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CONFERENCE CALL TRANSCRIPT
ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS CONFERENCE CALL
EVENT DATE/TIME: FEB. 09. 2007 / 10:00AM ET
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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CORPORATE PARTICIPANTS
BOB LAPENTA
L-1 Identity Solutions, Inc. - Chairman, President, CEO
JIM DEPALMA
L-1 Identity Solutions, Inc. - CFO
CONFERENCE CALL PARTICIPANTS
JEFF KESSLER
Lehman Brothers - Analyst
PAUL COSTER
JPMorgan - Analyst
DAVID GREMMELS
Thomas Weisel Partners - Analyst
TIM QUILLIN
Stephens, Inc. - Analyst
BRIAN RUTTENBUR
Morgan, Keegan & Co - Analyst
KEITH LAROSE
Bradley, Foster & Sargent - Analyst
JOSH JABS
Roth Capital Partners - Analyst
JEREMY GRANT
Stanford Financial - Analyst
PRESENTATION
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OPERATOR
Good morning. My name is Rich and I will be your conference operator today. At
this time, I would like to welcome everyone to the L-1 Identity Solutions fourth
quarter and full year 2006 results conference call. All lines have been placed
on mute to prevent any background noise. After the speakers' remarks, there will
be a question-and-answer period. (OPERATOR INSTRUCTIONS) It is now my pleasure
to turn the floor over to your host, Michael.
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UNIDENTIFIED COMPANY REPRESENTATIVE
Good morning and thank you for being on this morning's call to review L-1
Identity Solutions 2006 fourth quarter and full year results either by phone or
via the Internet. Statements that representatives of L-1 Identity Solutions make
during this morning's call that are not historical facts are forward-looking
statements made pursuant to the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are based on
management's current beliefs and assumptions and involve risks and
uncertainties. Any statements made today about future expectations or results
are necessarily only estimates. Actual results could differ materially from such
expectations.
Factors that may cause differences in results include without limitation, the
Company's reliance on public sector markets, the ability of the Company to
successfully compete for large contracts, the size and timing of awards, the
performance of acquired companies, the need for capital and competition. You
should refer to the Company's SEC filings for a more comprehensive description
of the risk factors that may cause the Company's actual results to differ from
any forward-looking statements expressed today. The Company expressly disclaims
any obligation to revise or update any forward-looking statements.
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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In addition, representatives of L-1 plan to discuss adjusted EBITDA on this
call. Adjusted EBITDA is the non-GAAP measurement the Company calculates by
adding back into net income lost interest, taxes, depreciation, appreciation,
amortization, and stock based compensation expense. Adjusted EBITDA is provided
by the Company's supplement results of the operations reported in accordance
with GAAP because management believes it is a useful additional tool to help
investors analyze the operating trends of the business both pre and post FAS
123(R).
L-1 is not providing a reconciliation of expected adjusted EBITDA with projected
net income loss because such reconciliation is not available without
unreasonable effort. With that, I will now turn the call over to Bob LaPenta.
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Good morning, everyone. Thanks for joining in on the call and thanks for
rearranging your schedule with the acceleration of our earnings release from
next Tuesday to today. There has been a lot of noise around the Company and the
stock and we felt it best to get information out as early as possible, so again,
thanks for accommodating us.
Before we get into the quarter and the results for the year, I would like to
just give you a quick update on TWIC and ComnetiX. You read yesterday that we
protested the award of TWIC. I will limit my comments relative to that to pretty
much what was included in our press release. Our lawyers tell us we cannot say
too much about that. I would again reiterate that we do not, as we have always
said have any numbers, sales, profit or cash flow, in our forecast relative to
TWIC. And I should also mention that our relationship with Lockheed is very
good, continues to be good, and they understand that business is business. And
in fact they recently protested an award that we had on the military ABIS
program. So again our relationship with both Lockheed and TSA is very solid,
very good, and I don't think this will have any bearing on it.
You read this morning that we were successful in getting a favorable vote on
ComnetiX. We feel as strongly if not more strongly about the synergies and the
good strategic fit of that Company. You will note that our offer was increased
from the original $0.82 up to $1.17. You have got to expect these things when
you make an offer for a public company, but I should tell you that a lot of that
increase was supported by increased cash and working capital at ComnetiX. They
actually are doing better than we thought they would do at this point in time,
so a lot of that increased cost, which was about $3 million or $4 million, has
been offset by increased cash and working capital. So we expect that transaction
to close I would imagine somewhere around February 21.
Looking quickly at the financial results, you've all seen I'm sure the release.
It was a very detailed release, so I'm not going to go through all of the
numbers. I'm just going to highlight some of them and then Jim will take you
through a lot more detail on some of the metrics and results. But it was a very
good fourth quarter and we are very pleased because we think this is starting to
represent the kind of company that we put together.
You will all recall it was just about a year ago when we talked about the
Identix merger and we talked about a company that would have a run rate of $230
million plus, $50 million in EBITDA. Well, we have achieved that. And we also
talked about the fact that we would be profitable in the fourth quarter and we
are. In the fourth quarter we did $76 million in sales, compared to $15 million
last year. Our gross margin was about 36% versus 21% last year. Our adjusted
EBITDA was $15 million versus $500,000 last year.
Net income for the fourth quarter was $2 million, $0.03 a share. That was versus
a net loss of $3 million or $0.15 a share for the prior year. Revenue for the
year was $164 million versus $66 million the prior year and the only organic
measurement point was Viisage. Viisage had a good year and we expect them to
have even a much better year next year. We will talk a little bit more about
that later.
Gross margin came in for the year at 31% versus 27% last year. You all know that
from our guidance in prior phone calls that we said our goal next year will be
to have gross margins at 35 or north of 35% for the year next year. I think if
you look at the year, there is so much noise in it I think the better numbers to
look at are the pro forma. Pro forma numbers for the year are $271 million in
sales and EBITDA of $21 million versus $240 million or $12 million pro forma in
2005. So you'll see a very hefty increase. I think that works out to almost 60%
or 70% in EBITDA and sales were up somewhere about 15% or 17%.
When you look at that, our guidance for next year, that $271 million pro forma
increases without ComnetiX to about $335 million represents an organic growth of
about 25%. And if you look at the EBITDA going from approximately $20 million up
to $60 million next year, you're looking at a 300% increase in EBITDA. We are
proud about that and we are confident that these results are achievable and
hopefully we have been conservative in this forecast.
A little bit about that conservatism. You know, whenever we put a forecast
together with the divisions, we try to really get it down to a high probability.
It is what I've done my whole life. It is a little tougher in this sector I must
admit, but we are still applying the same principles. So we
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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really put together a forecast here that we have a high degree of confidence in.
Then on top of that what we do is we take a look at an upside and downside.
While I do not want any of the analysts out there to take anything away from
this, the upside analysis dwarfs the downside analysis for the year. Again, I
don't want anybody to go out there and say they're going to beat their numbers
and increase your forecast by 10%, 15%. The thing we have to do is we have to
really coordinate our forecasting going forward and our guidance.
We did not have any guidance for the first quarter and the guidance that we are
presenting today is really the first guidance that we've talked about. To give
you some color on that we said that the fourth quarter would be a very good
quarter particularly with shipping the HIIDEs at the rate we were shipping them.
We said that typically in a business the fourth quarter is the highest run rate
quarter for any business. I don't care what business you're in. We talked about
the first quarter coming off that high run rate and the biggest item there was
the lack of HIIDEs that we will be shipping in the fourth quarter. We will be
developing in the fourth quarter the next generation HIIDE. We expect to be
getting an order for that sometime in early summer. I might add we are excited
about that product. It is called Next Generation HIIDE and we are excited about
the potential for that product for next year.
So we see the year next year as starting off a little slow and then second
quarter we should be able to get close to breakeven. Then we will accelerate
rapidly in the second half of the year. So again without providing detailed
guidance for the second, third, and fourth quarter, we would appreciate it if
you can -- when you are putting your models together at least give us the
ability to give you a little input so we don't get stuck with somebody saying
that we did not hit guidance when we had nothing to do with the guidance that is
out there.
If you step back and you look at what we have been able to accomplish this year
aside from I think creating the number one identity solution company in the
space, and you look at some of the programs that we were able to win, I think
it's extremely impressive. If you look at the pace of the bookings, they
accelerated toward the second half of the year. We are very proud and excited
about the fact that we were able to win and an ABIS solution with Northrop
Grumman at the prime. This contract is much more important than the numbers. It
positions us well with the DOD and it also gives us the credibility that we were
looking for in ABIS and AFIS.
The reason we won this was because we had an architecture that the government
loved. And we were the only company that had a trimodal solution including face,
finger and iris. It is scalable. The software can run on 150 blade servers or it
can run on a PC, so we really believe that we've got something very exciting
with this ABIS solution. I'm not going to go through all of the bookings
highlights that we've have talked about here, but I am excited about the fact
that at the end of the year we received a large order from Mexico for Live Scans
from [sargem]. We received a large order from Saudi Arabia, again for Live
Scans. We believe we are getting close to signing a very nice license agreement
in Saudi Arabia and we will talk a little bit more about that later. We made a
lot of progress.
We won NETCOM which is the military background check program for enrollees,
enlistees into the armed services. And we won another program called DISA, which
basically is a next generation jump kit and we think that that has a lot of
potential for sales next year. These are basically portable Live Scan units that
are in the field and they're going to be used I think increasingly in Iraqi and
Afghanistan in the new paradigm and the [plus up] and some of the new strategic
direction or tactical direction I should say that we are going in in Iraq.
So if we look at next year and we are very confident again about how we enter
the year; we've got a backlog of $500 million and out of our sales forecast next
year of let's say average $335 million, almost $260 million of that comes from
our backlog. So really you're looking at a book and shift that we think is a
very modest number. The reason we think it is modest is passports are -- and
we've have all read about the Western Hemisphere initiative and HSPD-12 and what
is going on with CAC. Passports are growing at a rapid rate. As you know, where
sole sourcing passports is a lot of volume for people that do not have passports
and they need them to cross the borders of Canada, Mexico, and the Caribbean. So
that we see a large uptick in the passport business.
Real ID, increasingly we are getting orders from states that are starting to
look at how they're going to implement Real ID, how they're going to get ready
for it. So we are receiving orders for document authentication equipment and our
facial. Next year we are really not forecasting any new states, so any new state
that we are able to book will be upside. And we were recently successful in
talking about Viisage in winning a large document authentication order in New
York, and another unnamed country and we're hoping to be able to name that
shortly to provide document authentication at airports and the borders.
Identix, the 4100 unquestionably is turning out to be a very large success. As I
mentioned, we booked a large order in Mexico, Saudi Arabia. We're hoping to have
one overseas shortly. We have booked a large software upgrade order from the
department of state and as I mentioned we were successful really in a triple
play in winning ABIS, MEPCOM, and DISA. And again I think this portends well for
us not only in additional DOD business, but this is going to be good for us in
state and local and international software business.
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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SpecTal is doing extremely well. We expect them to grow at a minimum of 20% next
year. Most of that, probably the overwhelming majority of it, is coming out of
backlog. IBT, Florida we're expanding that beyond the financial services and we
are hoping to get the nurses and other groups to join in on the Florida contract
so it has large potential. We have large bids outstanding in New Jersey,
Pennsylvania.
SecuriMetrics, I mentioned we are about to book a large R&D contract to create
Super HIIDE. In the meantime we're hopeful of receiving an emergency order to
provide to the troops in Iraq for the standard HIIDE. We think we will be
receiving that order shortly, and the HIIDE product itself; we have a modest
amount in our forecast. I think we have about $15 million to $20 million for
Super HIIDE next year and from the numbers that are being talked about; we think
this could be an extremely conservative number.
We are also stepping up our license opportunities. You know that we are -- our
Iris is used exclusively on Clear Registered Traveler and we're hopeful of being
able to win an opportunity for a nationwide Iris solution in a Middle East
country overseas.
The acquisition pipeline continues to be full. We are looking at companies that
again are more in the Phase II that I talk about, which are mature companies,
rapid growth, good technology. We are not looking to fill this thing with
companies that are growing at 2% to 3% a year. So there were a couple of
exciting acquisitions that we are looking at. One of them is in the access area
and another one is in the NSA area. We are excited and pursuing those and
hopefully we will be able to get something done with those companies going
forward.
So again I think to summarize, I think we've had a very good year. We did just
about everything we said we were going to do. We are going to continue doing
this next year. I would be very disappointed if as we get to the back end of
this year, and similar to making a forecast that I made in January of last year,
we will be in my view running north of $100 million a quarter in the fourth
quarter and be very profitable. And we will be very profitable in the third
quarter also.
So with that I'll turn it over to Jim to give you a little more detail and color
on the numbers.
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JIM DEPALMA - L-1 IDENTITY SOLUTIONS, INC. - CFO
Thank you. Bob I think has given a good flavor on the results. You have the
press release. From a highlight standpoint, the fourth quarter 2006 as you know
includes Identix for the full quarter. The acquisition was completed on August
29. It includes SpecTal for a little over two months. That acquisition was
completed at the end of October. The results also include IBT, SecuriMetrics,
and of course Viisage.
The results for the fourth quarter 2005 and full year 2005, is just Viisage. I
think IBT is in there for a half a month in the fourth quarter 2005. The fourth
quarter, the increase in revenues, profits and overall results from 2005 and
2006 obviously are dramatic because of the acquisitions that were made. And, as
Bob indicated, we had promised about a year ago that we would be profitable in
the fourth quarter and we attained that.
In addition to becoming profitable, we had guided to revenue between $75 million
$80 million dollars, and we attained $76.3 million. Gross profit margin we had
indicated between 30 and 35%. Our profit margin was actually 36%. Operating
expenses of 30% we had indicated and we reached 30%. EBITDA 14 to 16, we did $15
million and a range of earnings per share of $0.02 cents to $0.04. We obtained
$0.03 per share. So while EPS of $0.03 is a significant milestone, we continue
to believe that EBITDA is the proper matrix to measure our results to the
significant amount of non-cash charges like intangible amortization,
depreciation, stock based compensation, and deferred income taxes.
Revenue growth when comparing the fourth quarter 2006 to the fourth quarter 2005
included 23% organic growth as well as approximately $57.1 million from acquired
companies. On a pro forma basis, revenue climbed to $80 million for 2006 fourth
quarter compared to $68 million in 2005, an increase of over 18%. The keys to
the increases, as Bob alluded to, our sole source passport business and with the
Department of State and the CAC cards that we provide consumables to the
Department of Defense. It's a 40% growth quarter-over-quarter.
Facial recognition and search solutions provided by Identix and Viisage, a 50%
increase. Strong growth in our enrollment activities at the IBT division,
particularly at the state and local level. We continue to add both new states
like Florida and existing states continue to consolidate enrollment activities
within the states, adding things like education, nursing, and other states
sanctioned occupations that require background screening. So we have gotten into
states like Texas and Michigan and California, Illinois and not only do we
capture the current business, but there is a movement in all the states to
consolidate the screening activities and this is going to be a terrific business
for us going forward.
And finally HIIDE we had a great quarter, shipping HIIDEs, in 2005 there were no
HIIDE sales, so as a result of all those activities, the fourth quarter was
terrific, as Bob indicated.
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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Bob also mentioned that our gross profit margins on a GAAP basis was 35%. This
compares to 25% on a pro forma basis in 2005. It reflects the increase in
revenues that we talked about, the HIIDE revenues which have terrific margins
and the cost-containment work reduction that we did. Overall we reduced
headcount by over 120 people and saved over $20 million on an annual basis. That
is reflected in the fourth quarter as well.
Operating expenses as a percentage of revenue declined from 43% to 30% fourth
quarter 2005 compared to 2006. On a pro forma basis from 35% to 32%, reflecting
effective combination of G&A resources and a result of Viisage and Identix
merger as well as focus on R&D expenditures and other costs.
Operating expenses in 2006, unlike 2005, include $1.7 million for stock based
comp, which we adopted effective January 1. We expect as Bob indicated to
maintain our operating expenses in the 30% range even though we continue to
invest in key marketing sources in order to drive our revenue.
Other items in the fourth quarter, we had interest expense relates to the
borrowings under our new facility. As you recall, we borrowed $105 million in
connection with the acquisition of SpecTal in October. Our net debt cash
position at December 31, 2006 was approximately $75 million and today, this
morning when I looked at the bank, our net debt was approximately $60 million,
which reflect the cash collections from the fourth quarter EBITDA that was
generated.
Provision for income taxes includes non cash charges relating to the tax
deductibility of goodwill in connection with our tax effective purchases of IBT,
SpecTal, and TDT. In addition, we have $150 million of these deductions that we
can amortize over 15 years and we have over $250 million of NOLs to shelter
future taxable income. We do not expect to pay federal income taxes in the
foreseeable future, however, there will be some unique accounting challenges as
we become more and more profitable regarding the utilization of purchased NOLs.
Some of the NOLs that we have obviously were purchased. I am just going to take
a little time on the highlights of the balance sheet. You can see cash decreased
significantly from $72.4 million to $5 million. That reflects the $72 million
was a residual amount of our $100 million investment that we made at the end of
2005. It went from $100 million to $72 million because of the IBT acquisition
and then we acquired SecuriMetrics and Iridian during the year, and as I
indicated SpecTal was acquired using debt.
Accounts receivable increased due to the acquired businesses. Days outstanding
of 68 days, we are focused on getting that down and we believe we can squeeze
another $10 million to $15 million cash out of that. Inventory, Identix has
about $5 million, Viisage $3.5 and SecuriMetrics about $1 million. Other current
assets include prepaid insurance and deposits. Goodwill the increase relates to
the acquisitions that we did, Identix, SecuriMetrics, Iridian, and SpecTal. And
the increase in intangible assets primarily relate to Identix, which we are
amortizing over a period 4 to 15 years, the bulk of it probably 6 to 7 years.
Long-term assets mostly deferred financing and some restricted assets, and the
liabilities reflect the acquisitions that we accomplished and I already talked
about the debt. That is pretty much for the quarter. Bob talked about pro forma
results for 2006 and related that to our forecast for 2007. So I think that is
it and we will be happy to answer any questions once they hook that up. Thank
you.
QUESTION AND ANSWER
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OPERATOR
(OPERATOR INSTRUCTIONS) Jeff Kessler, Lehman Brothers.
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JEFF KESSLER - LEHMAN BROTHERS - ANALYST
First off, with regard to the supplemental budget that was proposed a few days
ago as well as the 2008 defense budget, as well as the potential for 2008
supplemental, clearly it is all going skewed toward ground troop use, protection
of troops. You have mentioned you might be getting a reorder on the standard
HIIDE. Could you just go into a little more description of the size? (inaudible)
HIIDE and in addition what other types of other identification possibilities do
you have based on the amount of say troop based use items that seem to be the
well basically, that seem to be the currency at the moment for the DOD?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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Yes, I think the new strategy is going to focus heavily on trying to train and
prepare the Iraqi police and military to protect themselves. Who is in the
country and what are they able to do? So I think a lot of money is going to be
spent in the identification of people, who's coming across the border, who is
going in the facilities. And we are seeing a lot of opportunities in what I
would call HIIDE type products, [peer] type products. Some of the technologies
they're asking us to add into Super HIIDE really give them a very exciting
capability. Networking, meshing of this product, and in addition to that we are
seeing a lot of software opportunities. This ABIS opportunity I think accessing
data bases of military data bases, that is going to be an opportunity for us.
And jump kits, we think there is going to be a big market for jump kits, which
are basically enrollment stations that are portable, ruggedized enrollment
stations.
Beyond Iraq, I think there is going to be money spent in the United States
because at some point there will be a pullout plan. There will be a schedule and
I believe the Democrats are not going to take the risk nor are the Republicans
for that matter of leaving Iraq, scaling down the effort, and leaving the
homeland vulnerable. So I believe you're going to see a lot of money spent on
border security, on transportation, ports, airports, and basically upgrading the
entire identity infrastructure state, local, and federal governments. HSPD-12 I
think is a very big opportunity for us and I think money is going to be spent in
that area.
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JEFF KESSLER - LEHMAN BROTHERS - ANALYST
Bob, you talked a little bit on ComnetiX and the existing L-1 business combined
to get new states; obviously ComnetiX gets you Georgia and New York, but the key
here is in addition to what you've got. Clearly you are sounding very optimistic
about new passport, new ID business coming out of this combination. Could you
elaborate on that a little bit more?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
As you know, Jeff, Canada has passed a law that beginning in '08, photographs
will no longer be accepted as a form of identification. So they are going to go
to basically electronic or fingerprint ID. Right now ComnetiX has 40% of the
market, so we like the fact that they are well-positioned in that market and if
you consider -- and I think the number is something like 20 million people --
that is a very big market for us. In addition to that and as an aside, up to now
they have been using Cross Match, Live Scans, $2.5 million, $3 million a year.
We are immediately going to plug-in Identix and right there we are going to pick
up $1.5 million a year in added income.
So I think they are well-positioned in Georgia. I think they are well-positioned
in New York. I think they are well-positioned in California, but primarily what
we are looking for is to enter the Canadian market and to address the
requirements that I think are going to evolve in that market. Canada has been a
good market for us. We have sold a lot of [ia] devices to them in the past and
we're hoping to be successful in an ID program in Canada which is being competed
right now. We are on an EDS team; so actually we would actually look to expand a
little bit more in Canada and that does not include BioKey by the way.
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OPERATOR
Paul Coster, JPMorgan.
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PAUL COSTER - JPMORGAN - ANALYST
A couple of quick housekeeping questions. First of all it sounds like the
revenue is going to be back end loaded in the year. How did gross margins behave
during '07? Is it a function of the volumes or the product mix or are we going
to see those sort of 35%, 36% gross margins attained right from the get go or
does that develop during the year?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
I would expect that the gross margins in the first quarter will be a little
light of 35%, but will steadily improve over the year and so on an annualized
basis we are comfortable that we will end up with 35% for the year. But the
first quarter will be a little light but the other quarters will proximate 35%.
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PAUL COSTER - JPMORGAN - ANALYST
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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When does ComnetiX start to hit the revenues?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
February 21.
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PAUL COSTER - JPMORGAN - ANALYST
It is in the guidance that you issued?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
No, it is not.
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PAUL COSTER - JPMORGAN - ANALYST
I may have missed something in the beginning but am I correct in thinking that
you saw some contracts in the Viisage camp shift out a little bit? Can you just
give some color on that?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Not in the Viisage camp, in the Identix camp. Again, they did not shift out. We
thought some of these contracts like MEPCOM and AFIS would have been awarded
sooner. And also Saudi Arabia. We booked those -- I want to say we probably
booked them in December -- so we were not able to convert those into revenue. We
had expected that we would have booked those earlier in the fourth quarter.
- --------------------------------------------------------------------------------
PAUL COSTER - JPMORGAN - ANALYST
All right, and those are spilling into the first quarter then so we have got
kind of sequential decline notwithstanding the slippage of a couple of bookings
from the fourth quarter.
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Really the biggest reason for the sequential decline is the HIIDE product. We
shipped 1500 HIIDEs based on customer requirements in the fourth quarter and
that represented about I think $9 million in sales. So if you look at
SecuriMetrics, they probably did about $16 million in the fourth quarter and
they will probably do $7 million or $8 million in the first quarter.
- --------------------------------------------------------------------------------
PAUL COSTER - JPMORGAN - ANALYST
Got it. My last question, Bob, is just in Europe obviously there was a lot of
fuss about the EU VIS program last year. And I assume that there is going to be
some kind of follow through this year. Are you seeing anything over in Europe or
is that kind of the least interesting of your regions at the moment?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
No, we are excited about Europe and we're excited about being able to be
successful with ABIS/AFIS. ABIS is kind of an AFIS only it is trimodal. So we
think there are opportunities in some of the Middle Eastern countries and some
of the EU countries that are going to want to develop their own database
capability overseas. But what we're going to start concentrating and one of the
big efforts for us in '07, last year we
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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planted all the seeds. We put all of the companies and the technology together.
We really think and the response of the primes, the customers, and the
competition by the way, who is now buying our products when they never did
before, has been outstanding.
But now we've got to concentrate on marketing, so we are about to hire an
individual to run our Washington office, where we recently moved in about two
weeks ago. So we're going to beef up the marketing in Washington and coordinate
our efforts both in the U.S. and around the world. We are hiring an executive
that will concentrate on South America and we are hiring an executive that is
going to concentrate in Europe. So we are bringing in a lot of firepower in
marketing and I expect to start seeing very good results from these people,
starting in the second half of the year.
- --------------------------------------------------------------------------------
PAUL COSTER - JPMORGAN - ANALYST
Okay, I have got one last question. As you each quarter roll forward your
backlog, does it churn much or is it pretty stable? Are you sort of having to go
back and re-evaluate everything each quarter or are their certain projects
that's just obvious?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
No, it is pretty stable. We have got the luxury -- and again it was part of our
strategy, Paul, to create some of that predictability and we don't want to be in
a position to have to booked and ship 80% of our sales in every quarter. So the
backlog provides us a lot of comfort in being able to put some credibility into
our forecast. But no, we do not expect any big swings in backlog. The only big
book and ship business that we have now is really Identix and SecuriMetrics
because of the lumpiness of their orders. But even SecuriMetrics we believe will
start flattening out a little bit and get a more predictable order and revenue
stream.
- --------------------------------------------------------------------------------
PAUL COSTER - JPMORGAN - ANALYST
Thank you very much.
- --------------------------------------------------------------------------------
OPERATOR
David Gremmels, Thomas Weisel Partners.
- --------------------------------------------------------------------------------
DAVID GREMMELS - THOMAS WEISEL PARTNERS - ANALYST
Bob, are there any positive or negative implications of the Smith's GE joint
venture in the detection systems area? I know Smith has an interest in your
competitor, Cross Match. So does this change the Live Scan landscape at all?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
I don't think it does. I think that combination was primarily focused on the
bomb detection, cargo, and airport security screening systems. Cross Match is a
fly on the rump of that whole billion dollar entity. Does it make them more
aggressive? I don't know. It might. I believe that we have got a better
performing product. I believe that our product has a cost advantage. So we're
going to continue to monitor the situation. We were unhappy to lose the EU Live
Scan business. That I think was more political than having anything to do with
our product. So we have been very successful in competitions. And I think Mexico
and this DISA program and Saudi Arabia were big wins for us against the
competition, so it may. We have not seen it yet, but we will have to see how
that plays out.
- --------------------------------------------------------------------------------
DAVID GREMMELS - THOMAS WEISEL PARTNERS - ANALYST
And then one other one on Live Scan. One of the opportunities you have talked
about in the past is the U.S. visa transition from 2 print to 10 print. Can you
just kind of give us an update on that one or have any decisions been made or
anything you can say on timing?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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Yes, DHS is buying a number of our units and a number of Cross Match units and
there is going to be a runoff. And we are thinking it may be is going to be an
award sometime in the second half of the year.
- --------------------------------------------------------------------------------
DAVID GREMMELS - THOMAS WEISEL PARTNERS - ANALYST
Great, last one you mentioned a couple of M&A opportunities in the pipeline with
presumably others out there as well. What are you seeing in terms of the pricing
environment and the expectations of the sellers these days?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Again, we moved more to a quality, higher organic growth model and now that we
have gotten all of the modalities and the technology stuff behind us. So we are
seeing relatively reasonable EBITDA multiples in that pipeline in what I call
the Phase II strategy. That does not mean that we will not look at a piece of
technology that we think is exciting and bring it in as kind of a bolt-on to our
end-to-end solution and pay some money for it. But for the most part I think
we're looking at companies or structures that are not going to be four or five
times sales kinds of things. The two I am talking about in particular, one is in
the -- I want to say 10 to 12 EBITDA multiple, and another one we are really
excited about on this access opportunity and I don't want to talk too much about
it, but if we're not able to do a deal for the whole thing, we may consider
investing in the company and forming a marketing relationship. Where we would do
all the military marketing and they would do all of the commercial, so it would
be a nice combination.
- --------------------------------------------------------------------------------
DAVID GREMMELS - THOMAS WEISEL PARTNERS - ANALYST
Perfect, thanks for the color.
- --------------------------------------------------------------------------------
OPERATOR
Tim Quillin, Stephens Inc.
- --------------------------------------------------------------------------------
TIM QUILLIN - STEPHENS, INC. - ANALYST
With regards to Super HIIDE, are there any milestones in the development in that
product that we should be looking for? Are there any technical hurdles that you
need to overcome before you can get that order in the summer?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
I had that conversation with our division President out there and our technical
people and I can only say that they are extremely confident of being able to
achieve the milestones that have been specified for that new product. So we
expect to have the new product prototype I am hoping probably in the June
timeframe.
- --------------------------------------------------------------------------------
TIM QUILLIN - STEPHENS, INC. - ANALYST
You talked about your $15 million to $20 million in there for Super HIIDE and
the fact that that might look increasingly conservative. So are you -- first of
all, what is the rough magnitude of the pending HIIDE order that -- the regular
HIIDE order. And what do you think HIIDE could represent this year or in 2008
even?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Again, I don't want to speculate. All I can say is the numbers that have been
discussed are large.
- --------------------------------------------------------------------------------
TIM QUILLIN - STEPHENS, INC. - ANALYST
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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Okay, that is not real specific but I will take it.
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Again, I don't want anybody adding anything to our forecast and really I'm
serious. We are working hard here. We are trying to -- I don't need anybody
creating numbers that are going to while we are being very successful, somebody
is going to say oh, they disappointed and --.
- --------------------------------------------------------------------------------
TIM QUILLIN - STEPHENS, INC. - ANALYST
In terms of the swing factor for your numbers this year, is this a relatively
important -- are there other sizable swing factors as well that we should think
about?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
You know, plus up on ramp beyond what we might be looking at, HIIDE I think
there are some nice opportunities at Identix for some large, large orders for
Live Scan and HSPD-12 could be a large opportunity for us, as well as
competitions that we're running at IBT in New Jersey and Pennsylvania. These
would be big opportunities. Then we were able to roll in the rest of the
enrollees in Florida and it is being talked about. Can they add the schools and
the nurses and so many other -- the real estate agents? That would be upside for
us next year also.
- --------------------------------------------------------------------------------
TIM QUILLIN - STEPHENS, INC. - ANALYST
Okay, that's helpful. Just quick housekeeping issues but can you give me a rough
estimate of where D&A, stock comp expense, and CapEx will be for 2007?
- --------------------------------------------------------------------------------
JIM DEPALMA - L-1 IDENTITY SOLUTIONS, INC. - CFO
Yes, CapEx in the $10 million range. Stock based comp I think we're saying about
$8 million. Amortization I think we have about $27 million to $28 million
primarily on the intangible related to the Identix acquisition.
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
You know, another comment on that, we talked in our release about unlevered free
cash flow for next year about $52 million, so if you look at our model, with our
free cash flow next year, we should just about eliminate our debt. And if you
assume EBITDA of $60 million with just a conservative lever factor of somewhere
between 3 and 4, and then you assume the earnings of the companies we would look
to acquire, we probably have in our line of credit, we probably have easily $300
million to $400 million of dry powder to continue our acquisition program. I
know somebody is probably going to ask me what are we doing about a converter
and again, we are going to be opportunistic. We are looking at it and if the
timing or the stock price were appropriate, it may be something we would do, but
we have not made any decisions right now.
- --------------------------------------------------------------------------------
TIM QUILLIN - STEPHENS, INC. - ANALYST
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
Brian Ruttenbur, Morgan Keegan.
- --------------------------------------------------------------------------------
BRIAN RUTTENBUR - MORGAN, KEEGAN & CO - ANALYST
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FINAL TRANSCRIPT
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
- --------------------------------------------------------------------------------
A couple quick questions. You talked about basically Q1 and Q2 it sounds like at
least cause I want make should I'm in the ballpark with everybody else, it
sounds like revenue is going to be down from fourth quarter, and earnings are
going to be negative in the first quarter and negative to flat in the second
quarter. I that correct?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Yes, and again we're talking about GAAP earnings, but from a -- again we're
talking about -- you could be negative $0.01 to positive $0.01 in the second
quarter. So we're hoping to get to breakeven with revenue probably somewhere in
the $80 million range in the second quarter.
- --------------------------------------------------------------------------------
BRIAN RUTTENBUR - MORGAN, KEEGAN & CO - ANALYST
Okay, and what kind of range -- (multiple speakers) were you looking for a drop
of about $5 million to $6 million in the first quarter?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Yes, the guidance we issued was what (multiple speakers) 73 to 75. Again that,
almost all of it is SecuriMetrics, offset a little bit by now having SpecTal in
for a longer period.
- --------------------------------------------------------------------------------
JIM DEPALMA - L-1 IDENTITY SOLUTIONS, INC. - CFO
I would mention that if we looked at the first quarter of 2006, talking about a
growth in revenue of still about 20%.
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
And EBITDA and good cash flow, so our EBITDA and the guidance there is, what,
around $10 million.
- --------------------------------------------------------------------------------
JIM DEPALMA - L-1 IDENTITY SOLUTIONS, INC. - CFO
About $9 million to $11 million.
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Yes, so $10 million on average for the first quarter and we're hoping to be able
to get to somewhere between $11 million to $13 million in the second quarter. So
positive cash flow for the first half looked like over $20 million.
- --------------------------------------------------------------------------------
BRIAN RUTTENBUR - MORGAN, KEEGAN & CO - ANALYST
Very good. The breakdown of revenue in the actual fourth quarter, can you give
us -- you have given us basically what the old Viisage was. Can you give us what
the old Identix and SpecTal, what SpecTal contributed for the two months and
what Identix contributed or IBT or SecuriMetrics, any of that?
- --------------------------------------------------------------------------------
JIM DEPALMA - L-1 IDENTITY SOLUTIONS, INC. - CFO
Yes, Identix was in the $18 million to $20 million range. SpecTal on a pro forma
basis was in the $17 million range.
- --------------------------------------------------------------------------------
BRIAN RUTTENBUR - MORGAN, KEEGAN & CO - ANALYST
But that is not what was included in the quarter. That was pro forma.
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FINAL TRANSCRIPT
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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BRIAN RUTTENBUR - MORGAN, KEEGAN & CO - ANALYST
All right, so only two months of that was included.
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Months, about $14 million on SpecTal.
- --------------------------------------------------------------------------------
BRIAN RUTTENBUR - MORGAN, KEEGAN & CO - ANALYST
Okay, and then IBT and SecuriMetrics?
- --------------------------------------------------------------------------------
JIM DEPALMA - L-1 IDENTITY SOLUTIONS, INC. - CFO
SecuriMetrics I think what Bob had indicated was in the $14 million range.
- --------------------------------------------------------------------------------
BRIAN RUTTENBUR - MORGAN, KEEGAN & CO - ANALYST
Right, because of HIIDE?
- --------------------------------------------------------------------------------
JIM DEPALMA - L-1 IDENTITY SOLUTIONS, INC. - CFO
Yes, right.
- --------------------------------------------------------------------------------
BRIAN RUTTENBUR - MORGAN, KEEGAN & CO - ANALYST
Okay, then I can back into IBT off of that.
- --------------------------------------------------------------------------------
JIM DEPALMA - L-1 IDENTITY SOLUTIONS, INC. - CFO
IBT was around $13.5 million, something like that.
- --------------------------------------------------------------------------------
BRIAN RUTTENBUR - MORGAN, KEEGAN & CO - ANALYST
Okay, great. Thank you very much.
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
$14 million.
- --------------------------------------------------------------------------------
BRIAN RUTTENBUR - MORGAN, KEEGAN & CO - ANALYST
Okay, and I think that everything else has been answered too. Thank you very
much. I appreciate your time.
- --------------------------------------------------------------------------------
OPERATOR
Keith LaRose, Bradley Foster and Sargent.
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FINAL TRANSCRIPT
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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KEITH LAROSE - BRADLEY, FOSTER & SARGENT - ANALYST
Bob, is it still too early to ask you for any color or comments on 2008
passport?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
We are working with the customer and putting together a strategy that we think
is going to be successful. Giving them a next generation solution on that
program, and we have a great relationship with them. We are performing
exceedingly well. So really our strategy is now to work with the customer to
transition them to a next generation. With everything that is happening in
passports, with the added volume and the added application and going to
E-passport and trying to integrate all these things, we will see what happens.
But again, we are working closely with the customer to try to take them to the
next program.
- --------------------------------------------------------------------------------
KEITH LAROSE - BRADLEY, FOSTER & SARGENT - ANALYST
You mentioned the acquisition pipeline is full but then you highlighted too that
we are in maybe a later stage of discussion. Can you give some more color on
what you mean by full? Beyond that?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Well, we see opportunities at least 2 to 3 opportunities a week. There was one
about two weeks ago. We had six companies in here and we did not like any of
them enough to want to do something, but there is a constant flow of deals.
- --------------------------------------------------------------------------------
KEITH LAROSE - BRADLEY, FOSTER & SARGENT - ANALYST
I'm all set. Thanks.
- --------------------------------------------------------------------------------
OPERATOR
Josh Jabs, Roth Capital.
- --------------------------------------------------------------------------------
JOSH JABS - ROTH CAPITAL PARTNERS - ANALYST
Can you give us a little bit more color as to what products and services you are
providing under the AFIS contract?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Basically we are providing the operating and matching subsystem. For the DOD.
- --------------------------------------------------------------------------------
JOSH JABS - ROTH CAPITAL PARTNERS - ANALYST
Are there end-user products included within that contract or is that -- are some
of those opportunities separate?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
No, it is almost all software, and we are looking to expand our presence on that
program.
- --------------------------------------------------------------------------------
JOSH JABS - ROTH CAPITAL PARTNERS - ANALYST
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FINAL TRANSCRIPT
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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Okay, and then you gave the inventory numbers. Can you just run through those
quickly?
- --------------------------------------------------------------------------------
JIM DEPALMA - L-1 IDENTITY SOLUTIONS, INC. - CFO
Inventory? Inventory I indicated that we had about $5 million of Identix, $3.5
million on Viisage and $1.5 million for SecuriMetrics.
- --------------------------------------------------------------------------------
JOSH JABS - ROTH CAPITAL PARTNERS - ANALYST
Okay, and what are your expectations going forward in 2007 for inventories?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
You know, we don't see a lot of building on the inventory. Identix is sort of
depending on how we see orders coming. Viisage is sort of depending on the
states. I don't see any significant increases or decreases in inventory.
- --------------------------------------------------------------------------------
JOSH JABS - ROTH CAPITAL PARTNERS - ANALYST
All right, thank you.
- --------------------------------------------------------------------------------
OPERATOR
Jeremy Grant, Stanford Group.
- --------------------------------------------------------------------------------
JEREMY GRANT - STANFORD FINANCIAL - ANALYST
Congratulations on a profitable quarter. A few questions. Last quarter when you
reported I think you had a breakdown of revenues between services and Identity
Solutions. Are you stepping away from that right now and just doing a single
reporting unit?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
No, when we report in the 10-K we will have it segment between the two, the ID
services and the products that we have in the third quarter.
- --------------------------------------------------------------------------------
JEREMY GRANT - STANFORD FINANCIAL - ANALYST
The second question was obviously this has been the first quarter when you had
the full runway with Identix and most of the acquisition. The SG&A and the R&D
numbers, should we think that is something that will be fairly representative of
what future quarters look like or how do you see them going over 2007?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Yes, I think we have done a good job over the past four to six months
scrutinizing, analyzing, and going through the R&D, sales and marketing, SG&A,
and we are comfortable that it is going to continue to stay in the 30%. I think
as we increase revenues probably come down a little bit, but as Bob had
indicated, we will look for opportunities that pay for our marketing resources.
We're going to invest in marketing resources both here in United States and
globally. I think it is sort of representative in the 30% range, probably come
down a little bit.
- --------------------------------------------------------------------------------
JEREMY GRANT - STANFORD FINANCIAL - ANALYST
You mentioned you are looking at an access control company. Do you mean physical
access by that or logic?
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FINAL TRANSCRIPT
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
We are talking about -- I want to say a combination. We're not looking to buy a
company to hang a box on the wall, so it really, it is going to be provisioning.
There's a whole movement now in the DOD, in government and in the commercial
world to integrate their entire security system. And that integration goes from
whose coming in the door and then is that person allowed to log onto the
computer? So if somebody tailgates and they follow somebody through an access
point and they try to log onto a computer, they won't be able to get on because
they've integrated the system to say, you know want? This person should not be
here. How is he getting on the computer? So it is a combination of software and
hardware, but at a higher level than just swipe card boxes on an access point.
- --------------------------------------------------------------------------------
JEREMY GRANT - STANFORD FINANCIAL - ANALYST
Okay, that's helpful. I wanted to delve just a little bit into the forecasts for
an EPS loss for next quarter. What I'm hearing on the call it sounds like it is
mostly because there's a decrease in the sale of HIIDE. The revenue guidance for
the quarter isn't all that much under the 76.3 that you recognized this quarter.
Is this because there's such a gross margin difference with the HIIDE taken out
that you moved to the loss?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
You got it.
- --------------------------------------------------------------------------------
JEREMY GRANT - STANFORD FINANCIAL - ANALYST
Okay, that is an easy question, then. One actually two more questions, one with
DOD ABIS. Can you provide any color as to how much that contract is worth to you
in the initial award and when it will be able to start (multiple speakers) --?
- --------------------------------------------------------------------------------
JIM DEPALMA - L-1 IDENTITY SOLUTIONS, INC. - CFO
It is worth about $7 million or $8 million.
- --------------------------------------------------------------------------------
JEREMY GRANT - STANFORD FINANCIAL - ANALYST
Okay, how about DISA?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
And it is all software. You know that is a good thing.
- --------------------------------------------------------------------------------
JEREMY GRANT - STANFORD FINANCIAL - ANALYST
And DISA, is that the same?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
DISA, it is going to be an ID IQ contract. And depending on the amount of units
that they hire, that they order, and whether they retrofit existing units in the
field, they could be a large delta between max and min.
- --------------------------------------------------------------------------------
JEREMY GRANT - STANFORD FINANCIAL - ANALYST
Okay, and one final question I had just talking about pricing for the TP 4100
versus Cross Match, looking to the DHS press release that came out a couple days
ago announcing the split in the order I realize you both went through some bars
on that, but I think Cross Match was actually
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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cheaper by 400,000 in terms of the options for buying up to 3000 units. Are you
seeing them cut prices now to be more competitive with you on price?
- --------------------------------------------------------------------------------
JIM DEPALMA - L-1 IDENTITY SOLUTIONS, INC. - CFO
They were proud that they beat us in EU VIS at a higher price. We believe that
if they are lower than us they are losing money.
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JEREMY GRANT - STANFORD FINANCIAL - ANALYST
All right, that is all I had. Thanks.
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OPERATOR
A follow-up from Jeff Kessler, Lehman Brothers.
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JEFF KESSLER - LEHMAN BROTHERS - ANALYST
Bob, if you could acquire a cellular company that does not drop calls, I can get
you a 30 multiple on EBITDA.
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
Leap wireless, that is a company I am on the board of.
- --------------------------------------------------------------------------------
JEFF KESSLER - LEHMAN BROTHERS - ANALYST
Most of my questions have been answered, but I do have a question that I do want
to ask upfront and that is again you're sitting down now, still with 5,6,7,8
guys at the table who you have acquired. And I ask this question every quarter
and hopefully we can see some progress here. To the extent that you can tell us,
how much or how well are these guys all on the same page with you now? How far
do you still have to go to make this one voice company as opposed to again a
series of companies that not are just silos but still have different cultures
and would still have to work together and sometimes even still compete against
each other?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
That is a very good question, Jeff, and that as I have indicated in prior calls,
now that we have got this machine in place with all of this capability and again
multimodality solutions are the way of the future, so we should be on every
major program going forward. But you are exactly right that a lot of the
companies are silod. When they look at an opportunity like ABIS, right, $70, $80
million program for Northrop, we got $7 million or $8 Billion. The company
called I-3 probably got $20 million and Northrop got the balance, $50 million,
$60 million, which is okay. We want to get in the door. But we've got to start
approaching these things more as an integrated subsystem provider. And the
marketing people and I think the goal there, A, we've put all of our people
together in Washington and we have got a brand-new office. I was down there on
Tuesday, very impressive. We're going to put joint solution. We're going to have
products on display, but the individual and actually I'm looking to hire two
individuals, two high-power individuals in Washington. And I hope to have them
on the ground in let's say one in a month and another one in two months. They
are going to coordinate all of the efforts of these marketing people and who is
going to the customer and what are you going to tell them?
So we are going to have lead people. Who goes to Lockheed? Who goes to Northrop?
Who goes to Computer Sciences? Who goes to IBM? So we're going to coordinate
that whole effort, but that is our goal for this year. Last year was let's get
everything together. Phase I and then we will go to Phase II. This year it is
going to be marketing. And Jim talked about [Ira] and G&A. You're going to see a
little bump in the G&A line I think. And then the good thing about our R&D, most
of our major R&D efforts as far as custom company funded are behind us. And what
we're doing now is we're getting a lot more customer funded R&D, so we're going
to be on the edge of technology but the customer is going to pay for it. And as
you know, once that happens, there is usually a product buy on the other end.
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the prior written consent of Thomson Financial.
FINAL TRANSCRIPT
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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- --------------------------------------------------------------------------------
JEFF KESSLER - LEHMAN BROTHERS - ANALYST
Okay, so if I can paraphrase this, by the end of this year, when you go to
market, you're going to be marketing as L-1 no matter who you are seeing? As
opposed to marketing with some guy has L-1 on his hat but he is talking out of
the side of his face like he is from Identix or from Viisage.
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
You are correct, Jeff. That is our goal and I think once we get there we're
going to become a bigger presence on some of these programs where we are subbing
the product.
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JEFF KESSLER - LEHMAN BROTHERS - ANALYST
Thank you very much and good quarter.
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OPERATOR
Keith LaRose, Bradley Foster and Sargent.
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KEITH LAROSE - BRADLEY, FOSTER & SARGENT - ANALYST
Just a quick follow-up. The Northrop Grumman contracts are U.S. centric. Are you
doing anything with them in the UK and their business in Europe, which is I
think much larger for them, isn't it?
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
It is large and right now we're talking to IBM, who really wants to form a
partnership with us, to start marketing some of these solutions overseas. We
have a great relationship with Northrop and Computer Sciences, who we're working
in Saudi Arabia with. You know, it is interesting. You look at this ABIS win,
companies like Northrop and even Cogent I might add want to work with us in
looking at this NGI opportunity. So I think there are going to be programs
overseas and here that we're going to be able to get a bigger piece of going
forward.
- --------------------------------------------------------------------------------
KEITH LAROSE - BRADLEY, FOSTER & SARGENT - ANALYST
Thanks a lot, guys. Have a good day.
- --------------------------------------------------------------------------------
OPERATOR
Thank you. I would now like to turn the floor back to management for any closing
remarks.
- --------------------------------------------------------------------------------
BOB LAPENTA - L-1 IDENTITY SOLUTIONS, INC. - CHAIRMAN, PRESIDENT, CEO
I appreciate again you guys accommodating our schedule. We think we have had a
good year. We have done pretty much everything we've said. And we're really
looking forward to next year and continuing our progress both in organic and
building a great company. So anyway, thanks again and we will talk to you soon.
- --------------------------------------------------------------------------------
OPERATOR
This concludes today's conference call. You may now disconnect.
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publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
FINAL TRANSCRIPT
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FEB. 09. 2007 / 10:00AM ET, ID - Q4 2006 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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