L-1 Identity Solutions Reports Second Quarter 2008 Financial Results

STAMFORD, Conn. , July 30 /PRNewswire-FirstCall/ -- L-1 Identity Solutions, Inc., (NYSE: ID), a leading provider of identity solutions and services, today announced financial results for the second quarter and six months ended June 30, 2008 .

Revenue for the second quarter of 2008 was $145.0 million compared to $90.1 million in the second quarter of 2007, an increase of $54.9 million or 61 percent. Organic growth in the quarter was 22 percent and reflects strong demand for credentialing solutions, continued growth from intelligence service business and increases from enrollment and background screening services.

Gross margin for the second quarter 2008 was approximately 33 percent compared to 31 percent in the second quarter of 2007. Gross margin improvements reflect higher revenues from biometric solutions and the impact of improved leverage.

Adjusted EBITDA for the second quarter of 2008 improved to $22.5 million from $14.1 million for the same period in the prior year, an increase of $8.4 million, or 60 percent, reflecting the impact of organic sales growth, acquisitions and improved operating leverage. Second quarter 2008 operating expenses as a percentage of revenue decreased to 27 percent compared to 28 percent in the second quarter of 2007.

The Company reported second quarter net income of $3.2 million, or $0.04 per diluted share compared to a net loss of $1.2 million, or ($0.02) per diluted share in the second quarter of 2007 based on weighted average diluted shares outstanding of 74.8 million in the second quarter of 2008 compared to 71.3 million in the prior year period. Included in the Company's second quarter net income are expenses of $13.7 million for non-cash items related to the amortization of intangibles, stock-based compensation and depreciation, compared to $11.9 million in the second quarter of 2007.

"I am pleased with the results for the quarter and applaud the efforts of our divisions in working together to help us achieve our financial targets for the first six months of 2008," said Robert V. LaPenta , Chairman, President and CEO of L-1 Identity Solutions. "Strong momentum from the first half of the year, fueled by an excellent pipeline of biometric division opportunities, intelligence contracts and secure credentialing solutions as evidenced by the recently expanded U.S. Passport Card contract and a new award for the Border Crossing Card, provide positive momentum for the second half of 2008."

Year to Date Results for the Six Months Ended June 30, 2008

Revenue for the first six months of 2008 was $260.9 million compared with $160.1 million for the same period in the prior year, representing an increase of $100.8 million. The Company's organic revenue grew by 21 percent for the first half of 2008 compared to the first half of 2007.

Gross margin for the first six months of 2008 was 30 percent, compared to 28 percent in the same period in 2007 with improvements reflecting higher revenues from biometric solutions and the impact of improved leverage.

Adjusted EBITDA for the first six months of 2008 was $35.2 million compared to $19.8 million for the same period in 2007, representing a 78 percent increase. The increase in Adjusted EBITDA for the first six months of 2008 reflects the impact of higher revenues and improved operating leverage. Operating expenses as a percentage of revenues decreased to 27 percent in the first six months of 2008 from 31 percent in the first six months of 2007.

For the first six months ended June 30, 2008 , the Company reported a net income of $1.3 million, or $0.02 per diluted share compared to a net loss of $10.0 million, or ($0.14) per diluted share in the first six months of 2007. Diluted weighted average shares outstanding increased to 73.8 million from 71.9 million in the prior year. Included in the company's six months net income for 2008 and net loss for 2007 are approximately $26.5 million and $23.7 million, respectively, of expenses for non-cash items related to the amortization of intangibles, stock-based compensation and depreciation.

The Company's first half 2008 revenue of $260.9 million, together with expected revenues from the Company's current backlog of approximately $800.0 million, represents approximately 85 percent of the Company's 2008 revenue target.

Forward Looking Financial Expectations

The Company expects revenue for the third quarter ending September 30, 2008 of between $140.0 million and $150.0 million, with Adjusted EBITDA of $20.0 million to $23.0 million and EPS in the range of $0.04 to $0.06.

The Company expects revenue for the full year ending December 31, 2008 of approximately $555.0 million - $575.0 million, Adjusted EBITDA of $80.0 million - $85.0 million and unlevered free cash flow of $60.0 million - $65.0 million.

On a pro forma basis, assuming the pending Digimarc transaction closed at the start of the 2008 calendar year, the Company expects revenues of approximately $670.0 million, adjusted EBITDA of $110.0 million including expected operational efficiencies, unlevered free cash flow of $75.0 million and a backlog of $1.0 billion. In addition, L-1 expects to recognize synergies and additional operating efficiencies once the businesses are combined.

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 www.L1ID.com. To listen to the conference call, please dial 888-694-4641 using the passcode 51393020. For callers outside the U.S., please dial 973-582-2734 with the passcode 51393020. A recording of the conference call will be available starting one hour after the completion of the call. To access the replay, please dial 800-642-1687 and use passcode 51393020. To access the replay from outside the U.S., dial 706-645-9291 and use passcode 51393020.

Pro Forma Information

Pro Forma information presented in this press release reflects results after giving effect to the acquisitions consummated after January 1, 2008 as if they had occurred on January 1, 2008 .

Organic Growth

Organic growth represents the increase in revenues in the current period, expressed as a percentage, for businesses included for the entire period in the current year over the revenues in the corresponding period in the previous year, assuming the same businesses had been acquired at the beginning of the prior year period.

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, depreciation, amortization, and stock-based compensation expense. 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 ( R ) 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 in the industry, many of which also use Adjusted EBITDA in their communications to investors. By excluding non-cash charges such as 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 in the industry. 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 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. No reconciliation is provided for pro forma Adjusted EBITDA for the year ending on December 31, 2008 assuming the acquisition of Digimarc, since it is not practicable to estimate the corresponding reconciling items or pro forma net income.

Unlevered Free Cash Flow

Unlevered Free Cash Flow represents cash flow from operating activities, plus interest expense less capital expenditures. L-1 believes unlevered free cash flow is a useful measure for assessing the company's liquidity, meeting its 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.

About L-1 Identity Solutions

L-1 Identity Solutions, Inc. (NYSE: ID), together with its portfolio of companies, offers a comprehensive set of products and solutions for protecting and securing personal identities and assets. Leveraging the industry's most advanced multi-modal biometric platform for finger, face and iris recognition, our solutions provide a circle of trust around all aspects of an identity and the credentials assigned to it -- including proofing, enrollment, issuance and usage. With the trust and confidence in individual identities provided by L-1 Identity Solutions, government entities, law enforcement and border management agencies, and commercial enterprises can better guard the public against global terrorism, crime and identity theft fostered by fraudulent identity. L- 1 Identity Solutions is headquartered in Stamford, CT . For more information, visit www.L1ID.com.


Forward Looking Statements

This news release contains forward-looking statements that involve risks and uncertainties. Forward-looking statements in this press release and those made from time to time by L-1 Identity Solutions through its senior management are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements 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 ability of the Company to successfully close the Digimarc transaction on a timely basis (if at all), the availability of government funding for the Company's products and solutions, the size and timing of federal contract awards, performance on existing and future contracts, general economic and political conditions and other factors affecting spending by customers, and the unpredictable nature of working with government agencies. Additional risks and uncertainties are described in the Securities and Exchange Commission filings of the L-1 Identity Solutions, including the Company's Form 10-K for the year ended December 31, 2007 , and the Company's Form 10-Q for the quarter ended March 31, 2008 . L-1 Identity Solutions expressly disclaims any intention or obligation to update any forward-looking statements.

SOURCE L-1 Identity Solutions, Inc.