L-1 Identity Solutions, Inc., a provider of identity solutions and services, announced financial results for the third quarter and nine months ended September 30.
The company said it is also updating guidance for the remainder of 2009 and is providing preliminary financial results expectations for 2010.
In an October 28 release, L-1 Identity Solutions reported that revenue for the third quarter of 2009 was $172.5 million compared to $154.5 million in the third quarter of 2008, an increase of $18.0 million or 12 percent. Organic growth in the quarter was approximately nine percent, driven by enrollment services, HIIDE, software solutions, and government consulting services. Revenue for the quarter was slightly lower than expectations due to lower revenue from the enterprise access and secure credentialing divisions.
Gross margin for the third quarter of 2009 increased to approximately 32 percent compared to 31 percent in the third quarter of 2008. The increase came primarily from gains in biometric solutions sales offset by an increase in revenues from lower margin enrollment and government consulting services.
Adjusted EBITDA for the third quarter of 2009 increased to $28.3 million from $25.0 million (excluding merger related expenses of $0.9 million for the same period in the prior year), exceeding the high end of the range of the company's previous expectations for the third quarter of 2009. The increase of $3.3 million, or 13 percent, was a result of contributions from the higher-margin biometrics business. Third quarter 2009 operating expenses as a percentage of revenue decreased to 24 percent compared to 26 percent in the third quarter of 2008. Unlevered free cash flow was $7.8 million, lower than previously expected due to higher capital expenditures from greater than expected new State contract awards in secure credentialing.
The company reported a third quarter net income of $1.4 million, or $0.02 per diluted share, in line with previous expectations, compared to a net loss of $1.9 million, or ($0.02) per diluted share in the third quarter of 2008, including stock-based compensation and the effect of adopting new accounting standards. Excluding stock-based compensation, the company reported third quarter net income of $4.6 million, or earnings per share of $0.05. Weighted average diluted shares outstanding were 86.0 million in the third quarter of 2009, compared to 80.0 million in the prior year period.
"Improvements in the biometrics business year-over-year and continued upward trend in enrollment services volume have significantly contributed to our financial performance this year and helped deliver a profitable third quarter to our shareholders," said Robert V. LaPenta, Chairman, President and CEO of L-1 Identity Solutions. "We continue to see increased momentum for national ID, border security, ePassport and other identity-related programs in the U.S. and abroad which we believe positions L-1 well for future growth in 2010 and beyond."
Revenue for the first nine months of 2009 was $490.8 million compared to $415.4 million for the same period in the prior year, representing an increase of $75.4 million, or 18 percent. Significant growth in enrollment services, as well as contributions from the biometrics business and from the acquisition of Digimarc drove increased revenue. The revenue comparison for the first nine months of 2009 vs. the same period in 2008 was impacted by approximately $17.0 million in consumables and printer orders associated with the start-up of the U.S. Passport Card program in 2008, along with significant license revenues.
Gross margin for the first nine months of 2009 was 30 percent, the same as the prior year period in 2008. This is attributable to growth in biometric solutions offset by increased revenues from lower margin enrollment and government consulting services.
Adjusted EBITDA for the first nine months of 2009 was $71.8 million (excluding a $1.7 million charge associated with Registered Traveler recorded in the second quarter of 2009 and acquisition related expenses) compared to $60.2 million for the same period in 2008 (excluding merger related expenses of $0.9 million), representing a 19 percent increase. The increase in Adjusted EBITDA for the first nine months of 2009 reflects organic growth in biometric solutions, enrollment and government consulting services, and the acquisition of Digimarc. Operating expenses as a percent of revenue decreased to 25 percent from 27 percent in the same prior year period due to cost containment measures. Unlevered free cash flow for the nine month period was approximately $30.0 million reflecting higher capital expenditures from greater-than-expected new State contract awards in secure credentialing.
For the first nine months ended September 30, the company reported a net loss of $3.7 million, or ($0.04) per diluted share compared to a net loss of $2.0 million, or ($0.03) per diluted share in the first nine months of 2008, including stock-based compensation and the effect of adopting new accounting standards. Excluding stock-based compensation, the Company had net income of $6.2 million, or earnings per share of $0.07. Diluted weighted average shares outstanding increased to 85.3 million from 75.4 million in the prior year.
The company said it expects revenue for the fourth quarter ending December 31, of between $180.0 million to $190.0 million, with Adjusted EBITDA of $30.0 million to $35.0 million, unlevered free cash flow of between $20.0 million to $25.0 million, and EPS in the range of $0.04 to $0.06. Earnings per diluted share, exclusive of stock based compensation, are expected to be in the range of $0.08 - $0.10 for the fourth quarter.
Preliminary expectations for the full year ending December 31, 2010 are revenue of between $750.0 million - $775.0 million, organic growth of 10 - 15 percent,; Adjusted EBITDA of approximately $110.0 million - $120.0 million, and unlevered free cash flow of between $55.0 million and $65.0 million net of capital expenditures of $60.0 million. These expenditures should substantially complete the build out of current and expected State DMV awards which will result in significantly increased cash flow beginning in 2011 and beyond. The company expects to finish the year with earnings per diluted share of $0.02- $0.09 and earnings per diluted share, exclusive of stock based compensation, of $0.18 - $0.25. While EBITDA is forecasted to increase in 2010, EPS levels will be impacted by higher levels of depreciation expense resulting from increased capital expenditures as previously discussed.
At the end of Q3 2009, the total principal amount of debt outstanding is $462.9 million which includes $175.0 million of convertible notes, $286.4 million in bank term loans, and $1.5 million in other debt. During the first nine months of 2009, total debt outstanding was reduced by principal payments of $10.5 million and the company paid approximately $20.0 million in interest. In addition, L-1 incurred capital expenditures of $38.4 million, reflecting investments made in the secure credentialing business for new State contract awards. The company has an available revolving line of credit of $125.9 million, net of letters of credit of $9.1 million.
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