L-1 Identity Solutions, Inc. (NYSE: ID), a leading supplier of identity
solutions and services, today announced financial results for the second
quarter and six months ended June 30, 2010.
Revenue was $164.1 million in Q2 2010, compared to $168.1 million in the
second quarter of 2009. Second quarter revenues were impacted by lower
U.S. Passport Cards. Full year U.S. Passport Card revenues are expected
to be realized in the second half of 2010 as shipments are made against
orders, the majority of which have already been received. Lower
comparable sales from the biometric division in Q2 2010 were impacted by
a large shipment of HIIDEs? in Q2 2009, partially offset by
approximately $5.0 million in a follow-on order from an existing U.S.
government customer for additional Automated Biometric Identification
System (ABIS) license capacity. Services revenue was slightly higher
when compared to the prior year primarily due to intelligence-related
business.
Gross margin in the second quarter of 2010 was 28 percent compared to 29
percent for the second quarter of 2009. Margins in the second half of
2010 are expected to increase to 30 percent resulting mainly from an
anticipated increase in solution sales in the second half of 2010.
Adjusted EBITDA for Q2 2010 grew due to lower operating expenses and was
$25.4 million, excluding $2.3 million in strategic alternative-related
expenses, acquisition-related expenses and severance costs. This
compared to Q2 2009 Adjusted EBITDA of $24.3 million (excluding $1.4
million associated with Registered Traveler (RT), acquisition-related
expenses and severance costs).
Operating cash flow for the quarter was $11.3 million and was used to
fund capital expenditures of $13.4 million as L-1 nears completion of
the build-out of funded Department of Motor Vehicle (DMV) contracts.
L-1 reported a Q2 2010 net loss of $2.7 million, or ($0.03) per diluted
share that includes approximately $2.3 million in strategic
alternative-related expenses, acquisition-related expenses and severance
costs. This compared to a net loss of $1.2 million, or ($0.01) per
diluted share in the second quarter of 2009. Weighted average diluted
shares outstanding were 87.6 million in the second quarter of 2010
compared to 85.5 million in the prior year period. Excluding stock based
compensation, earnings per diluted share were $0.01 for the second
quarter of 2010.
Year-to-Date Results for the Six Months Ended June 30, 2010
Revenue for the first six months of 2010 was $312.3 million compared
with $318.2 million for the same period in the prior year. Services
segment revenue was up, driven by enrollment services contracts in key
States and growth from new and existing government intelligence
contracts. This was offset by lower solutions revenue primarily from the
Department of State (DoS) U.S. Passport Card program and fewer HIIDE
shipments in comparison to the first six months of 2009 as mentioned
above.
Gross margin for the first six months of 2010 was 28 percent, compared
to 29 percent in the same period in 2009, reflecting the impact of an
increased revenue contribution from services compared to solutions.
Adjusted EBITDA for the first six months of 2010 was $42.2 million
compared to $43.6 million for the same period in 2009, driven by the
aforementioned margin reduction. Operating expenses remained at 25
percent of revenues, consistent with the first six months of 2009.
Operating cash flow for the first six months of 2010 was $11.7 million.
For the six months ended June 30, 2010, the Company reported a net loss
of $10.3 million, or ($0.12) per diluted share that includes
approximately $2.7 million in strategic alternative-related expenses,
acquisition-related expenses and severance costs. This compared to a net
loss of $5.0 million or ($0.06) per diluted share in the six months of
2009. Weighted average shares outstanding increased to 87.2 million from
85.0 million in the prior year. Excluding stock based compensation,
earnings per diluted share were ($0.02) for the first six months of 2010.
Backlog at the end of the first half of 2010 remained unchanged from the
prior quarter at over $1.3 billion, up from $1.1 billion at the end of
the first half of 2009.
The first half financial results reflect approximately $20.0 million of
anticipated new business awards moving into the second half of 2010
including secure credentialing contracts in Africa and international
biometric solution contracts, some of which materialized in July 2010.
In addition, approximately $10.0 million of anticipated revenues from
existing customers were not converted in the quarter, including a
portion of a follow-on order from an existing U.S. government customer
for additional ABIS license capacity and U.S. Passport Card sales, all
of which are expected to convert to revenue in the second half of the
year.
?We continued to closely manage costs while continuing to invest in
critical R&D and make capital expenditures and have maintained EBITDA
despite the fact that revenues have shifted to the second half of the
year,? said Robert V. LaPenta, Chairman, President and CEO of L-1
Identity Solutions. ?We are confident in our ability to meet our second
half objectives due to our strong backlog and impressive pipeline of new
opportunities across all business segments with approximately $1.2
billion in new business proposals pending award including international
enrollments, Federal credentials, information technology services for
the Federal government and new commercial authentication business.?
Business Highlights
-
The biometrics division had momentum across Federal, State and
international markets.
-
L-1 opened its first operation in India to support an award as one
of the Biometric Solution Providers (BSPs) to India's Unique
Identification Number (UID) program, or AADHAAR.
-
The acquisition of Retica was completed in Q2 and already the
products are delivering strategic value, included as key offerings
in several international bids and proposals, including UID.
-
The division shipped over $1.0 million Agile TP? (finger-based)
and Mobile Eyes? (iris-based) biometric devices into India in the
second quarter of 2010.
-
HIIDE 5 and a new middleware application were introduced in early
July, representing several industry firsts that set a new standard
for speed and efficiency and an expansion of the addressable
market for HIIDE. A new finger vein access control device was
introduced that generated new orders in less than 90 days after
its introduction and new sales of the ruggedized outdoor
Transportation Worker Identification Credential (TWIC) reader were
booked in the first half.
-
L-1 iris and face algorithms continue to receive top marks in
independent testing. Recent National Institute of Standards and
Technology (NIST) IREX (Iris Exchange) tests showed that the L-1
algorithm produced the best accuracy of all 10 iris vendor
participants averaged over all test databases at the most
demanding operating point. In recent NIST MBE testing for face,
L-1's FaceIt® technology was shown to be unparalleled
in the ability to scale accuracy to large databases under
real-world operating requirements.
-
L-1 received a follow-on order from an existing U.S. government
customer for additional ABIS license capacity.
-
State and local solutions business is gaining momentum, with
second quarter bookings for biometric solutions the largest it has
been in several quarters.
-
Year-to-date secure credentialing contracts awarded totaled $132.5
million, of which $120.0 million came from State Driver's License (DL)
extensions and contract wins. Other highlights included:
-
Eight end-to-end DL systems went live in the first half of 2010,
in addition to the seven additional enterprise solutions
consisting of auto exam and road testing, facial recognition and
self-service kiosks.
-
State DL business in the first half was driven primarily by sales
of infrastructure, automated testing and screening, facial
recognition, document authentication and kiosk solutions as States
look to improve the security of the processes, while increasing
efficiencies and improving the customer experience.
-
Of note is a five year contract extension valued at $56.9 million
by the Florida Department of Highway Safety and Motor Vehicles to
modernize the currently installed secure driver's license
solution. This includes updating the hardware platforms, servers
and workstations and migrating the State's legacy applications and
databases to the latest Windows operating system. L-1 expects to
produce in excess of 28 million licenses for Floridians over the
term of the contract. L-1's efforts with Florida to enhance
current security features and the State's driver's license
solution positioned the customer for a Homeland Security Award by
the Coalition for a Secure Driver's License (CSDL) on July 19,
2010. Florida is one of 11 States authorized by the Department of
Homeland Security to affix the "gold star" on its driver's
licenses and IDs, denoting compliance with the 18 interim
benchmark regulations of Public Law 109-13.
-
The enrollment services division continues to pursue various
international opportunities and is actively marketing L-1 services
globally. At the Federal level, there is an upward trend in the
Transportation Security Authority (TSA) Hazardous Materials
Endorsement (HazPrint) program. Existing State contracts had strong
growth, such as in New York and Indiana that are up approximately $4.6
million over Q2 2009 revenue. The Broward County school badging
program went live in the second quarter, the first example of a
combined background check and badge implementation for L-1 enrollment
services in education. L-1 expects to see additional State growth from
adoption by new groups, such as elder care and handgun permits.
-
Government consulting services momentum included:
-
SpecTal Intelligence Services and McClendon Engineering and
Analytics won two critical prime contract recompetes with an
estimated total contract value of $52 million over the term.
SpecTal Intelligence Services had significant growth driven by a
40 percent increase in manpower requirements so far this year
related to a critical, large-scale Homeland Security program, of
which half was added in the first half of 2010. Additionally, the
business had solid growth in linguistic support and training
services.
-
In the first half, Advanced Concepts Information Technology
Solutions was awarded new contracts, or received extensions of
existing contracts, worth an aggregate of $23.6 million. The
period of performance of these awards ranged from four months for
certain bridge vehicles to five years. This includes a
not-yet-announced five year task order from the U.S. Coast Guard
for Communications Station Automation System (CSAS) support.
Forward Looking Financial Expectations
L-1 expects revenue for the full-year ending December 31, 2010 of $715.0
million - $725.0 million (representing organic growth in excess of 10
percent) vs. previous estimates of $740.0 million - $760.0 million. The
reduction is primarily associated with Federal and international program
delays. Adjusted EBITDA guidance remains unchanged at $110.0 million -
$120.0 million, despite the expected decline in revenue due to a more
favorable sales mix. Operating cash flow is expected to ramp in the
second half of the year to $67.0 million - $82.0 million as cash
earnings increase. Unlevered free cash flow is expected to be $45.0
million - $55.0 million for the full year, revised down from $55.0
million - $65.0 million due to increased working capital requirements.
Capital expenditures are expected to be in the range of $55.0 million -
$60.0 million for 2010.
To meet 2010 revenue expectations of $715.0 million - $725.0 million,
the Company needs incremental revenue of approximately $100.0 million
above the first half results of $312.3 million. This amount is expected
to be derived from increased U.S. Passport and Passport Card demand as
previously mentioned, Federal sales of HIIDEs and PIERs, additional
growth in intelligence and enrollment services. The Company also
anticipates that secure credentialing sales are expected to begin to
ramp as recently awarded DL programs with higher per-card rates move
into production.
Liquidity and Capital Resources
At the end of Q2 2010, the principal debt outstanding was $481.4 million
which includes $175.0 million of convertible notes, $273.4 in bank term
loans, $32.0 in net borrowings under the revolver and $1.0 million in
other debt. Total debt outstanding reflects principal payments of $24.3
million and the Company paid approximately $15.2 million in interest for
the first six months of 2010. In addition, L-1 paid $25.0 million in
capital expenditures during the first half of 2010 primarily for new
awards of State driver's license contracts. The Company has an available
credit revolver of $95.0 million net of borrowings and letters of credit
subject to continuing compliance with debt covenants. The Company
expects to pay fees and costs in connection with the strategic
alternative review in the second half of 2010. L-1 amended the Credit
Agreement effective March 31, 2010, increasing the maximum Consolidated
Leverage Ratio from 3.00:1.00 to 3.85:1.00 and reducing the minimum
Consolidated Debt Service Coverage Ratio from 2.25:1.00 to 1.65:1.00 for
the measurement periods ended March 31, 2010 and June 30, 2010. At June
30, 2010, the Company's consolidated debt service coverage ratio was
2.12:1.00 and the consolidated leverage ratio was 3.21:1.00.
Accordingly, the Company was in compliance with the amended covenants at
June 30, 2010. If on or prior to August 31, 2010 the Company enters into
a definitive agreement to sell the Company, the amended covenant ratios
will remain in place through December 30, 2010, including the
measurement period ending on September 30, 2010. If a definitive
agreement is not executed on or prior to August 31, 2010, the
pre-amendment covenant ratios remain in effect for the measurement
period ending September 30, 2010 and thereafter. If a sale transaction
does not occur, the Company expects to refinance its debt on a long term
basis, but the Company may be required to amend its credit agreement
pending completion of the ongoing strategic review process to remain in
compliance with the covenants.
Strategic Alternatives
L-1 and its financial advisors are engaged in discussions with
interested parties as part of the previously announced strategic
alternative process. Additional comments regarding status will be
provided during today's conference call.
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 http://ir.l1id.com/.
To listen to the conference call, please dial (888) 562-3356 using the
passcode 85797798. For callers outside the U.S., please dial (973)
582-2700 with the passcode 85797798. A recording of the conference call
will be available starting two hours after the completion of the call.
To access the replay, please dial (800) 642-1687, or (706) 645-9291
outside the U.S., using passcode 85797798.
About L-1 Identity Solutions
L-1 Identity Solutions, Inc. (NYSE: ID) protects and secures personal
identities and assets. Its divisions include Biometrics / Enterprise
Access and Secure Credentialing solutions, as well as Enrollment and
Government Consulting services. With the trust and confidence in
individual identities provided by L-1, international governments,
federal and state agencies, law enforcement and commercial businesses
can better guard the public against global terrorism, crime and identity
theft fostered by fraudulent identity. L-1 Identity Solutions has more
than 2,200 employees worldwide and is headquartered in Stamford, CT. For
more information, visit www.L1ID.com.
Footnotes and Defined Terms
Forward Looking Statements
This news release contains forward-looking statements that involve risks
and uncertainties. Forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995 and 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 availability of
government funding for L-1's products and solutions, the unpredictable
nature of working with federal, state and local government customers,
and general economic and political conditions. Additional risks and
uncertainties are described in the Securities and Exchange Commission
filings of L-1 Identity Solutions, including its Form 10-K for the year
ended December 31, 2009 and the Company's Form 10-Q for the quarter
ended March 31, 2010. L-1 Identity Solutions expressly disclaims any
intention or obligation to update any forward-looking statements.
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, impairments of long-lived
assets and goodwill, depreciation, amortization, stock-based
compensation expense, including retirement plan contributions settled,
or to be settled, in common stock. 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 ® 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 that also use Adjusted EBITDA in
their communications to investors. By excluding non-cash charges such as
impairments of long-lived assets and goodwill, 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. 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, impairments of long lived assets and goodwill, stock based
compensation expense, including retirement plan contribution settled, or
to be settled, in common stock 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.
Unlevered Free Cash Flow
Unlevered free cash flow represents cash flow from operating activities,
plus cash interest expenses and cash income taxes, less capital
expenditures. L-1 believes unlevered free cash flow is a useful measure
for assessing the company's liquidity, its ability to meet 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. A reconciliation of unlevered free cash flow to
cash flows from operating activities is included in the enclosed
schedule.
Backlog
L-1's backlog represents sales value of firm orders for products and
services not yet delivered and for long term executed contractual
arrangements (contracts, subcontracts, and customer commitments), the
estimated future sales value of estimated product shipments,
transactions processed and services to be provided over the term of the
contractual arrangements, including renewal options expected to be
exercised. L-1 may not realize the full amount of revenues reflected in
backlog because L-1 is subject to the risks that clients may modify or
terminate projects and contracts and may decide not to exercise contract
options or the estimate of quantities may not materialize.
ID:F
|
L-1 Identity Solutions
|
|
Condensed Consolidated Statements of Operations
|
|
(In thousands, except per share data)
|
|
(Unaudited)
|
|
|
|
For the Quarter Ended
June 30,
|
|
For the Six Months Ended
June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
164,135
|
|
|
$
|
168,053
|
|
|
$
|
312,285
|
|
|
$
|
318,242
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
115,473
|
|
|
|
117,235
|
|
|
|
222,044
|
|
|
|
221,478
|
|
|
Amortization of acquired intangible assets
|
|
|
2,091
|
|
|
|
2,037
|
|
|
|
4,106
|
|
|
|
4,393
|
|
|
Total cost of revenues
|
|
|
117,564
|
|
|
|
119,272
|
|
|
|
226,150
|
|
|
|
225,871
|
|
|
Gross profit
|
|
|
46,571
|
|
|
|
48,781
|
|
|
|
86,135
|
|
|
|
92,371
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
9,566
|
|
|
|
9,719
|
|
|
|
20,076
|
|
|
|
19,610
|
|
|
Research and development
|
|
|
5,141
|
|
|
|
5,664
|
|
|
|
10,525
|
|
|
|
11,565
|
|
|
General and administrative
|
|
|
22,297
|
|
|
|
24,509
|
|
|
|
45,848
|
|
|
|
47,342
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related expenses and amortization of
intangible
assets
|
|
|
329
|
|
|
|
455
|
|
|
|
778
|
|
|
|
1,093
|
|
|
Strategic alternative costs
|
|
|
1,719
|
|
|
|
-
|
|
|
|
1,749
|
|
|
|
-
|
|
|
Total operating expenses
|
|
|
39,052
|
|
|
|
40,347
|
|
|
|
78,976
|
|
|
|
79,610
|
|
|
Operating income
|
|
|
7,519
|
|
|
|
8,434
|
|
|
|
7,159
|
|
|
|
12,761
|
|
|
Financing costs:
|
|
|
|
|
|
|
|
|
|
Contractual interest
|
|
|
(7,127
|
)
|
|
|
(6,832
|
)
|
|
|
(14,012
|
)
|
|
|
(14,229
|
)
|
|
Other financing costs
|
|
|
(2,741
|
)
|
|
|
(2,555
|
)
|
|
|
(5,978
|
)
|
|
|
(5,808
|
)
|
|
Other (expense) income, net
|
|
|
23
|
|
|
|
(120
|
)
|
|
|
(150
|
)
|
|
|
(4
|
)
|
|
Loss before income taxes
|
|
|
(2,326
|
)
|
|
|
(1,073
|
)
|
|
|
(12,981
|
)
|
|
|
(7,280
|
)
|
|
(Benefit) provision for income taxes
|
|
|
404
|
|
|
|
176
|
|
|
|
(2,747
|
)
|
|
|
(2,245
|
)
|
|
Net loss
|
|
$
|
(2,730
|
)
|
|
$
|
© Business Wire 2010
| Latest news on L-1 IDENTITY SOLUT |
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