Earnings News and Notes

Cogent Systems [COGT]

Earnings fell 44% on the 21% drop in sales, which was due in part to delays in revenues from the Department of Homeland Security (DHS) and some sales that were pulled into the fourth quarter of FY ’09. Cogent reaffirmed its prior guidance for 2010 of sales around $140M and earnings per share between 35 and 42 cents, with company officials saying its fiscal year will be back-half loaded. Although operating expenses increased as a percent of income, gross margins were 63%, in line with annual targets. Sales drivers in the quarter included a $7.5M contribution from Northrop Grumman [NOC] under an ongoing agreement, and $6M from the DHS US-VISIT program, a low quarter for the program. Other customers such as Pennsylvania, the Los Angeles County Sheriff’s Dept., and other each contributed less than $2M. There was $45M in orders in the quarter and backlog stood at $211M, up $6M since the end of FY ’09. Benchmark Co. defense and security analyst Josephine Millward says it was a disappointing quarter due to timing of revenues. She believes the company is poised to winning military business this year for its handheld, multimodal biometrics capture and recognition devices as well as a mobile AFIS capability to support the war efforts in Afghanistan and sees this as upside for the fiscal year. As of yet, Cogent hasn’t received any significant military purchase orders, company officials say. Morgan Keegan analyst Brian Ruttenbur also says it was a disappointing quarter and despite believing that Cogent will fall more than $10M short of its FY ’10 sales target, he continues to be optimistic about its long term prospects. In ongoing efforts to diversity its customer base, Cogent says is facial recognition software, Facial BioTrust, has been integrated into Hewlett-Packard [HPQ] Business Notebook Mini 5102 series computers, enabling individuals to log onto their computers using facial recognition. Cogent says this is the first large scale commercial deployment of facial recognition software. The company soon plans to launch its standalone BioTrust software that will be compatible with any computer running Windows XP, Vista or Win with a web cam.

L-1 Identity Solutions [ID]

Losses widened in part due to now revenues from the high margin Pass Card and Passport programs with the State Dept. The Pass Card program generated over $10M in sales in the first half of last year and L-1 expects high volume on it in the second half of 2010. The company also increased its spending on marketing and bids and proposals. L-1’s intelligence business is also expected to be back end loaded as it dramatically ramps up on a particular program this is dependent on its ability to hire qualified personnel, which is happening, the company says. The decline in sales with the State Dept. was largely offset by increases in the enrollment business, with work proceeding nicely on the Transportation Worker Identification Credential program and services for New York. L-1 says it lost two enrollment competitions, one in Pennsylvania and the other in Michigan, and is protesting both. L-1 Chief Robert LaPenta says the company will not bid programs at a loss. L-1 continues to believe it will receive a contract at any moment for an enterprise license software with the U.S. military–which originally was going to be sole-sourced to the company–which is factored into its forecast. The company continues to expect to win a competition to supply its HIIDE handheld multimodal biometrics device for U.S. forces in Afghanistan and says it’s about to get development funding for a “Micro-HIIDE” device that can be carried in a pocket similar to a Blackberry. LaPenta says L-1’s pursuit of “strategic alternatives” is progressing well and that their remains a lot of interest in the company. He expects the process to begin moving from the administrative phase into a “more substantial phase” and have a good handle on prospects by July. Morgan Keegan analyst Brian Ruttenbur, who isn’t optimistic about the company’s prospects unless it is sold, says a positive is thatL-1 is now willing to sell its various divisions separately “as long as they are all sold simultaneously.” L-1 reduced its sales guidance for the year to between $740M-$760M from earlier projections of $750M-$775M. Earnings before interest, taxes, depreciations and amortization are still forecast between $110M-$120M. Backlog at the end of the quarter was $1.3B, $200M higher than a year ago and unchanged from the end of 2009.