Published:
L-1 Identity Solutions Reports Second Quarter 2008 Financial Results
STAMFORD, Conn., July 30 /PRNewswire-FirstCall/ -- L-1 Identity Solutions,
Inc., (NYSE: ID), a leading provider of identity solutions and services, today
announced financial results for the second quarter and six months ended June
30, 2008.
Revenue for the second quarter of 2008 was $145.0 million compared to
$90.1 million in the second quarter of 2007, an increase of $54.9 million or
61 percent. Organic growth in the quarter was 22 percent and reflects strong
demand for credentialing solutions, continued growth from intelligence service
business and increases from enrollment and background screening services.
Gross margin for the second quarter 2008 was approximately 33 percent
compared to 31 percent in the second quarter of 2007. Gross margin
improvements reflect higher revenues from biometric solutions and the impact
of improved leverage.
Adjusted EBITDA for the second quarter of 2008 improved to $22.5 million
from $14.1 million for the same period in the prior year, an increase of $8.4
million, or 60 percent, reflecting the impact of organic sales growth,
acquisitions and improved operating leverage. Second quarter 2008 operating
expenses as a percentage of revenue decreased to 27 percent compared to 28
percent in the second quarter of 2007.
The Company reported second quarter net income of $3.2 million, or $0.04
per diluted share compared to a net loss of $1.2 million, or ($0.02) per
diluted share in the second quarter of 2007 based on weighted average diluted
shares outstanding of 74.8 million in the second quarter of 2008 compared to
71.3 million in the prior year period. Included in the Company's second
quarter net income are expenses of $13.7 million for non-cash items related to
the amortization of intangibles, stock-based compensation and depreciation,
compared to $11.9 million in the second quarter of 2007.
"I am pleased with the results for the quarter and applaud the efforts of
our divisions in working together to help us achieve our financial targets for
the first six months of 2008," said Robert V. LaPenta, Chairman, President and
CEO of L-1 Identity Solutions. "Strong momentum from the first half of the
year, fueled by an excellent pipeline of biometric division opportunities,
intelligence contracts and secure credentialing solutions as evidenced by the
recently expanded U.S. Passport Card contract and a new award for the Border
Crossing Card, provide positive momentum for the second half of 2008."
Year to Date Results for the Six Months Ended June 30, 2008
Revenue for the first six months of 2008 was $260.9 million compared with
$160.1 million for the same period in the prior year, representing an increase
of $100.8 million. The Company's organic revenue grew by 21 percent for the
first half of 2008 compared to the first half of 2007.
Gross margin for the first six months of 2008 was 30 percent, compared to
28 percent in the same period in 2007 with improvements reflecting higher
revenues from biometric solutions and the impact of improved leverage.
Adjusted EBITDA for the first six months of 2008 was $35.2 million
compared to $19.8 million for the same period in 2007, representing a 78
percent increase. The increase in Adjusted EBITDA for the first six months of
2008 reflects the impact of higher revenues and improved operating leverage.
Operating expenses as a percentage of revenues decreased to 27 percent in the
first six months of 2008 from 31 percent in the first six months of 2007.
For the first six months ended June 30, 2008, the Company reported a net
income of $1.3 million, or $0.02 per diluted share compared to a net loss of
$10.0 million, or ($0.14) per diluted share in the first six months of 2007.
Diluted weighted average shares outstanding increased to 73.8 million from
71.9 million in the prior year. Included in the company's six months net
income for 2008 and net loss for 2007 are approximately $26.5 million and
$23.7 million, respectively, of expenses for non-cash items related to the
amortization of intangibles, stock-based compensation and depreciation.
The Company's first half 2008 revenue of $260.9 million, together with
expected revenues from the Company's current backlog of approximately $800.0
million, represents approximately 85 percent of the Company's 2008 revenue
target.
Second Quarter Highlights
-- L-1 was awarded the U.S. Passport Card contract with a negotiated value
of $215 million over five years and L-1 was awarded $24.8 million over
five years for the new U.S. Border Crossing Card (BCC) as part of an
expansion to the U.S. Passport Card program. Together, the value of
the prime contract award combined with the BCC award brings the value
of the Department of State contract with L-1 to approximately $239
million over five years.
-- The acquisition of the ID Systems Business of Digimarc Corporation
remains on course for completion in the second half of 2008. The
Company received early termination from the Federal Trade Commission of
the waiting period under the Hart-Scott-Rodino Act and the Company's
$310 million all cash tender offer was unanimously approved by
Digimarc's board of directors.
-- Enrollment services momentum in the quarter included an award of a
Master Contract with Washington State Department of Social and Health
Services (DSHS) for Civil Applicant Fingerprinting and L-1 Live Scan
technology was provided for Connecticut's first full-service applicant
fingerprinting and background check facility. In the first half of 2008
L-1 processed 647,000 prints, an increase of 36 percent over the print
volume experienced in the first half of 2007.
-- The demand for HIIDE biometric enrollment and recognition devices
continued with the Company receiving a $4.9 million task order in the
quarter.
-- A new Live Scan device was unveiled in the quarter, the TouchPrint(TM)
Enhanced Definition 4800 Live Scan, which captures forensic-quality ten
print and palm images on a single platen.
-- Opportunities for iris technologies continued to open up, in part
predicated by the resolution of the dispute with LG Electronics. L-1
also released the latest state-of-the-art iris algorithm, L-1's
proprietary Daugman '08.
-- The Enterprise Access Control Division continued the pace of innovation
by introducing the next generation 3D face reader for hands-free,
secure physical access control.
-- The Secure Credentialing Division had over $16.0 million in extensions
to existing driver's license contracts in the quarter.
-- REAL ID grants of nearly $80 million were released in June 2008 to
assist states in improving the security of state-issued driver's
licenses (DL) and identification documents (ID). Grants will fund
state-specific projects like improving the physical security of
licenses, upgrading facility security, and modernizing document imaging
and storage. Of that, current L-1 customers have been granted $16.0 -
$18.0 million.
-- L-1 is the current technology, infrastructure and maintenance provider
for the Registered Traveler (RT) program and the Company received
orders to deploy lanes at one new airport and six new terminals in the
second quarter. Today the RT program has 129,417 active members and L-
1 provides and supports RT kiosks located in 17 airports across the U.S.
Forward Looking Financial Expectations
The Company expects revenue for the third quarter ending September 30,
2008 of between $140.0 million and $150.0 million, with Adjusted EBITDA of
$20.0 million to $23.0 million and EPS in the range of $0.04 to $0.06.
The Company expects revenue for the full year ending December 31, 2008 of
approximately $555.0 million - $575.0 million, Adjusted EBITDA of $80.0
million - $85.0 million and unlevered free cash flow of $60.0 million - $65.0
million.
On a pro forma basis, assuming the pending Digimarc transaction closed at
the start of the 2008 calendar year, the Company expects revenues of
approximately $670.0 million, adjusted EBITDA of $110.0 million including
expected operational efficiencies, unlevered free cash flow of $75.0 million
and a backlog of $1.0 billion. In addition, L-1 expects to recognize synergies
and additional operating efficiencies once the businesses are combined.
Conference Call Information
The Company will host a conference call with the investment community to
discuss its operating results and outlook beginning at 11:00 a.m. (ET) today.
The conference call will be available live over the Internet at the
investor relations section of the L-1 website at www.L1ID.com. To listen to
the conference call, please dial 888-694-4641 using the passcode 51393020. For
callers outside the U.S., please dial 973-582-2734 with the passcode 51393020.
A recording of the conference call will be available starting one hour after
the completion of the call. To access the replay, please dial 800-642-1687 and
use passcode 51393020. To access the replay from outside the U.S., dial
706-645-9291 and use passcode 51393020.
Pro Forma Information
Pro Forma information presented in this press release reflects results
after giving effect to the acquisitions consummated after January 1, 2008 as
if they had occurred on January 1, 2008.
Organic Growth
Organic growth represents the increase in revenues in the current period,
expressed as a percentage, for businesses included for the entire period in
the current year over the revenues in the corresponding period in the previous
year, assuming the same businesses had been acquired at the beginning of the
prior year period.
Adjusted EBITDA
L-1 Identity Solutions uses Adjusted EBITDA as a non-GAAP financial
performance measurement. Adjusted EBITDA is calculated by adding back to net
income (loss) interest, income taxes, depreciation, amortization, and
stock-based compensation expense. Adjusted EBITDA is provided to investors to
supplement the results of operations reported in accordance with GAAP.
Management believes Adjusted EBITDA is useful to help investors analyze the
operating trends of the business before and after the adoption of SFAS 123
( R ) and to assess the relative underlying performance of businesses with
different capital and tax structures. Management believes that Adjusted EBITDA
provides an additional tool for investors to use in comparing L-1 Identity
Solutions financial results with other companies in the industry, many of
which also use Adjusted EBITDA in their communications to investors. By
excluding non-cash charges such as amortization, depreciation and stock-based
compensation, as well as non-operating charges for interest and income taxes,
investors can evaluate the Company's operations and can compare its results on
a more consistent basis to the results of other companies in the industry.
Management also uses Adjusted EBITDA to evaluate potential acquisitions,
establish internal budgets and goals, and evaluate performance of its business
units and management.
L-1 Identity Solutions considers Adjusted EBITDA to be an important
indicator of the Company's operational strength and performance of its
business and a useful measure of the Company's historical and prospective
operating trends. However, there are significant limitations to the use of
Adjusted EBITDA since it excludes interest income and expense and income
taxes, all of which impact the Company's profitability, as well as
depreciation and amortization related to the use of long term assets which
benefit multiple periods. L-1 Identity Solutions believes that these
limitations are compensated by providing Adjusted EBITDA only with GAAP net
income (loss) and clearly identifying the difference between the two measures.
Consequently, Adjusted EBITDA should not be considered in isolation or as a
substitute for net income (loss) presented in accordance with GAAP. Adjusted
EBITDA as defined by the Company may not be comparable with similarly named
measures provided by other entities. A reconciliation of Adjusted EBITDA to
GAAP net income or loss is included in the enclosed schedule. No
reconciliation is provided for pro forma Adjusted EBITDA for the year ending
on December 31, 2008 assuming the acquisition of Digimarc, since it is not
practicable to estimate the corresponding reconciling items or pro forma net
income.
Unlevered Free Cash Flow
Unlevered Free Cash Flow represents cash flow from operating activities,
plus interest expense less capital expenditures. L-1 believes unlevered free
cash flow is a useful measure for assessing the company's liquidity, meeting
its debt service requirements and making acquisitions. Unlevered free cash
flow is not necessarily comparable to similar measures used by other entities
and is not a substitute for GAAP measures of liquidity such as cash flows from
operating activities.
About L-1 Identity Solutions
L-1 Identity Solutions, Inc. (NYSE: ID), together with its portfolio of
companies, offers a comprehensive set of products and solutions for protecting
and securing personal identities and assets. Leveraging the industry's most
advanced multi-modal biometric platform for finger, face and iris recognition,
our solutions provide a circle of trust around all aspects of an identity and
the credentials assigned to it -- including proofing, enrollment, issuance and
usage. With the trust and confidence in individual identities provided by L-1
Identity Solutions, government entities, law enforcement and border management
agencies, and commercial enterprises can better guard the public against
global terrorism, crime and identity theft fostered by fraudulent identity. L-
1 Identity Solutions is headquartered inStamford, CT. For more information,
visit www.L1ID.com.
ID-L
Forward Looking Statements
This news release contains forward-looking statements that involve risks
and uncertainties. Forward-looking statements in this press release and those
made from time to time by L-1 Identity Solutions through its senior management
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements reflect the
Company's current views based on management's beliefs and assumptions and
information currently available. Forward-looking statements concerning future
plans or results are necessarily only estimates, and actual results could
differ materially from expectations. Certain factors that could cause or
contribute to such differences include, among other things, the ability of the
Company to successfully close the Digimarc transaction on a timely basis (if
at all), the availability of government funding for the Company's products and
solutions, the size and timing of federal contract awards, performance on
existing and future contracts, general economic and political conditions and
other factors affecting spending by customers, and the unpredictable nature of
working with government agencies. Additional risks and uncertainties are
described in the Securities and Exchange Commission filings of the L-1
Identity Solutions, including the Company's Form 10-K for the year ended
December 31, 2007, and the Company's Form 10-Q for the quarter ended March 31,
2008. L-1 Identity Solutions expressly disclaims any intention or obligation
to update any forward-looking statements.
L-1 Identity Solutions, Inc.
Reconciliation of Adjusted EBITDA to Net Income (Loss) in thousands
(Unaudited)
Historical Periods Quarter Ending Quarter Ending
June 30, 2008 June 30, 2007
Net Income (Loss) $3,182 $(1,197)
Interest Expense, net 3,198 2,172
Depreciation and amortization 10,221 9,360
Stock Based Compensation 3,502 2,514
Income Tax Provision 2,442 1,208
----------------- -----------------
Adjusted EBITDA $22,545 $14,057
Six Months Ending Six Months Ending
June 30, 2008 June 30, 2007
Net Income (Loss) $1,297 $(10,028)
Interest Expense, net 6,459 3,877
Depreciation and amortization 19,894 18,419
Stock Based Compensation 6,563 5,241
Income Tax Provision 979 2,295
----------------- -----------------
Adjusted EBITDA $35,192 $19,804
Prospective Periods Quarter Ending Year Ending
September 30, 2008 December 31, 2008
Net Income (Loss) $3,000 - $6,000 $7,000 - $12,000
Reconciling Items:
Provision for Income Taxes 1,000 6,000
Interest, net 2,000 12,000
Stock-Based Compensation 4,000 15,000
Depreciation and Amortization 10,000 40,000
Adjusted EBITDA $20,000 - $23,000 $80,000 - $85,000
Exhibit II
L-1 Identity Solutions, Inc.
Unlevered Free Cash Flow
(in thousands)
Year Ending
December 31, 2008
Cash Flow from Operating Activities $61,000 - $66,000
Interest Paid 12,000
Tax Effect of Stock Options Exercised 1,000
Taxes Paid 1,000
Interest Income ---
Capital Expenditures (15,000)
Unlevered Free Cash Flow $60,000 - $65,000
L-1 IDENTITY SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
June 30, December 31,
2008 2007
Assets
Current assets:
Cash and cash equivalents $8,352 $8,203
Accounts receivable, net 101,341 90,210
Inventory 26,911 21,534
Deferred tax asset 13,253 13,253
Other current assets 6,945 3,890
Total current assets 156,802 137,090
Property and equipment, net 27,201 23,451
Goodwill 1,085,577 1,054,270
Intangible assets, net 186,143 184,237
Deferred tax asset 36,314 37,293
Other assets, net 10,898 9,304
Total assets $1,502,935 $1,445,645
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $88,011 $81,549
Current portion of deferred revenue 13,835 12,279
Other current liabilities 3,134 2,393
Total current liabilities 104,980 96,221
Deferred revenue, net of current portion 6,194 4,671
Long-term debt 263,000 259,000
Other long-term liabilities 1,533 1,036
Total liabilities 375,707 360,928
Shareholders' equity:
Common stock, $0.001 par value;
125,000,000 shares authorized; 77,543,090
and 75,146,940 shares issued at June 30,
2008 and December 31, 2007, respectively 78 76
Additional paid-in capital 1,263,311 1,217,840
Pre-paid forward contract (69,808) (69,808)
Treasury stock (6,161) -
Accumulated deficit (68,501) (69,798)
Accumulated other comprehensive income 8,309 6,407
Total shareholders' equity 1,127,228 1,084,717
Total liabilities and shareholders'
equity $1,502,935 $1,445,645
L-1 IDENTITY SOLUTIONS, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Revenues $144,952 $90,099 $260,947 $160,106
Cost of revenues:
Cost of revenues 91,049 55,856 169,789 102,033
Amortization of acquired
intangible assets 6,277 6,492 12,178 12,965
Total cost of revenues 97,326 62,348 181,967 114,998
Gross profit 47,626 27,751 78,980 45,108
Operating expenses:
Sales and marketing 8,999 7,444 16,484 12,904
Research and development 6,509 4,551 11,842 9,212
General and administrative 23,240 12,946 40,029 26,027
Amortization of acquired
intangible assets 829 700 1,655 868
Total operating expenses 39,577 25,641 70,010 49,011
Operating income (loss) 8,049 2,110 8,970 (3,903)
Interest income 64 99 135 166
Interest expense (3,262) (2,271) (6,594) (4,043)
Other income (expense), net 773 73 (235) 47
Income (loss) before income
taxes 5,624 11 2,276 (7,733)
Provision for income taxes (2,442) (1,208) (979) (2,295)
Net income (loss) $3,182 $(1,197) $1,297 $(10,028)
Net income (loss) per share
Basic $0.04 $(0.02) $0.02 $(0.14)
Dilutive $0.04 $(0.02) $0.02 $(0.14)
Weighted average shares
outstanding
Basic 74,019 71,257 73,085 71,895
Dilutive 74,816 71,257 73,761 71,895
CONTACTS:
Doni Fordyce
L-1 Identity Solutions
203-504-1109
dfordyce@L1ID.com
Steve Lipin
Brunswick Group
212-333-3810
SOURCE L-1 Identity Solutions, Inc.
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