Earnings News and Notes

L-1 Identity Solutions [ID]

Losses widened due to $2.3M in expenses related to L-1’s pursuit of a sale of the company while sales fell 2% primarily on lower than expected volume on U.S. Passport Cards. L- 1 also attributes the weaker sales to a delay in the receipt of $5M in Automated Biometric Identification System (ABIS) licensing revenue from a U.S. government agency and a delay in the start of a credentialing program for a customer in Africa. L-1 CEO Robert LaPenta says that things are just taking longer to get done, pointing to the Defense and Homeland Security Departments in particular. Regarding the pursuit of strategic alternatives, L-1 CEO Robert LaPenta says that several companies, both U.S. and foreign, have done due diligence on L-1 and he expects to have more to say on the sale process this month. And while L-1 originally hoped to sell the identity solutions and intelligence services components of the business as a single package, LaPenta says some companies are interested in the Intel business and others in the identity solutions. He gave two reasons for the shortfall in Pass Card sales. One was a delay in orders until late in the quarter. The other, which was a technical glitch and the primary reason for the shortfall, was the delaminating of about 200 cards. While few in number, shipments were held up for about two months until the problem could be identified. Shipments are now set to resume, he adds. For the second time this year L-1 reduced its sales guidance for 2010, with revenues now projected to be between $715M to $725M, which would still mean organic growth above 10%. Originally L-1 projected $750M to $775M in sales this year. The company is maintaining its outlook for earnings before interest, taxes, depreciation and amortization at between $110M-$120M excluding expenses related to the pursuit of a sale. L-1 says a favorable sales mix will keep earnings in line despite the decline in expected sales. LaPenta says L-1 expects to post net profits in both the third and fourth quarters. Morgan Keegan analyst Brian Ruttenbur, who is maintaining hold rating on L-1 only because he believes the best prospects currently for investors are in a sale of the company, says L-1 continues to disappoint and is troubled by its recent moves to relax its debt covenants. L-1 remains high on the prospects for its credentialing business, which has won 19 of its last 22 competitions to provide services, software and hardware related to driver’s licenses for states’ departments of motor vehicles. L-1 is nearing the end a significant capital investment across the nation in credentialing related infrastructure and expects to begin seeing greater returns on this investment in the second half of 2010. Backlog stood at $1.3 billion, unchanged from the first quarter and up $200M since the end of 2009.