STAMFORD, Conn.--(BUSINESS WIRE)--L-1 Identity Solutions, Inc. (NYSE: ID), a leading supplier of identity solutions and services, today announced financial results for the Company's fourth quarter and full-year ended December 31, 2008.
Revenue for the fourth quarter of 2008 increased to $147.5 million compared to $113.9 million in the fourth quarter of 2007, an increase of $33.6 million of which $29.3 million is the result of acquisitions closed in 2008. Organic growth in revenues in the quarter, excluding acquisitions closed in 2008, represents an increase of 4 percent compared to the fourth quarter of 2007. Revenue for the quarter was driven by a 23 percent increase in enrollment and government consulting services, offset by lower organic growth in the Biometrics division primarily due to unusually large shipments of HIIDE and LiveScan devices in Q4 2007 that created incomparable year-over-year results.
Gross margin in the fourth quarter of 2008 decreased to 28 percent compared to 33 percent for the fourth quarter of 2007. The decrease was due to changes in the revenue mix as previously described.
Adjusted EBITDA for the fourth quarter of 2008 was $23.0 million (excluding the impact of one-time charges related to the Digimarc acquisition) compared to $21.2 million for the same period in the prior year. The increase in Adjusted EBITDA was driven by 23 percent organic growth in the Services business, acquisitions, and offset by previously disclosed decreases from the Biometrics division.
Fourth quarter 2008 operating expenses as a percentage of revenue were 28 percent compared to 27 percent in the fourth quarter of 2007 due to strategic investments made in sales and marketing.
The Company recorded a non-cash charge of $528.6 million in the quarter as a result of its annual impairment review in accordance with the Statement of Financial Accounting Standard (SFAS) No. 142 â€œGoodwill and Other Intangiblesâ€ and SFAS No. 144 â€œAccounting for the Impairment or Disposal of Long-lived Assetsâ€. The impairment charge is primarily driven by a difficult economic environment and a decrease in the market price of the Companyâ€™s stock in the fourth quarter of 2008. The charge is attributable to impairment of goodwill, intangibles and other long-lived assets recorded in connection with an acquisition in the Biometrics division. The non-cash impairment charge does not impact the Companyâ€™s ongoing business operations and will not have any impact on its compliance with debt covenants, cash flow or liquidity.
After giving effect to the $528.6 million non-cash non-recurring impairment charge, the Companyâ€™s loss for the fourth quarter was $548.8 million, or ($6.55) per diluted share based on 83.8 million diluted shares outstanding. This compared to income of $26.2 million in the fourth quarter of 2007, or $0.35 per diluted share based on 77.7 million shares outstanding. Excluding non-cash non-recurring items in Q4 of 2007 and 2008 resulting from impairment charges and non-recurring tax charge and credit, the net loss would have been $0.12 per diluted share in 2008 and the net income would have been $0.02 per diluted share in 2007.
2008 Full Year Results
Revenue for the twelve months ended December 31, 2008 was $562.9 million compared with $389.5 million for the twelve months ended December 31, 2007, representing an increase of $173.4 million, or 45 percent, of which $60.4 million is the result of acquisitions. The Company's full-year organic revenue growth of 13 percent excludes acquisitions made in 2008 and includes acquisitions closed in 2007 for the full year of 2007 and 2008. Organic growth in the Secure Credentialing division and in the enrollment and government consulting services businesses was 25 percent for the year, offset by lower organic growth in the Biometrics division primarily due to unusually large shipments of HIIDE and LiveScan devices in Q4 2007 that created incomparable year-over-year results.
Gross margin for 2008 was 30 percent, compared to 31 percent in 2007. The decrease was due to changes in the revenue mix as previously described.
Adjusted EBITDA for 2008 was $83.5 million (excluding the impact of one-time charges related to the Digimarc acquisition), compared to $60.1 million for 2007, representing a 39 percent increase. Operating expenses as a percentage of revenue decreased to 27 percent for the twelve months ended December 31, 2008 from 28 percent for the twelve months ended December 31, 2007, due to improved operating leverage.
For the full year, the Company recorded a non-cash charge of $528.6 million as a result of its annual impairment review in accordance with the Statement of Financial Accounting Standard (SFAS) No. 142 â€œGoodwill and Other Intangiblesâ€ and SFAS No. 144 â€œAccounting for the Impairment or Disposal of Long-lived Assetsâ€. The impairment charge is primarily driven by a difficult economic environment and a decrease in the market price of the Companyâ€™s stock in the last quarter of 2008. The charge is attributable to impairment of goodwill, intangibles and other long-lived assets recorded in connection with an acquisition in the Biometrics division. The non-cash impairment charge does not impact the Companyâ€™s ongoing business operations and will not have any impact on its compliance with debt covenants, cash flow or liquidity.
After giving effect to the $528.6 million non-cash non-recurring impairment charge, the Companyâ€™s loss for the year was $548.7 million, or ($7.08) per diluted share based on weighted average shares outstanding of 77.5 million compared to net income of $17.7 million, or $0.24 per diluted share for the full year ended December 31, 2007. Excluding non-cash non-recurring items in Q4 of 2007 and 2008 resulting from impairment charges and non-recurring tax charges and credits, the net loss would have been $0.12 per diluted share in 2008 and the net income would have been $0.01 per diluted share in 2007.
Unlevered free cash flow for 2008 was $47.5 million as compared to $39.7 million in 2007. Cash flow was driven by organic growth, acquisitions, operating leverage, and the reduction of days-sales-outstanding from 73 to 65 days, offset by shipments made at the end of Q4 2008 that were collected in Q1 2009.
â€œThe significant non-cash impairment charges in 2008 will not impact Company operations and are not reflective of the many positive accomplishments that we achieved this year,â€ said Robert V. LaPenta, Chairman, President and CEO of L-1 Identity Solutions. â€œWe continue to take important steps in reducing costs, strengthening the Companyâ€™s financial position, and building on our leadership in key areas including multi-modal biometric devices and software, as well as credentialing solutions.â€
Fourth Quarter and Full Year 2008 Highlights
Backlog at December 31, 2008 increased to approximately $1.1 billion from $715.0 million as of December 31, 2007 and $523.0 million as of December 31, 2006. Backlog includes funded backlog and firm customer orders for which funding are not contractually obligated. Approximately 84 percent of revenue for 2009 is expected to come from backlog. Additional highlights include:
Secure Credentialing Division
* The acquisition of the ID Systems business from Digimarc was completed in 2008. Integration of the business into the Secure Credentialing division is on schedule, with synergies targeted at $15.0 million.
* Domestic driver's license awards and contract extensions in 2008 totaled $203.2 million. International credentialing program contracts totaled $47.8 million from Latvia, Paraguay, Panama, Mexico, and Chile, among others.
* The U.S. Passport Card contract was awarded to L-1 with a negotiated value of $215.0 million over five years, as well as $24.8 million over five years for the new U.S. Border Crossing Card (BCC) as part of an expansion to the U.S. Passport Card program. Of that, approximately $19.0 million was recognized in 2008.
* Registered Traveler (RT) services were added to six new terminals in 2008 at the Denver, Oakland, Dulles, Reagan, Salt Lake City, Atlanta, and Boston airports. Today L-1 maintains over 150 RT kiosks in 34 terminals throughout 18 airports. The kiosk systems include L-1 iris algorithms, document authentication scanners and live scan fingerprint devices for enrollments and verification. There were 176,863 active members in the RT program at the end of 2008.
* The Department of Defense (DoD) next generation ABIS system went live on Jan. 29, 2009 and performance and functionality of the system are exceeding customer expectations. L-1 provided multi-biometric search technology for finger, face, iris and palm; fusion technologies that blend independent biometric match scores for increased probability of accurate matching; forensic examiner tools for use when searching on latent and/or poor quality images; and professional services for integration, implementation and data conversion.
* Awards in hardware, software and services in support of multimodal biometric devices totaled approximately $40.9 million in 2008. This included a $4.5 million order not previously announced for HIIDEs and other hardware and software to provide access control and enrollment capabilities at military base entry control points.
* The next generation HIIDE was designed and developed in conjunction with a key customer and will be available in the first quarter of 2009.
* A new Live Scan device was unveiled this year, the TouchPrintâ„¢ Enhanced Definition 4800 Live Scan, which captures forensic-quality ten print and palm images on a single platen. The device also is a modular component of the HIIDEâ„¢ Expansion Module (EM) Jumpkit.
Enterprise Access Division
* The acquisition of Bioscrypt was completed in 2008 and added biometric-based access control solutions to the L-1 Identity management portfolio.
* The division launched its next generation VisionAccess 3D Face Reader and orders are ahead of schedule.
* The division will unveil a new state-of-the-art ruggedized next generation finger-based access control device in early 2009 that will be used in programs like Transportation Worker Identification Credential (TWIC).
Enrollment Services Division
* The Transportation Security Administration (TSA) selected L-1 to continue to serve as the prime contractor for enrollment services to commercial drivers seeking a Hazardous Materials Endorsement (HME) on their Commercial Driverâ€™s License (CDL).
* New contracts in excess of $300 million were announced in 2008 from NY, TX, WA, CA. The division grew organically in excess of 26 percent in 2007 and is poised for significant growth in 2009 based on contracts already in backlog.
* The division opened more than 100 new enrollment centers across the country in 2008, bringing the total to more than 700. The division processed 1.5 million applicants in 2008, representing 50 percent growth over 2007.
Government Consulting Services Division
* The division announced contracts and agreements in 2008 valued at $143.5 million from Advanced Concepts Information Technology Solutions and $74.0 million from McClendon Engineering and Analytical Solutions. Due to the confidentiality of customer programs, most contracts in this division cannot be publically announced.
* SpecTal Intelligence Services experienced year-over-year growth in 2008 of 36 percent.
Forward Looking Financial Expectations
The Company expects revenue for the first quarter ending March 31, 2009 of between $145.0 million - $150.0 million, Adjusted EBITDA of $17.0 million - $19.0 million and an EPS loss in the range of ($0.05) - ($0.03). Earnings per diluted share, exclusive of stock based compensation, is expected to be in the range of $(0.02) - $(0.01).
The Company expects revenue to increase throughout the year, driven by follow-on business with existing customers and new awards for the Biometrics and Secure Credentialing divisions that were recently awarded or scheduled for shipment later in the year.
Excluding any further acquisitions, the Company expects revenue for the full-year ending December 31, 2009 of $725.0 - $750.0 million, organic growth of 15-20 percent, Adjusted EBITDA of $100.0 million - $110.0 million, unlevered free cash flow of between $75.0 million - $85.0 million, and EPS of $0.08 - $0.15. Earnings per diluted share, exclusive of stock based compensation, is expected to be in the range of $0.20 - $0.27.
At the end of Q4 2008, total net debt is approximately $446.5 million which includes $292.0 million outstanding in senior secured loans, $175.0 million of convertible notes and $20.5 million in cash.
Looking ahead, the Companyâ€™s 2009 expected Adjusted EBITDA and free cash flow is adequate to cover operating expenses, fixed debt service, and capital expenditures. The Company also expects to have excess cash to pay down debt in excess of required amortization. In addition, the Company has approximately $120.5 million available under a revolving credit facility after letters of credit and subject to debt covenants.