L-1 Identity Solutions [ID]

2Q08 2Q07
Net Inc.
$3.2M, $0.04
($1.2M, 0.02)

Organic sales growth was strong across each of the company’s operating businesses with overall organic growth at 22%. Growth in secure credentialing was 62%, primarily on higher federal demand and the Passport Card program, sales of biometric devices and development to the U.S. military increased 70%, revenues from intelligence services were up over 20%, and background screening sales grew 23% on state and local demand, HSPD-12 and HAZPRINT. The swing to a net profit was helped by higher gross margins, which improved on the higher sales and improved revenue mix on the State Department’s passport programs, printer and multi-modal biometric solutions, in L-1’s Identity Solutions segment, says CFO James DePalma. Backlog at the end of the quarter was $800 million, up $50 million since the start of the year. Guidance for 2008 was reaffirmed with sales expected to be between $555M-$575M and net income between $7M-$12M. L-1 soon expects to finally book its first international order for HIIDE devices with a customer in the Middle East now that the budget for that has been approved, says L-1 Chief Robert LaPenta. That sale will either be for the company’s 4.0 or 5.0 version of HIIDE. The 5.0 version includes an onboard matching capability of 350,000 records, liquid lenses, GPS and networking, LaPenta says. On the acquisition front, LaPenta says that L-1 will focus for six to 12 months on the integration of Digimarc [DMRC] with its own driver’s license business. L-1 will have between $100M-$150M to spend on additional deals over the next year but these will have to be “must have” versus “nice to have,” he says. Commenting on the quarter, Stephens Inc. analyst Tim Quillin still believes L-1 faces an uncertain future but nonetheless believes the “growth trends are impressive.” Those growth prospects include HIIDE 5.0, Registered Traveler, REAL ID, the State Dept.’s Passcard and Border Crossing Card programs as well as the company’s opportunities in the intelligence space. Stanford Group analyst Jeremy Grant likes the fact that L-1 is benefiting from one-time startup costs associated with the Passport Card program although he believes the company’s annual revenues on the program will amount to $20M at most, which is about half of what L-1 hopes from the program. Grant also forecasts a flat domestic identity market next year, saying L-1 is going to have to start converting some of its international opportunities into real business if it is going to maintain its strong organic growth.