contract at the end of 2018. With that successful transition, KeyW has exited the plane business, which allows us to emphasize our core mission of providing differentiated technologies and solutions to solve the country’s most challenging national security problems in any domain.

As demonstrated by the awards received in 2018, our customers recognize the strength of KeyW capabilities. As a result, pro forma for the flight services contract, revenue for KeyW’s core business will grow more than 10% organically in 2019.

Consequently, pursuant to the strong demand we are seeing for our advanced sensor solutions. KeyW is preparing for its first satellite launch later this year. KeyW will partner with a host of payload service to validate several of KeyW’s next generation innovative space technologies and expects this launch to serve as a test platform for our future development efforts, truly an exciting step for KeyW.

We are well positioned for a strong 2019, a robust pipeline, a reliable national security budget and a proven business development strategy underpinned by our innovative products and services.

The goals from our management team are clear, win large awards, generate free cash flow, pay down debt and reinvest in future growth. I’m looking forward to getting this done and reporting back to you about our progress.

With that, I’ll turn the call over to Mike for an overview of our fourth quarter and full year 2018 financial results, more detailed key business development metrics and 2019 financial guide.

Michael J. AlberExecutive Vice President and Chief Financial Officer

Thanks, Bill and good morning, everyone. I’ll start with our fourth quarter and full year performance results. Fourth quarter revenue was $126.3 million and was in line with our guidance expectations. Direct labor was slightly below plan, primarily resulting from two unplanned federal holidays: President George H.W. Bush’s funeral and Christmas eve.

We also experienced several weather related closures across the country. The combination of the holidays and the weather related closures had an approximate $2 million impact on fourth quarter revenue. Product sales came in line with expectations, including the sale of the KeyRadar.

Adjusted EBITDA at $12 million or 9.5% of revenue for the quarter performed above our expectations due to higher sensor and product solution sales and strong program performance.

Our adjusted EBITDA for the fourth quarter backs out approximately $5.1 million of one time non-recurring operating expenses. Approximately $4.3 million is due to one-time non-cash asset impairment charges and about $800,000 is related to acquisition, integration and other non recurring costs.

GAAP net loss for the quarter was $5.5 million or negative $0.11 per share compared to the GAAP net income of $15.6 million or $0.31 per diluted share in the prior year quarter. The variance is due primarily from a non-cash tax benefit recognized in the prior year quarter associated with the enactment of the Tax Cuts and Job Act, as well as the $4.3 million of asset impairment expenses recognized in the current year quarter.

For the full year, we reported annual revenue of $506.8 million, adjusted EBITDA of $49.7 million or 9.8% of revenue and GAAP net loss of $22.3 million or negative $0.45 per share. Please note that the full year GAAP net loss includes $24.4 million of non-recurring expenses. Net cash provided by operating activities was $13 million for the full year of which $13.1 million was generated in the fourth quarter.

Operating cash flow improved sequentially throughout the year driven by cash earnings and improvement in day sales outstanding or DSO. DSO declined to 63 days during the fourth quarter, which is in line with historical levels.

In addition, CapEx investments totaled $4.9 million for the year. We expect CapEx spending to return to historical levels in 2019, about 1.5% of sales as we build our facilities to support various new programs. Strong operating cash flow in the quarter allowed us to pay down $5 million on our First Lien Term Loan. Cash and cash equivalents ended the quarter at $36.1 million.

For the full year, we paid down $15 million on our First Lien Term Loan after completing our refinancing in May of 2018. Now, onto awards and backlog metrics. Fourth quarter contract awards totaled $112 million or 0.9 times revenue and was in line with expectations.

Substantially, all of $112 million consisted of new business and contract based growth. For the full year, we generated $675 million in awards or 1.3 times revenue. Year to date awards represents a 48% win rate for awards adjudicated during the year which was comprised of 43% win rate for new business and on contract growth, and 90% for recompete work.

Total backlog of $1.1 billion as of December 31st remained at same levels as of September 30th, 2018. As of year-end, the total and bid submitted and awaiting awards is approximately $1.9 billion. This total includes numerous bids exceeding $100 million.

Excluding product sales, the pending awards include more than 50 bids demonstrating we’re not reliant on any single award.

In addition, we plan to submit bids of approximately $2.9 billion throughout the year. As, Bill discussed earlier, we anticipate significant award announcements in the second and third quarter of this year.

Moving on to 2019 financial guidance, we expect revenue to be in the range of $510 million to $530 million, approximately 81% of our revenue guidance at midpoint is an existing business; 5% comes from recompete contracts, 6% from new service awards and 8% is depended upon product sales.

As Bill mentioned, we’re seeing increased demand for our product solutions, including our advanced sensor solutions, as well as KeyRadar and AgilePod, and our guidance reflects this demand. Proforma for the wind down of flight services contract, our revenue guidance represents over 10% organic top line growth in our core business compared to 2018.

We expect adjusted EBITDA to be in the range of $48 million to $52 million. Cash flow provided by operating activities is expected to be between $19 million to $34 million, and lastly, we expect to retire the convertible note balance of $22.6 million with cash on hand during the third quarter of 2019.

Our revenue and adjusted EBITDA margin guidance is expected to ramp up sequentially each quarter. First half of 2019, revenue and adjusted EBITDA is expected to decrease compared to the same period last year due to the wind down of the flight services contract.

Furthermore, the ramp up of the third quarter and fourth quarter 2018 awards, some of which were delayed due to the government shutdown will deliver full run rate revenue late in the second quarter. In addition, we typically experienced fewer product solution sales in the first half of the year. Note that proforma for the wind down of the flight services contract, our revenue guidance represents year-over-year growth for each of the quarters in 2019.

With 81% of revenue guidance and backlog, low recompete risk and high visibility in our news service awards and product sales, we have great confidence on our full year revenue and adjusted EBITDA guidance. Moreover, this guidance does not include work that is yet to be identified.

In other words, there is no go-get in our guidance. Lastly, as we win any of the large $100 million plus awards to be adjudicated this year, that will provide potential upside to our guidance. Other key assumptions for our 2019 guidance are available in our fourth quarter earnings presentation on the Investors Section of our website.

With that operator, let’s open the call for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions). Our first question is from Tobey Sommer with SunTrust. Please proceed with your question.

Joseph DeBartoloSunTrust Robinson Humphrey — Analyst

Good morning. This is Joseph on the line for Tobey today. You talked a lot about momentum heading into 2019, what — could you help us quantify that upside, as you (ph) figure 2019 guidance, and are there any particular projects you’re bidding or considering bidding on that you’d like to highlight that particularly moves the needle, and then how does the margin of these contracts compare to that of the current company? Thanks.

William J. WeberPresident and Chief Executive Officer

Sure. So one of the reasons that we have a significant degree of optimism and that we believe our guidance could be adjusted up, we highlighted in the 14 awards right now that are $100 million or greater, of which we’ve already submitted bids and the government is adjudicating those awards or we will be bidding those in the near-term in 2019.

Off that, eight are already submitted, another six will go in throughout the course of the first part of 2019. We feel very confident in each of those bids, they go through a very rigorous process here. We say no to a lot more of those than we say yes to, and so if we’ve submitted a bid on something that large it means that we believe that there is a differentiated reason that KEYW could win, and so, we’re not going to win all of those, we’ve said that consistently, but our win rate even in the larger deals has been solid historically and if you look back over the last 18 months, we’re not winning nearly at the 50% or 48% rate that we sustained for all of 2018, and we shouldn’t expect a win at that higher rate for those large deals but we are winning somewhere between 25% and 33% of those over that period of time.

So our confidence is high, because they are so large though, our posture has always been they do not go into our forward guidance until we received a contract award and so we’re going to hold to that posture, we would expect with that good news would come a revision of guidance and we do believe that in the second and third quarter this year we are going to see significant movement on a lot of those awards.

They took time to develop capture, they submitted over the course of the last 12 months or so or will be submitting, and so it just takes an amount of time to get through the government process. So on the larger awards, that gives us a great deal of optimism. We also are seeing in some of our product solutions, we’re seeing a majority of their adoption into customer environments, and so rather than individual cases where we may sell a, KeyRadar for example.

Those have been deployed and used in mission situations and are now being considered for program of record type opportunities where multiple units could be deployed over a long period of record, a program of record, if you will.

And so those will begin moving in 2019 as well. We don’t have quite the line of sight on exactly when those will bid and award as we do some of the larger services awards. So again, we’re going to hold a conservative stance on guidance, when they come in, and when we announce them, we would expect an upturn in guidance as a result.

Joseph DeBartoloSunTrust Robinson Humphrey — Analyst

Thank you.

Operator

Our next question is from David Williams with Drexel Hamilton. Please proceed.

David WilliamsDrexel Hamilton — Analyst

Hey, good morning, guys. I certainly appreciate the time and congrats on the progress you’re making. So Bill, I wanted to ask maybe if you could give a little more color on what the advanced sensor business looks like and how you think that — think about that as an overall opportunity, what part of — from a mix standpoint, how big of a mix could that be in your total business?

William J. WeberPresident and Chief Executive Officer

So, good morning, Dave. So a couple of thoughts on that. Number one, we would say that KeyW’s greatest advantage in the marketplace is to highlight the areas where we’re different, where we’re unique, where we have been able to develop technology and then wrap people that understand that technology tightly around it and deploy it into our customer environments.

If you historically look at why KeyW has won some of the large programs that we’ve won, it’s really that reason right there. And so one of those areas is around sensor deployment, and how to make those sensors work in steered (ph) environments and make them dependable, so that they are part of a mission platform for our customer.

So we’ve announced some things, as you can imagine, there is a great deal of sensitivity on the part of our customer and on the part of KeyW to protect exactly what’s being deployed and exactly what it’s being used for. That’s our responsibility. We take that extremely seriously and I’m sure as shareholders, you all have a great deal of respect for that.

Having said that, it doesn’t take a ton of imagination to think about scenarios where the ability to collect images that have been historically collected, either in a ground array, wheeled vehicles, ocean going vessels, things that fly at altitude, as the revolution of being able to affordably move things into the atmosphere and put them into orbit, there is a great need for companies that can integrate and can take things that used to work in those other environments and put them into orbit.

And so KeyW is right at the forefront of that on multiple levels. So, we believe it’s going to be a significant mix of what we’re doing in 2019, greater than it was in 2018. It’s one of the reasons why you saw our product revenues go from roughly 4% to 8% in 2019 and that does not account for the significant upside that would happen once those become programs of record.

So I think that mix will continue to increase, they are being adopted more and more in more environments by our customer and they’re the reason why KeyW is unique and is chosen over a significantly larger competitors. So, hopefully that gives you a little bit of a lay of the land there on how we view the business.

Joseph DeNardiStifel — Analyst

Sure. Thanks for that, and maybe from a margin perspective, what is that differential as you start looking at that background (ph) obviously you said 8% this year how do you think that impacts the overall margin on a go forward basis?

William J. WeberPresident and Chief Executive Officer

Right. So, when we deploy our technology with our people, there’s great value to the customer and it drives significant margin for the Company and it should because we’re able to do a lot and cover a lot of ground for our customer technically without the expense of a lot of bodies and so for KeyW that efficiency creates a significant margin profile. So as that mix increases, we expect that to be the driver to take us into consistent double digits and then moving up from there.

We’ve consistently said that the expectations should be on this Company, that as that business grows, we are somewhere between a 10% and 12% EBITDA producer, depending on when that mix changes and in what proportion, but that is the expectation and the goal, and so over the periods of time that follow, we would expect that margin to continue to increase.

David WilliamsDrexel Hamilton — Analyst

Great. Thanks so much.

Operator

Our next question is from Joseph DeNardi with Stifel. Please proceed with your question.

Joseph DeNardiStifel — Analyst

Hey. Good morning, guys. Question for Mike. Just on the backlog, you know, you guys have put up some pretty good book-to-bills recently. Can you just remind us what some of the moving pieces are there in backlog and when we should start to see some growth there? Thank you.

Michael J. AlberExecutive Vice President and Chief Financial Officer

Sure, Joe. So when you take a look at the change in backlog, there’s approximately $270 million difference between our 2018 contract awards and then the net bookings when you look at it on a full-year basis. Most of this variance falls into really two buckets, one has to do with writedowns around the flight services business that we’ve exited, and the other is really around an award that is under protest that we expect to see positive resolution on that.

So even though backlog remain relatively flat, we do expect to see that improving in the first and second half of the year.

Joseph DeNardiStifel — Analyst

Okay. That’s helpful. And then just kind of around the commentary for growth next year excluding the flying contract, the book-to-bill has been kind of 1.2 times to 1.3 times last year too, is that rule of thumb that, that kind of book-to-bill gets you 10% growth or does that actually start to accelerate a little bit, what’s the right way to think about that?

William J. WeberPresident and Chief Executive Officer

Yeah, I think you’re going to see some acceleration. I think one of the things I’d point now is that, the book-to-bill in the fourth quarter was almost exclusively growth and new awards as well. When we look at next year, we’ve got a total of 5% recompete in 2019. So it’s a relatively small number, 81% of it is in backlog, so really the new new that we’re looking at for next year is only around 6%.

So given the pipeline of opportunities, what we’ve got submitted and awaiting adjudication right now, we feel very, very confident that growth is on track for 2019.

Joseph DeNardiStifel — Analyst

Okay. Yeah, and then Bill can you just kind of revisit the longer term goals that you provided, I guess a year or so ago and, you had a plan to essentially double EBITDA in four to five years, and I know some things have changed, but can you, should we ignore that at this point, is that still your plan just maybe provide your updated thoughts on what kind of the longer term outlook looks like for you guys. Thank you.

William J. WeberPresident and Chief Executive Officer

Yes, sure Joe, no, by no means ignore that, that is the goal of the Company, that is what we have put strategic mechanisms in place to go drive that and so what you see is a base business that will grow at the level that we’re guiding or greater with a lot of potential for upside and so what gives us that reason for optimism is that the earlier question answered and then therefore the reason for significant growth to the extent that we could double EBITDA and so the reason or the way that you would potentially do that is you need those large needle moving awards, the $100 million and greater to win at some acceptable win rate that passes a standard test that says, look industry would perform that way and KeyW would perform at or better than industry.

And so when we look at 14 awards right now through the balance of 2019 that are $100 million or greater if we win our normalized historical rate on those somewhere between 25% and 33% or even less a little bit less than that, then we put top line revenue on top of the base business that has only 5% recompete in ’19 and 2020 looks — it’s still early to project 2020 in terms of what our recompete posture will look like, but it looks solid there as well, then you start to grow significant revenues and then EBITDA as well.

And as we said, when we start to think about deploying sensor payloads programmatically across existing machine sets and putting things into orbit, those are $100 million plus opportunities for this Company. Those are not aspirational, those aren’t — we would like to get to the place where we’re bidding on those, those are actively being pursued and captured by the Company.

So I would say quite the contrary, do not ignore that strategy if we think that, that’s going to change, we would certainly come back to this group and tell you that we missed any bump along the way, we think there’s a reason to relook or revisit the strategy but, we are holding course and we’re on track.

Joseph DeNardiStifel — Analyst

Okay. Bill, is it fair to say that 2019 is kind of a particularly critical or important year in terms of how you do on these 14 awards and your ability to kind of meet your longer term targets?

William J. WeberPresident and Chief Executive Officer

Well, so what we have always said Joe is, no single award in that 14 is more critical than another, meaning there’s nothing in there that if we were to lose it, we’d have to come back to the table and say, alright, well, we were betting it all on that particular award.

And intentionally so, we don’t ever want to be single threaded on any of those opportunities.

But I think your point is very fair and it’s extremely valid. You don’t just show up as a reorganized Company or a transformed Company and say, we are now going to compete for and win significantly larger opportunities than the Company has ever been on before.

That does take time, and intelligent, responsible capture takes a period of time. And so, what 2019 represents is the right time cycle for this Company having started about 24 months ago, saying those are the opportunities we want to be in a good position to bid on and then win when the government makes their decision.

And so 2019 is definitely that window, but what I would say is, there are going to be an abundance of opportunities that come after that. And so, as they start to award, we do expect them to on ramp, and we’re clearly not going to stop there. We’re going to continue to go.

So a critical year, I’ll tell you Joe, they all seem critical, right. It’s the nature of our business and it should be. So this year, what we do expect though is, that maturity to start to demonstrate that those big awards are coming KeyW’s way, and we have every expectation that we’re going to have that good news coming.

Joseph DeNardiStifel — Analyst

Helpful. Thanks, Bill.

Operator

Our next question is from Louie DiPalma with William Blair & Company. Please proceed.

Louie DiPalmaWilliam Blair & Company — Analyst

Good morning, guys.

William J. WeberPresident and Chief Executive Officer

Good morning, Louie.

Louie DiPalmaWilliam Blair & Company — Analyst

Bill, space seems to be one of your three fastest growing end market. You announced the notable partnership yesterday with Spire. Do you view the space start-up ecosystem more as partners than as competitors?

William J. WeberPresident and Chief Executive Officer

Yes. Most definitely partners. So, again, here’s what we would emphasize there. We’ve used space as a domain, not unlike flying at altitude, manned or unmanned, not unlike ocean going, maritime missions, not unlike ground or human carried, right.

So our perspective is KeyW needs to be in a position where we can deploy our sensors and our technology and the intelligence that comes with our people in any of those domains. So we’re not going to go begin building huge sets or small sets. We are not going to go and try to get good at launch services. There are really good companies both established and start-ups that are making — that have either made their mark or are making their mark there.

And so what we will do like we did, Spire is a great example. We will go and pick best of breed and where it serves KeyW well, then we’ll partner with them and that’s true on IRAD projects like the one we announced yesterday, but it’s also true on partnerships where we would bid with our customer. We’ve been asked on several occasions to be a prime contractor on an opportunity that would cause us to need a bus provider and need launch services and so in those cases we make strategic decisions much like we do any other program for building networks, building cyber operations, carrying mission critical data that needs to be analyzed.

It’s a very similar approach we’re going to be good at the things we need to be great at and we’re going to partner with companies that are great in their areas as well.

Louie DiPalmaWilliam Blair & Company — Analyst

Okay, and on the same space theme, how large is this market for you? You’ve mentioned that you have several opportunities in space that are $100 million plus and you’re going to bid on $2.9 billion in total opportunities for 2019 and you have, I think, $1.9 billion of bids that remain outstanding for 2018, I was wondering just if you have a ballpark range on how much of the market opportunity is related to the space for you?

William J. WeberPresident and Chief Executive Officer

Well, so we view the sensor development what we would call ISR and the space component of it as one of the most exciting areas that we’re involved in, that could potentially be a third of the business down the road and by that I would categorize that as 2020 and beyond, and it’s because there is such change and adaptation happening with the machine sets and with the customers that serve that machine sets in orbit, they are rethinking entirely the way that they put things into space and so as a result it opens a great opportunity for companies like KeyW.

So, when they do — when they make those kind of moves, and when they deploy a technology, that has the potential to be significantly sized, meaning $100 million or larger on an annual basis and so, so we’re very optimistic. We understand, again, it’s important for us to understand where we’re strongest and where we need to partner with other organizations and I think we’ve got a really good handle on that. So it could be a significant revenue stream for the Company as early as as 2020.

I mean, in 2019, it will already represent roughly 10% of what we do overall, and that will continue to grow.

Louie DiPalmaWilliam Blair & Company — Analyst

Okay. And for Mike, you disclosed your revenue growth pro forma for the flight services contract as around 10%, and is the pro forma EBITDA growth even higher than that?

William J. WeberPresident and Chief Executive Officer

No, I think it’s probably — it’s pretty much, Louie, it’s pretty much in line with that same growth percentage.

Louie DiPalmaWilliam Blair & Company — Analyst

Okay. And one final one, related to your comments about growth accelerating in this year and for the trajectory of revenue and EBITDA to ramp throughout 2019, can you qualitatively say that that sets up the growth rate for 2020 to be greater than 2019?

William J. WeberPresident and Chief Executive Officer

Yeah, I would say based on our pipeline of qualified opportunities, based on the $2.9 billion worth of bids that we’re going to be submitting this year, I think the possibility for growth in excess of our growth on a year-over-year basis this year, I think all of the elements that we need for that trajectory and that kind of growth trajectory are in place for 2020.

Louie DiPalmaWilliam Blair & Company — Analyst

Sounds good. Thanks, guys.

William J. WeberPresident and Chief Executive Officer

Sure. Thank you.

Operator

Our next question is from Josh Sullivan with Seaport Global. Please proceed.

Josh SullivanSeaport Global — Analyst

Hey, good morning.

William J. WeberPresident and Chief Executive Officer

Good morning.

Michael J. AlberExecutive Vice President and Chief Financial Officer

Hey, Josh.

Josh SullivanSeaport Global — Analyst

Hi. We’ve seen several of your peers emphasize economies of scale is fundamental to the long-term success in the federal IT environment. We’ve seen several large M&A deals here last couple of months. Just curious on your thoughts in kind of how you see KeyW positioned in that environment?

Michael J. AlberExecutive Vice President and Chief Financial Officer

I think from a size perspective, we’ve been doing a lot to rationalize our OpEx on a year-over-year basis. We’ve made some — we’ve been able to make some reductions in terms of our facility footprint and also continue to drive efficiencies within our functional department. So we don’t see scale as a requirement for us to be able to grow either at or above market going forward.

When we look at the — the pipeline of opportunities that are out there, our size does not limit us at all in terms of the opportunities that we’re looking at, in fact, our ability to be agile, to be able to address changing requirements gives us the ability to address these. Also, we’ve got no revenue streams that we’re cannibalizing as we go forward as well.

So we don’t see scale as a driver or an inhibitor of our growth going forward.

William J. WeberPresident and Chief Executive Officer

And Josh, I would add that, when we made the strategic moves we did in 2017 as a $300 million Company, we did — the answer to your question then would have been, we believe that KeyW is at a disadvantage as a $300 million competitor trying to grow and gather market share and agency presence and customers that we don’t have with capabilities that we also don’t have and contracting mechanisms that we would need in order to go do that. So scale was an issue then, and we solved that with the acquisition of Sotera Defense Solutions in 2017.

There are no pieces right now that we’re looking at and saying if not for the absence of that KeyW could compete. I think the really exciting thing for KeyW is with the cost structure in place right now, we don’t expect these large, what we have been calling the needle moving awards, we don’t expect an influx of operating cost to on-board with those, those are program related costs, much of it is part of the billable rate that is in our bid and so as the top line revenue increases, and that fixed costs stays stable, we’ll see margins increase and so for the foreseeable future through all of what we’ve talked about as our strategy, we don’t believe that size is an impediment to KeyW or scale is a problem for us.

I know that in the consolidation game that is called on often as the reason for the significantly large players in our market to get even larger, but I think that’s yet to be necessarily proven out as a competitive advantage where we need to be aggressive, we can be and where we’re differentiated, we look for those opportunities too.

Josh SullivanSeaport Global — Analyst

I appreciate that. And then just one, moving over to the space opportunity, you mentioned your first satellite launched this year, is that a SAR application or what is the application that you’re testing out?

William J. WeberPresident and Chief Executive Officer

So it is componentry that some of which will go in repeated solutions for different customers. So not to get too specific on what the payload in that bay will be, the intention is, is that just as KeyW has always done in our center development, we develop a core piece of technology or pieces of technology and then we adapt that to mission needs.

And so the intention is to get into orbit components that we will use and then adapt for different customer needs and have those operating already in space, so that we know their characteristics, we know the output and the conditions that they’re operating in at — in the atmosphere, so that if we need to make changes, if we want to change a configuration, we can do that and see how that operates.

Josh SullivanSeaport Global — Analyst

Got it. And then just one final one, the pulmonary 2020 budget request is out, and are there any key areas you could highlight for us or point KeyW to?

William J. WeberPresident and Chief Executive Officer

Yes, here’s what we would say. The areas that KeyW needs to be well positioned in the budget are, they are in great abundance. If you start with the challenge that this nation and our adversaries face around intrusion in large scale networks, that is going to get more than enough attention, not just in the agencies that serve those needs from an offense and defense perspective, but the overall defense and a relook of the way that that we view that from a governmentwide perspective has an issue of national offense. So major checkmark there.

As peace around the globe is stabilized and emphasized, there’s a need to be able to see over the horizon and know that peaceful nations and peaceful organizations are doing what they’ve said they’re going to do in order to maintain peace. That’s going to be a larger part of the national defense budget. We saw a great line item and great program category there for significant budget.

And in all procurements, where a large massive amounts of data is moved, the need for analytics is a component of the way every agency is operating, less paper, more ones and zeros, more reusable programmatic data, and so KeyW in all three of those areas is well positioned.

So we’re bullish on the budget where it stands it’s going to ebb and flow both on the classified and unclassified side, but again our position is positioned where we are at the size we are, we don’t need major upturn in budget spending and a little bit of downturn does not dramatically affect KeyW in any of the areas we’re in.

Josh SullivanSeaport Global — Analyst

Appreciate that. Thank you.

Operator

Our next question is from Joe Gomes with Noble Capital. Please proceed.

Joe GomesNoble Capital — Analyst

Good morning, and thanks for taking my question.

William J. WeberPresident and Chief Executive Officer

Hey, Joe.

Joe GomesNoble Capital — Analyst

Most of them have already been answered, but so I’ll just kind of throw this one out there, you guys seem pretty optimistic about 2019, what do you see as the key risks or obstacles to obtaining the growth that you’re projecting for 2019? Thank you.

William J. WeberPresident and Chief Executive Officer

We are conservatively optimistic about 2019 and the risk factors that we are managing on a regular basis, simply put, if we execute, if KeyW executes, we do not need any market forces to be a tailwind for us, we think with the budget stabilized for the duration of 2019 at the current levels with relative calm and peace on the hill at the moment and in the foreseeable future, and again, with the challenges that we help our customers face, it really is an internally focused execution year for KeyW.

As Mike said, we have 5% of our business is recompete — we feel very confident about those and our 90% win rate on recompetes would prove that out, we have less go-get in the guidance number for 2019 than we did in 2018 and we have line of sight on all of those opportunities.

We’re seeing the adoption of our product sets to be more programs of record, all of those are truly positive sign. So KeyW executes the way that we did in 2018 and the way that we expect to in ’19, we will make 2019 an answer (ph) and that is our expectation.

Joe GomesNoble Capital — Analyst

Great, thanks very much.

William J. WeberPresident and Chief Executive Officer

Thanks Joe.

Operator

Our next question is from Jim McIlree with Chardan Capital. Please proceed.

Jim McIlreeChardan Capital Markets — Analyst

Thanks. Good morning. Just to check if my math is correct at the midpoint of your guidance, flight services was about $30 million to $35 million in revs in 2018, was that evenly distributed throughout the year or was it skewed toward Q1, Q2 and Q3?

William J. WeberPresident and Chief Executive Officer

It was pretty evenly distributed among the quarters.

Jim McIlreeChardan Capital Markets — Analyst

Okay. And as far as the when you were talking about the budget, if we get into a continuing resolution scenario, which we often do when you have a divided house and senate and presidency, how do you think that impacts you for your 2020 kind of initial thoughts?

William J. WeberPresident and Chief Executive Officer

Yes. So, Jim, good observation. It does seem to be a little bit more of a reality than maybe it did in the — now in not so recent past.

But I think my perspective is very similar to that of my peers. Our customer is adaptable and they have modified business to be able to operate in a continuing resolution environment, so we do collectively we — and by that I mean us and our government partners and counterparts. We do understand how to contract and conduct business in a CR environment, but here’s the fundamental change in CRs going forward versus the way they were before the last full budget that passed a year ago.

Continuing resolution rules simply stated say, that if there is not a passed budget, then dollars revert back to the spending levels of the last passed budget and they remain there in the — during the timeframe of the continuing resolution until a new budget is passed. And it had been years since the last budget had been passed and so were continuing resolutions were always problematic for companies like KeyW and the providers in the sector.

As you add budgets reverting back to five, six and seven year of previous budgets, when the demand and programs, new programs were trying to start, that is where the friction and the rub happened in the past, and so what would happen going forward, is if there was a continuing resolution going in the future, then dollars would revert back to the last passed budget, which for us was within the last twelve months. If you extend it out another six months or another year, you get the picture.

Those spending levels were aggressive and allow more than enough growth and more than enough momentum to complete programs that have already been started. And so, it’s not that it is a non-event. We will always track that, and it is one of the elements that keep management teams like KeyWs awake at night, and because our employees are all keenly tuned in to that kind of nervousness, it certainly does not help the sector when those type of things happen.

But it is categorically not the same event that it would have been a year, 18 months ago, two years ago. Does that makes sense, Jim?

Jim McIlreeChardan Capital Markets — Analyst

Yeah, perfectly. Thank you. That’s a good observation. And just lastly, Mike, I think you talked about, in response to an earlier question, you talked about how 2020 growth could be better than 2019 growth. I think that’s what you’ve said and you were referring to 2019 growth on a proforma basis is that correct or were you referring to the actual numbers?

William J. WeberPresident and Chief Executive Officer

The actual numbers.

Jim McIlreeChardan Capital Markets — Analyst

Okay, all right, very good. Thanks a lot.

William J. WeberPresident and Chief Executive Officer

Okay, thanks Jim.

Operator

Ladies, gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to management for closing remarks.

William J. WeberPresident and Chief Executive Officer

Okay. Well, thanks, everyone for joining us this morning and your continued interest in KeyW. An archive of this webcast will be available on the Investor Relations page of our website. Thanks and have a great day.

Operator

Thank you. This concludes today’s conference. You may disconnect your lines at this time and thank you for your participation.

Duration: 55 minutes

Call participants:

Mark ZindlerVice President, Investor Relations and Treasury

William J. WeberPresident and Chief Executive Officer

Michael J. AlberExecutive Vice President and Chief Financial Officer

Joseph DeBartoloSunTrust Robinson Humphrey — Analyst

David WilliamsDrexel Hamilton — Analyst

Joseph DeNardiStifel — Analyst

Louie DiPalmaWilliam Blair & Company — Analyst

Josh SullivanSeaport Global — Analyst

Joe GomesNoble Capital — Analyst

Jim McIlreeChardan Capital Markets — Analyst

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