Earnings News and Notes

L-1 Identity Solutions [ID]

Losses widened on higher interest expenses and amortization still beat analysts’ expectations by a penny on solid sales growth, which was up 30% overall and 8% organic. Organic growth was driven by the Enrollment Services and Biometrics divisions, up 34% and 27% respectively. Enrollment Services continues to expand its state-wide network of enrollment centers, signing a new contract with Indiana and also expanding work on the Transportation Security Administration’s Transportation Worker Identification Credential program. In the Biometrics division work continues for the Pentagon’s next-generation biometric matching system and an $8.3 million task order for HIIDE was received. Work continues on the HIIDE 5.0 system and L-1 says it is developing a new lower-cost multi-modal mobile biometric device that should be introduced in the second half of the year. L-1 Chief Robert LaPenta says the device has less stringent requirements and he expects to achieve sales with it in the U.S. and abroad. The company’s debt is a concern to some analysts although LaPenta says there are no issues with paying it down along with the interest. Free cash flow in the quarter was $5M and is expected to be between $75M and $85M for the year. Annual sales guidance was maintained at between $725M and $750M, with organic growth between 15 and 20%. LaPenta says growth will accelerate in the second half of the year. Earnings per share are expected to be between 8 and 15 cents. While the Obama administration is brining more contracted work in-house, LaPenta believes this will largely be focused on procurement and administrative jobs. While the government is trying to hire some of L-1’s people in the intelligence services area and employee turnover has increased, LaPenta says there are program opportunities in the space with “chances to grow.”

OSI Systems [OSIS]

Net income declined on $2M in non-recurring litigation expenses, a dip in operating earnings at the Healthcare segment, which continues to suffer from a delay in hospital equipment purchases in North America, higher restructuring charges related to the slowdown at Healthcare, and a tough comparison with a year ago when the company benefited from a $4.3M tax benefit. OSI believes that most of the cost cutting it has been doing is over with. The 8% drop in sales was due to declines in the Healthcare and Optoelectronics and Manufacturing Groups and the strengthening dollar. On the bright side OSI’s Security division continues to perform well, boosting sales 14% to $56.5M and more than doubling operating earnings to $3.2M. Security growth is being driven by global demand for air cargo screening systems, and other cargo and vehicle inspection products. Backlog in the division stood at $126M and quotation activity remains strong, particularly for the air cargo and cargo and vehicle inspection products, as well as checkpoint X-Ray systems, Deepak Chopra, OSI’s chairman and CEO, tells analysts. Free cash flow was $3M in the quarter and $31M year-to-date. OSI repurchased 26,000 shares of its common stock in the quarter. Overall backlog stood at $231M, up $12M from a year ago. The company narrowed its earnings guidance for the year on the high-end to between 85 cents and 93 cents earnings per share.