EXHIBIT 99.2
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FINAL TRANSCRIPT
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CONFERENCE CALL TRANSCRIPT
ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS CONFERENCE CALL
EVENT DATE/TIME: FEB. 13. 2008 / 11:00AM ET
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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CORPORATE PARTICIPANTS
LISA CRADIT
L-1 Identity Solutions - Financial Dynamics-IR
BOB LAPENTA
L-1 Identity Solutions - Chairman, President, CEO
JIM DEPALMA
L-1 Identity Solutions - EVP, CFO
CONFERENCE CALL PARTICIPANTS
LOUIS SARKES
Chesapeake Partners - Analyst
JEFF KESSLER
Lehman Brothers - Analyst
MARK STRAUSS
JPMorgan - Analyst
GREG WOWKUN
Banc of America Securities - Analyst
KEITH LAROSE
Bradley, Foster & Sargent - Analyst
TIM QUILLIN
Stephens Inc. - Analyst
PETER BARRY
Bear, Stearns & Co. - Analyst
JEREMY GRANT
Stanford Group Company - Analyst
MATTHEW MCKAY
Jefferies & Co. - Analyst
BRIAN RUTTENBUR
Morgan, Keegan & Company - Analyst
PRESENTATION
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OPERATOR
Good morning. My name is Coretta 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 2007 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). This call
will last approximately one hour.
Thank you. It is now my pleasure to turn your call over to your host, Ms. Lisa
Cradit.
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LISA CRADIT - L-1 IDENTITY SOLUTIONS - FINANCIAL DYNAMICS-IR
Good morning and thank you for joining us either by phone or via the Internet
for L-1 Identity Solutions' 2007 fourth-quarter and full year financial results
conference call.
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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Statements that representatives of L-1 Identity Solutions make during this
morning call that are not historical facts are forward-looking statements made
under 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 that involve inherent risks and uncertainties. Any statements
made today about future expectations or results are necessarily only estimates.
Actual results could differ materially from any forward-looking expectations.
Factors that may cause differences between forward-looking expectations and
future actual results are fully described in the Company's SEC filings. The
Company expressly disclaims any obligation to revise or update any
forward-looking statements.
Representatives of L-1 plan to use a number of defined financial terms during
this mornings call, such as adjusted EBITDA, pro forma organic growth and
unlevered free cash flow. Please refer to the Company's earnings press release
issued this morning for further definition and context on use of these terms.
With that, I will call over to Bob LaPenta.
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Thanks, Lisa. Good morning, everyone, and thanks for participating in L-1's
fourth-quarter and full year '07 results conference call. I will talk a little
bit about the quarter and the year and spend most of my time on the backdrop,
some of the opportunities we are working on. Jim will take you to the detail in
the numbers and then we will open it up for Q&A.
Fourth quarter, we had a very good quarter profitwise. Revenue came in a little
light. That resulted from the fact that we had anticipated winning Panama and
having about $3 to $4 million of revenue in the fourth quarter on that program.
As you read, we were successful in winning that program and there will be
revenue in the first quarter. It is an important win for us.
We had another program with a customer in the Middle East for HIIDEs. That
program we expected to get some revenue in the fourth quarter. It didn't happen.
We're still working on that program. The final statement of work has been
written. Total negotiations are complete and basically we are just waiting for a
go-ahead on that program. In order to preclude any further slips and downside in
the numbers, we took that out of our first-quarter forecast, so should that come
in, that represents upside.
As far as profit, we had a very good profit quarter, represents a favorable mix
in software and we are constantly seeing more opportunities in software and IP.
We had good cash flow in the quarter of $23 million and actually, it could have
been almost 30. There was a Department of State receivable that we collected I
think in the first week in January for almost $7 million. We thought we would
get that in the fourth quarter. The Department of State has changed the way they
process invoices, resulting in a slight delay, but again, very strong cash flow.
If I take a quick look at the year and step back and see what we accomplished, I
can only say that it has been very, very successful year for L-1. We had organic
growth in excess of 26%. We had free cash flow, unlevered, of $40 million plus
and EBITDA of $60 million. We made great progress in our divisions, cooperation
and synergies. In fact, at year-end, we have over $300 million in outstanding
bids for multi-divisional programs. This is a great accomplishment and with a
company as well integrated as L-1, the synergies in the divisions with our
end-to-end solution, this is really a key to our success and I am happy to say
that I saw tremendous progress in the synergies and interdivisional programs.
We made great progress in international marketing. Sales were up over 87% to $28
million. We beefed up our marketing team and they are working well with all of
our divisions. We made great progress in Washington. There is good coordination
between all of our divisional marketing people working all of our
multidivisional opportunities.
We had a good year in IR&D. We produced a new document authentication product at
Viisage. We're ruggedized our IBIS and 4100 products at Identix and we developed
a new palm device that we have great expectations for in '08. We think this is
going to be a great device. Pretty much our competitor has had it by himself. We
think this is going to represent good upside for us in '08.
We had successful acquisitions in '08. ACI, a nice company that we acquired
about three-quarters of the way through the year. They were recently successful
in winning a $50 million contract that we recently announced. A nice program and
they're going to have good organic growth. It gives us great capability in NSA
secure networking and system design. McClendon, another recent acquisition, good
growth prospects. A good position in NGA and this, I think, continues our
strategy of building in our intelligence market where we believe there is going
to be great opportunities going forward and it represents a key component of
Identity Solutions going forward.
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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We recently announced Bioscrypt. That acquisition is moving forward. We hope to
complete that by the end of February. We have already seen very nice synergies
in that business. We have a restructuring plan already in place. We expect to
have 90% of it completed. We're excited about the management. We are already
working well together. What this does, basically, is take all of our ID
capabilities, the enrollment, our modalities, our software, everything that we
put together, and brings it out into the marketplace. It also gives us a
presence in health care and the financial community. We think there are going to
be good synergies and really an unknown benefit here, one we have really talked
a lot about, is we're picking up 3-D facial, which we think is going to be a key
component in the facial markets and gives us the ability to do facial at a
distance. So we are excited about Bioscrypt. We are working well together and
we're looking forward to completing that transaction. In '07, we won key awards
on the 4100. We shipped over 5000 of these units during the year. We continued
on our strategy of working with the departments of motor vehicle across the
country. We have a marketing plan in place and we are working with them to get
them some of the money that has been set aside for Real ID. There are some
competitions that are ongoing, new competitions that are coming up, so we are
comfortable and, frankly, optimistic about our position in the driver's license
market.
All of our divisions are poised for growth and profitability in '08 and I'll
talk a little bit more about that in a minute. We also are close -- and you know
that when we acquired Iridian, we also acquired a lawsuit with LG. That has been
going on for a number of years. We've been spending over $1 million a month in
legal fees on that litigation. I am happy to report that we have made
significant progress there and we believe that in the not-too-distant future,
we're going to have a handshake and we're going to have a settlement that I
think both parties are considering very favorable. So we're going to look LG to
become somewhat of a partner of ours and we are excited about the possibility of
having that long, expensive litigation behind us.
A disappointment came right after the end of the year in our loss of the
PASScard program. I would be less than honest if I told you this was not an
important program for us. This had all of the classic mistakes you make when you
have engineers get together and have them produce a great solution. I believe we
produced the best solution in this competition. And that was not a winning
strategy. We were underbid substantially on this program. We did not bid it with
a lot of profit. We did not have it in our numbers and had we won, it would not
have been a profitable program. But it is a program that I think had a lot of
visibility. We were favored to win and in hindsight, the lessons learned here
is, you know, you've got to be closer to your customer. You have got to
understand that when you bid, it's not the best solution that wins, it's the one
that meets the customer requirements. So that was a program that we considered
to be a major disappointment at the end of the year. Again, it wasn't in our
numbers for next year and we didn't have any profit, even if we had won the
program, so I can only tell you that I don't think there's a lot of profit in
there for the winner either.
Going into '08, we have very good momentum. We have a backlog of $715 million
versus $500 million last year. That is an increase of over 43%. As we indicated
in our release, we have had recent awards of over $60 million and that doesn't
include an award that we were notified of yesterday and an enrollment
opportunity of between eight and $10 million. So there's a lot of positive
momentum in the business and if you just step back, everybody post 9/11 has had
a lot of hope, there was a lot of excess expectations in the space. Everybody
expected the programs to instantly move forward. Well, it has been about five or
six years, but I could tell you one thing, the bidding activity and the program
momentum has never been greater. At year-end, we have over $750 million of bids
outstanding. And we believe we are positioned well on a lot of those
opportunities.
So both domestically and internationally, we see a lot of momentum and we are
encouraged about all of the opportunities that we are currently participating
in. First-quarter we're going to have a slow start and as I indicated, we took
out that Middle East order from the first quarter. We think it will happen, may
happen in the first quarter, may happen in the second quarter. Both us and our
customer have put a tremendous amount of effort into this potential program. It
is an important program for us, opens up a whole new customer base and we think
we are going to be successful in bringing this one in.
Next year we are targeting, as was our model, over 20% organic growth and I'm
going to give you a little bit more color. All of our divisions -- and we
recently completed a very detailed budgeting process that we go through -- and
all of our divisions have good momentum and they are all profitable with very
strong cash flow. So to give you a little color on what this looks like, Viisage
in '07 did about $83 million. Next year, without any major wins, they're going
to do over $100 million. There's great momentum in the passport business. We're
doing well in driver's license. We are bidding on international opportunities
with some of our other divisions. We think we are well-positioned, but again,
without any significant win, either in the driver's license or an international
opportunity, we're going to do over $100 million at Viisage. SpecTal did about
$78 million last year. They're going to do over $100 million, very profitable
next year. Again, without any new significant win's, this reflects a major win
that we have last year that was not -- still not able to talk about, but suffice
it to say, we have hired about 160 people over the past two months, so their run
rate is currently running at that $100 million level.
IBT had some very nice wins last year. They had another good one yesterday.
Their revenue is going to go from about $58 million to $75 million plus, again,
without any incremental or significant wins. They have good momentum in Texas.
We're building up our capability in Canada and this really doesn't reflect any
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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opportunity on the transportation worker identity program, where I think we all
know that program now has gone from a requirement -- or potential of 750,000
port workers to over 1.5 million. Now, for those of you that don't know, we're
partnered with Lockheed on that program and our deal on that is any additions
onto that program beyond port workers, we share 50% and we provide all of the
hardware on all of those new opportunities. So we think we are well-positioned
on that new program. I think as you know, that program is slated to add all of
the additional transportation workers and we think, ultimately, it will and any
initiatives on the illegal immigrant front, so that could be a very large
program for us.
Identix -- this is without their enrollment business, which is probably another
20, $25 million, last year did about $76 million. We believe they will do over
$95 million next year. They are well-positioned on a number of international
programs. We are happy to see them win Panama, but there are a number of other
opportunities that we believe we are well-positioned on in Paraguay. We believe
we are well-positioned in Mexico, Argentina and some large international
opportunities. So they have good momentum. They are doing very well and we
expect to have a good year out of Identix next year.
McClendon, again, I mentioned there's good organic growth there. On a pro forma
basis, it did about $40 million in '07. We expect them to do over $50 million
next year. ACI, pro forma about $50 million in '07. We expect them to do north
of over $60 million next year. That reflects some of the -- our recent $50
million plus win. We did announce that, right?
Did we make it, or we just talked about it in our press release?
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UNIDENTIFIED COMPANY REPRESENTATIVE
Talked about it in our press release.
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Okay, good. Then we have SecuriMetrics. I tell you, I'm very excited about this
company and its prospects in HIIDE and in future generations of HIIDE. We came
into the year with overt $8 million of funded customer R&D. We're developing
next generation HIIDE products and we are currently developing a product called
Super HIIDE, which will really revolutionize the space.
There's over $34 million of funding in the DoD budget and there are large
international opportunities that we are currently working on. One of them is the
opportunity that I addressed in the Middle East. The problem with it is it's a
lumpy and their sales can go from $3 million in one quarter to $25 in the next.
And that's why you are seeing a relatively modest revenue forecast for the first
quarter. So our forecast -- our revenue could be $115 million in the first
quarter. It could be $130 million in the first quarter. I don't know.
If you just step back, when you look at our business, you look at L-1 and where
we are today, I believe we have created the number one identity solution company
in the United States and probably in the world, but we're a growth company in a
growth market where there are very lumpy opportunities. They are gamblers. They
are not people that we welcome as shareholders with us. We would like to invest
in us for the long-term and we have a long-term plan. We expect -- and our plan
is very clear. We have a very clear vision for where we are going -- by 2010, we
think we're going to be a company that is running in excess of $900 million and
we're going to come out of the year at a $1 billion run rate. And with just a
normal EBITDA margin, without an increased mix of IP or software, we think we
will be doing $130 to $140 million in EBITDA. That is our goal. That's where we
think we're going.
We achieve that by 20% organic growth annually and a couple hundred million
dollars of acquisitions. So all of us here in L-1 at corporate in our divisions
have a game plan. We are executing it and that's how we would like to be
measured. So, going beyond that, the acquisition pipeline is full. We're looking
at some significant opportunities. We think we're making progress on two large
opportunities that I really can't talk about, but if we are successful, they are
going to bring the Company to even another level. I think they're going to be
game-changing type combinations and I hope we are successful in completing at
least one of them.
Relative to financing, we ended the year with about $250 million of net debt. We
think we have dry powder without free cash flow next year of over $100 million.
That includes an extension on our line of credit of about $25 million by a bank
that is committed to doing that. And we're going to have free cash flow next
year -- what was that number? About 60 to $65 million. So we think we are
well-positioned to continue on the acquisition program.
Again, I think to summarize, we think we are well-positioned going into '08.
We're going to have good organic growth. We're going to be very profitable and
we're going to continue on our strategy of being the number one company in
end-to-end identity solutions in the world. With that, I will turn it over to
Jim to give you more detail and color on the numbers.
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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JIM DEPALMA - L-1 IDENTITY SOLUTIONS - EVP, CFO
Thank you, Bob. At the risk of being somewhat redundant, let me just go over
the fourth quarter. As Bob indicated, it was a successful quarter in several
important areas, despite several timing challenges. Positive organic growth and
profitability, particularly in the biometric solution business, highlighting the
effectiveness of our market-leading solutions and multimodal strategy, resulting
in EBITDA over $21 million on revenue of $114 million, 19% margin. Healthy
bookings and key wins in our intel services segment, which will position those
businesses for an outstanding year in 2008. SpecTal, as Bob noted, continues to
do an exceptional job winning new projects and gaining market share.
Significant free cash flow combined with the growing backlog, again somewhat
redundant, but free cash flow for the quarter was in excess of $23 million
despite planned inventory increases and a delay in certain collections as Bob
noted, until just after the new year. Backlog at December 31, 2007 approximated
$715 million, up from $500 million a year ago and it's sort of across the board.
We expect to get 70 to 75% of our revenue out of backlog in 2008 and despite
some lumpiness in our business because of -- from quarter-to-quarter on some of
our solutions, we do have a good, stable revenue base on a month-to-month basis.
The press release details our results for the fourth quarter and full year.
Reported results for the fourth quarter 2007 include acquisitions closed after
December 31, 2006, including CommetiX, ACI and McClendon.
On a reported basis, revenue was, again, $114 million for the current quarter,
compared to $76 million for the same quarter last year, or an increase of
approximately 50%. On a same-store basis, our businesses, excluding the recently
acquired companies, grew by 11%, with significant growth in our biometric
solutions and our SpecTal division. This was offset by lower fingerprinting
service volume due to temporary customer delays, principally in Michigan and
Texas. Other key items were Viisage's federal business, which includes
passports, common access cards and related services, increased by 50% to
approximate $12 million in the fourth quarter.
Multimodal biometric devices and software solutions increased by approximate 40%
to $16 million, led by HIIDE and PIER shipments during the quarter. Intel
services, led by SpecTal, grew to approximately $43 million as compared to just
under $17 million on a reported basis. On a pro forma basis, SpecTal alone grew
by over 20% to $20 million in the quarter compared to the same period last year.
While well-positioned for substantial growth, future growth, Identix, IBT and
CommetiX, overall, showed solid growth for the quarter, but were impacted by
activities which will carryover to 2008. Panama was mentioned by Bob.
Gross profit margin, our reported gross margin for the quarter was 33%, compared
to 36% in the prior year, due to a slightly higher amount of revenue from funded
research and development, which reflect lower gross margin. Excluding non-cash
charges primarily amortization of intangibles, our margin for the quarter was
40% -- 41%. So on a cash basis, we're generating terrific margins, both at the
Solutions division and Services division.
Our operating expenses for the quarter were 26% compared to 28% in the prior
year, reflecting the shifts of costs -- the cost of goods sold for funded
research and development and other reduce costs. Excluding stock based
compensation, operating expenses approximated 22%, reflecting increased
operating leverage. As a result of the aforementioned, EBITDA for the quarter
exceeded $21 million, compared to $16.7 million on a pro forma basis, or an
increase of 26%.
Other items of note, Bob mentioned our current debt. Interest expense for the
quarter was $3.5 million related to our convertible notes and borrowings under
our credit facility. The convertible portion was approximately $2 million. As
you know, that is an interest rate of approximate 3.75% and our revolver is just
under 5%. So the convertible was $2 million, with the balance representing
interest on our revolver, which Bob noted, we paid down $20 million in the
quarter.
We recorded a tax benefit of approximately $28 million during the quarter,
reflecting the reduction of the deferred tax asset valuation allowance of $24.5
million and the reversal of the provision for income taxes of $3.3 million
recorded in the first three-quarters of 2007. While this is a onetime credit,
this represents an important milestone confirming our long-term strategy and
comfort in our ability to generate significant future operating cash flow and as
a result, effectively utilize our significant net operating carryforward losses,
which aggregate approximately $500 million. During the quarter, we also recorded
a onetime asset impairment charge of $5 million related to certain amortizable
intangibles. As you know, we review all of our intangibles and goodwill on an
annual basis.
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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Weighted average shares outstanding was approximately 77 million. The increase
in the number of shares outstanding of approximately five million reflects the
inclusion of our convertible debt shares and this is going to be unique to this
particular quarter. On a go forward basis, we expect the average to approximate
73 million shares.
Balance sheet -- just a point here, in the press release that went out,
inventory was noted $22.534 million. We made a last midnight change, a reclass.
The numbers should be $21.534 million, so I just wanted to bring that to your
attention.
Accounts Receivable increase primarily relates to acquisitions, $9 million of
the increase relates to fourth-quarter growth and the existing businesses. And
as Bob mentioned, seven to $8 million of that receivable was collected right
after the beginning of the year. Planned inventory increases of $11 million to
address backlog requirements at Identix and SecuriMetrics, deferred tax asset
reflects a tax benefit of a portion of the net operating loss carried forward.
In addition to this item, as noted, we have significant amortizable goodwill tax
deductions which can be used. So while we're going to be in a position where we
would "have taxable income," it will be the sheltered from our net operating
loss carryforwards and our amortizable goodwill.
Just a couple of other points on the balance sheet. The goodwill increase
relates to the acquisitions, $50 million on ACI, roughly $50 million on
McClendon and $17 million related to CommetiX.
Other assets increased by $5.5 million primarily relates to our deferred
financing charges. Accounts payable, just the normal accruals and the increase
is because of the acquisitions. And as Bob denoted, the total debt of $259, the
increase mostly related to our convertible debt.
That's all I have for the quarter. Again, we are here if there are any questions
and back to Bob.
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Okay, at this point, Lisa, we will open it up to questions.
QUESTION AND ANSWER
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OPERATOR
(OPERATOR INSTRUCTIONS) Louis Sarkes, Chesapeake Partners.
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LOUIS SARKES - CHESAPEAKE PARTNERS - ANALYST
Bob, I had -- first off, just to clarify, you anticipate 60 to $65 million of
free cash flow, so next year, but I'm assuming next year being -- is 2008,
correct?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
'08, that's correct.
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LOUIS SARKES - CHESAPEAKE PARTNERS - ANALYST
Okay, my two -- my question and my follow-up are these -- you talked about there
are two potential large opportunities out there that could be game-changers. Is
it possible that you could see doing both, or is it more likely that's one or
the other?
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Right now, we have a number one and number two target. I'd say if we do one, the
probability drops of doing two, but it is possible depending on what the
situation is and how things are if we get to that final stage.
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LOUIS SARKES - CHESAPEAKE PARTNERS - ANALYST
My other question is if you could just -- and it's more of a bigger picture
question -- is for the $60 million of free cash flow, what you see as priorities
for deployment of that? Is it acquisitions or are there other uses?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Well, we are fortunate in that this is not a business that requires a lot of
working capital, so we would look to pay down debt or use it redeploy in
acquisitions.
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LOUIS SARKES - CHESAPEAKE PARTNERS - ANALYST
Okay, thank you very much.
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OPERATOR
Jeff Kessler, Lehman Brothers.
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JEFF KESSLER - LEHMAN BROTHERS - ANALYST
Firstly, could you go into a little more detail on the two contracts that have
kind of just crossed the transom, one on Panama and one on the IBT enrollment
contract of eight to $10 million?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Yes, the Panama was a contract that we actually won early on in the fourth
quarter and that's why we had it in our forecast. And it was protested, we won
it again and then there was a tremendous amount of political activity. This was
a good win for us, because it is an election, ABIS-type program. As you know,
deployments and credibility in ABIS are really what we need to do to start being
able to address the larger ABIS/AFIS type opportunity. So, we think this is a
key win. We won it against a very credible competitor and we are going to be
performing on this program over the next three to four months. In fact, we
probably have about 1.5 million, $2 million of sales in this quarter and we are
probably delivering that as we speak.
So it's a nice software and gets us a position in that country. We think Latin
America is going to be a good opportunity for us this year. We are
well-positioned on four or five opportunities that I don't want to go into a lot
of detail on for competitive reasons, but we've got a terrific marketing person
there. He works well with the divisions. He works well the customers. We have
good partners and we're excited about that opportunity.
On the IBT, there was a bid for a state program. It is eight to $10 million. We
defeated, again, a formidable competitor and it's for a states employee
enrollment and background checks. IBT this year without any new wins will
probably do 1.3 to 1.4 million enrollments. We have a base of over 530 to 540
enrollment sites. We're looking to enhance the revenue potential in those sites
by maybe doing passports or something in those sites, so IBT is really doing
well. Their revenues are ramping up and we think there are three or four more
wins that they could possibly have this year and, again, that upside is really
not reflected in their numbers.
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JEFF KESSLER - LEHMAN BROTHERS - ANALYST
As my follow-up, on PASScard, I realize that PASScard was a disappointment to
you and maybe, obviously, you learn how to market, particularly against the
large guys, a little bit better as you guys go on. The question is, is what
we're seeing, though, that as Real ID begins to gain some traction, I know it
has had a lot of troubles, particularly in the press, but it does appear to be
gaining some traction in a number of states and I'm not just talking about the
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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state of Washington, where they actually want to go to licenses and do away with
any PASScard. Do you see the possibility of actually the Real ID program
becoming a more profitable program for you know and a bigger program for you
than PASScard could have been? Can you participate in that program in a way that
you are going to make a lot of money as opposed this one program that you've
lost that probably wasn't going to be that profitable?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
That's a good question, Jeff, and I'd just like to go back to your first one. We
know how to bid against the big guys. And when we talk about lessons learned,
you know, things happen on different procurements. We were favored to win that
and we thought we really knew what the customer wanted. We did not bid a very
low-end solution. We bid a solution that the card was going to last ten years.
It had great technology in it. It was not going to be able to be spoofed.
Privacy was a big consideration in making the award.
What we did not do and the lesson learned here is the engineers cannot be as
prominent in producing the solution and the marketing has got to be on top of
the customer. That is not bidding against the prime. That is bidding against
anybody. Its basic marketing and a lesson is learned and every once in a while,
you've got to get a slap in the face and gets reenergized and focused. So that
happened on the program.
Having said that, that program -- many people have different opinions about it.
We -- you know, if you talk to Frank Moss, who is a consultant to us and really
the father of e-passport, he doesn't think that PASScard program is going to
gain any traction at all. He thinks most people are going to go for a passport,
because with another $25 or so, you can go anywhere and do anything. So, again,
we didn't have it in our revenue. We didn't have it in our profit, but it was a
program that we wanted to win just because it's high profile and we wanted to
have all of these programs in the Department of State.
So again, I don't want to dwell on it, but our divisions need to learn, so have
we learned a lot from this exercise. Relative to Real ID, I think that's one
that we're doing right. We have a very detailed gameplan. We're going to
customers. We are working with them to produce applications for getting some of
the money that has been put aside for Real ID implementation. I think,
ultimately, every state, regardless of what they say, is going to comply and
participate in this program. We think it provides good upside for L-1, because
it is really almost like producing a clean slate. In other words, what was in
the past is not necessarily what will be in the future. And with our end-to-end
capabilities in house, we think going to these customers, showing them a new
roadmap on a clean piece of paper is going to work to our advantage. Again,
there are no guarantees. The competition is very tough here. There is a lot more
competition coming into the space. Virginia was recently won by Canadian Bank
Note. We think there are going to be other players in the space, so it is a
competitive market.
But having said that, we think with our software, with our modalities, with our
end-to-end solutions, we are going to be able to produce profitable driver's
license business. The model here is you win the program, hopefully. You install
a facility and the equipment and then basically it's a consumable business that
is very high in actual cash margins. So it is a good business right now and we
look forward to growing it.
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JEFF KESSLER - LEHMAN BROTHERS - ANALYST
Thank you very much.
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OPERATOR
Paul Coster, JPMorgan.
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MARK STRAUSS - JPMORGAN - ANALYST
Mark Strauss on behalf of Paul. With a focus more on multimodal solutions, where
can we expect you to exit 2008 on gross and operating margins? Then what would
your long-term target be?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
We really don't talk about targets in detail, but I could tell you what we're
seeing is an increased mix of IP and software and if that mix continues, we
would expect our gross margins to increase. Now again, I have said this often,
gross margin for us is a little misleading, because about half of our business
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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is intel and there's very little below the line there. There is no capital
investment, no big investment in sales, marketing and R&D. So a 25% gross margin
in intel-type work yields maybe 15% on the bottomline. That is probably
equivalent to a 45% gross margin in the biometric/products space.
So again, I would expect our gross margins to continue to improve. In our
multimodal space we are -- part of what I talked about, right now, we have over
$750 million in bids outstanding. A large number -- and I haven't added it up --
is in software and so we are very encouraged by that, because as you know, the
gross margin in software applications is very high.
I am also encouraged -- and I talked to little bit about SecuriMetrics and the
progress we're making in developing next generation and the Super HIIDE product.
IP is going to be a big part of their profit. So you could see a scenario next
year where -- right now, there's about $34 million in the budget for HIIDE or
expansion module-type purchases. They're bidding on -- they have opportunities
in BISA, day worker and international opportunities. But their biggest upside, I
think, is in IP, where they could actually record substantial profit in selling
iris template licenses and that really -- I am more excited about profit than I
am about sales. So I think SecuriMetrics is well positioned to have a very good
year.
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MARK STRAUSS - JPMORGAN - ANALYST
Great, thanks. One more if I could. I presume that a maturity of the states are
going to file for an extension with Real ID. What are you guys modeling as far
as a timeframe of when we're going to start seeing significant revenues from
that?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
We have not put any significant revenues from Real ID in our forecast. We're
going to be -- if we win of state, hopefully, for the most part, it will be
upside. Obviously we're looking to win one or two to continue our growth into
next year. But there is virtually zero in our forecast for this year.
Same thing with HSPD-12. We also have no revenue in our forecast for NGI. We
read about the recent win yesterday. We hoped to get a position on that program
with Lockheed Martin, don't know who is going to make the final selection
relative to the biometrics components on that, but I can tell you the FBI knows
our technology. They have spent a lot of time at our research facility in Jersey
City, so we look forward to being a partner with Lockheed on the program, but we
don't have any revenue our profit.
Similar with a program called, depending on whose bidding it, GoldenEye or
Starfish, our ACI division is working with Lockheed on a program called
GoldenEye. SpecTal is working with Northrop Grumman on a program called
Starfish. We are bidding that -- that's a program that used to -- I am not even
sure we could use the name, but it is a large agency program for a database that
could ultimately grow to two, three, 400, 500 million records, so we bid to all
that are primes on that, but we don't have any IP template sales or revenue in
our forecast for those programs.
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MARK STRAUSS - JPMORGAN - ANALYST
Okay, appreciate it. Thank you very much.
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OPERATOR
Greg Wowkun, Bank of America Securities.
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GREG WOWKUN - BANK OF AMERICA SECURITIES - ANALYST
Last quarter, you were pretty excited about making some significant hires in the
state and local market. Did you make those hires?
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
I am glad you brought that up, because I didn't talk about that. Last year we
focused on getting our marketing team together, getting them working together
and building an international marketing capability. And I think we did that. We
also built, I think, a good capability in now starting to focus on DoD. I think
we have some more work to do in DHS, although Admiral Loy is a tremendous asset
to us there. So we did that.
This year we're going to focus on building a capability, a seamless end-to-end,
go to one customer with one story solution in the state and local market. And in
that connection, you recall we bought CommetiX last year. They had a good state
and local business in local criminal, law-enforcement, and jail management, and
they had an enrollment business in Canada and to a certain extent, the United
States. We're going to split CommetiX up and put the state and local business
under Identix, where really our focal point in state and local is.
We are also looking to hire a very capable state and local individual for our
Washington office, who is going to be kind of the corporate asset. Haven't done
that yet, but we have two or three candidates identified and we're hoping to
bring somebody in the not-to-distant future. So, we think we're going to make
progress. We are going to have a great year in state and local. We're going to
get our act together and I think adding Bioscrypt is going to be another good
addition for us in the state and local market.
We are also, I think, going to have a good year in starting to market a piece of
software that was developed to SecuriMetrics in biometric jail management
systems. We're going to combine that with the CommetiX capability and we think
we're going to start gaining some traction in the jail management market. So
state and local is going to be our focus for next year.
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GREG WOWKUN - BANK OF AMERICA SECURITIES - ANALYST
Great, thank you. Just as quick follow-up, did you also mention what the HIIDE
shipment units were in the quarter?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Very little. In this past quarter, I think we shipped -- in the fourth quarter
- -- 1200.
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GREG WOWKUN - BANK OF AMERICA SECURITIES - ANALYST
Okay, great. Thanks.
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OPERATOR
Keith LaRose, Bradley, Foster Sargent.
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KEITH LAROSE - BRADLEY, FOSTER & SARGENT - ANALYST
Great year, Bob. Are we not at a price here with the stock that buybacks should
dominate uses of free cash flow above debt paydown, especially given the
difficult debt markets?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Well, that is something that we look at. I, frankly, have never been a big fan
of buybacks. If I had my druthers, when we put the Company together,
unfortunately all of the key players in the space had a lot of stock
outstanding, high market caps. I mean, I'd love for this company to have 40 to
50 million shares outstanding. Our stock would be $30. If we looked at reloading
the balance sheet, you'd look at maybe two million shares secondary, three
million shares secondary, bring in $100 million, but we don't have the luxury of
doing that. And share buybacks, really, at this point, we would have to buyback
a ton of stock in order to put a dent in the amount outstanding shares. So
frankly at this point, I would look to redeploy those assets in acquisitions and
build toward our strategy of building a $1 billion company in the not-to-distant
future. Then we will take a look at the capital structure.
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
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KEITH LAROSE - BRADLEY, FOSTER & SARGENT - ANALYST
Can you comment that the currency value of the stock has declined substantially
and in light of that, can you talk about your appetite to finance a large
game-changing acquisition utilizing stock versus debt?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
I would look, certainly, to finance a much higher percentage of that with
debt/cash than I would, let's say, a month, month and a half ago. But, you know,
we're going to look at things and see how they pan out.
Again, the fundamentals here are very strong. Anybody that looks at this company
from an EPS point of view, again, should not be one of our shareholders. This
company should be measured on free cash flow and growth and not what EPS is. In
this environment, and I think we are all smart enough to know that recent
changes, post Enron and WorldCom and all of those, have made it very, very
difficult for growth companies to report EPS. I mean, when you look at what's
going on with 123, amortization of intangible assets, they are going to give us
another present soon where we're going to have to expense all costs associated
with acquisitions. You know, it is not an environment United States that I think
is conducive to reporting EPS for a growth company. 123, our non-cash stock
option expense is going to be like $15 million next year. Three years ago, that
wasn't even on the P&L statement. So cash flow is really the key and we think
with $60 million next year, we are a very healthy business that is growing very
nicely.
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KEITH LAROSE - BRADLEY, FOSTER & SARGENT - ANALYST
We are a partner up here with you. We're not - we hear you on getting rid of the
gamblers. I think they are worthless.
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
We welcome them all to exit today. I think that will create some good
opportunities for us.
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KEITH LAROSE - BRADLEY, FOSTER & SARGENT - ANALYST
I think everybody has had about enough of the gamblers.
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
I'm done with them, done with them.
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KEITH LAROSE - BRADLEY, FOSTER & SARGENT - ANALYST
Last comment, if I could, you've often talked about a plan A/plan B, plan B
being really a put option on the sale of the Company versus what looks to be a
very attractive long-term growth plan and program. And I would surmise that the
plan B actually is at a price above the current market price. Can you make a
comment on that, Bob?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Well, you know, people are invested and we meet a lot of people. And I think
everybody should have a plan B. If we get -- and I should say when we get to a
$1 billion run rate coming out of 2010 and when we have an EBITDA run rate of
$130 million, $140 million, if we don't have a market cap of $2.5 billion to $3
billion, then I think it is up to us to look to maximize shareholder value. And
not only is there a plan B, but there's a plan C.
So we're not in this for fun. We're in this to create shareholder value and to
build a great company. We would hope to have good shareholders with us along
that ride. And again, we would like to be measured by that plan. You know,
people say oh, this is another Bob LaPenta; he did $115 million in sales instead
of $120 million. Well, too bad is what I say.
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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When I was in the aerospace and defense business, 95% of my sales and profit
came out of backlog in any given quarter, and 85% to 90% of it came on programs
with five or six-year tails. That is not the business we are in here. We are in
a business that is growing at 25%, 30% a year. We're putting together a great
company. And we're not General Electric, we're not L-3, we're not Lockheed
Martin. We shouldn't be judged that way. One day the analysts I think are going
to get that message.
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KEITH LAROSE - BRADLEY, FOSTER & SARGENT - ANALYST
I wouldn't bet on that too much, given -- but anyway, thank you, gentlemen.
Great year, look forward to '08.
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OPERATOR
Tim Quillin, Stephens, Corp.
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TIM QUILLIN - STEPHENS INC. - ANALYST
Good morning. A couple of quick questions and I will step back in the queue, but
in terms of your backlog there was a pretty big sequential increase. Did you put
all of the $50 million on that BPA into backlog?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
No, none of it is in there.
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TIM QUILLIN - STEPHENS INC. - ANALYST
Okay, so what drove the sequential increase?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
I think it was pretty much across the board. You know, some of it obviously was
driven by the win at SpecTal. But the increase I think is just pretty much
across the board, and it reflects basically one-year funding on most of the
programs we are currently working on.
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TIM QUILLIN - STEPHENS INC. - ANALYST
How big was SpecTal's win? How much went into backlog?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
I think we only put about $30 million in backlog for that program, and we would
expect that to be a very large program over the next three to four years.
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TIM QUILLIN - STEPHENS INC. - ANALYST
Okay, and my second question relates to HIIDE and PIERs, your outlook for '08
versus '07. First the Middle East customer, how big is that in terms of
potential revenue and can you get back to $40 million in the HIIDES PIERs,
including the federal funding or even higher? What is the outlook there?
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
I mean, if you look at next year's forecast, I will address that specifically,
but broaden it a little bit. Our forecast is about $550 million on average and
if you look at -- I went through some of the divisions here and with a 95%
probability Viisage is going to do over 100 with a 95% plus probability SpecTal
is going to do over 100 with a 95% probability and IBT is going to do over $75.
When you get to SecuriMetrics and Identix, those two have a degree of book and
ship. So Identix, right now, we have about $200 million of opportunities and I
think what we've done is discounted by about 80%. So we're saying that we've got
to book and ship about $30 to $40 million at Identix in order to hit that $95
million number.
So if you did an upside-downside, we would say the bottom end Identix would be
in the $75 to $80 million area if we didn't win another program. Again, I would
think with $200 million of bids outstanding, they should win something,
otherwise the whole marketing group is going to get fired. So, that's the
leveler of the movement, if you will.
SecuriMetrics, I do not want to talk specifically about that customer, because
it's at a level where, hopefully, we're going to get a signature and we're going
to start moving forward. But it is important for us to open up a whole new
market in that area of the world. We're going to open up on office. We're going
to put marketing people there. We're going to put engineers there. It is going
to be a marquee program.
But again, going back to SecuriMetrics, they have an $8 million backlog of R&D.
There's no other company that is trying to produce a trimodal product that has
that kind of ability in putting together next generation products. So we think
we're two to three years ahead of any potential competitor. If you look at the
potential, again, there's $34 million in the DoD budget. We are working on
expansion modules. We are working on programs called day worker, guest worker
programs. We're looking at putting systems in BAT or BISA units. We're looking
to, again, increase the amount of IP revenue they get and there are some
substantial opportunities there. I mentioned LG. I think that's going to be a
very good opportunity for us next year.
So again, the government -- the customer loves the HIIDE product, I've got to
tell you, everything you read, everyone you talk to. And if you read kind of a
directional memo the came out of the TSWG, which is the technical support
working group, you will see a very exciting baseline program, where they are
looking to integrate HIIDE into all of these major applications and integrate it
with all of the various databases. So that not only is a great advertisement for
SecuriMetrics, but it's going to increase the distribution of and sale of their
products and it's going to try to create a good opportunity for Identix. We're
going to modify ABIS to integrate all of the various government accumulation
networks, if you will, into one integrated system.
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TIM QUILLIN - STEPHENS INC. - ANALYST
Thank you.
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OPERATOR
Peter Barry, Bear Stearns.
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PETER BARRY - BEAR, STEARNS & CO. - ANALYST
Bob, I was wondering if, given Lockheed Martin's NGI win and assuming that the
next step is something that resembles a biometrics bake-off, if you could give
us some thoughts as to what the milestones are we should look for between now
and then and what you think the timing of all of this might be?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Well, I think it's Jeremy, right, that has an unusual insight into these things?
He could probably tell you that better than I can, frankly, at this point. But I
tell you, we think Lockheed is going to work with the customer and they are
going to pick the best of breed for these solutions. We think we are the best of
breed. What the timeline is for that or when they are actually going to make a
selection in the biometric space I really don't know. I am looking forward to
getting together with Judy Marks, talking to Bob Stevens on this program. And
because we think together, we could put together just a solution that would be
unmatched.
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
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PETER BARRY - BEAR, STEARNS & CO. - ANALYST
Is that a 2008 event in any event?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
I think late 2008, but there's going to be a lot of work between now and then,
because it is, frankly, one of the key capabilities, aside from AFIS, in that
program, in that system.
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PETER BARRY - BEAR, STEARNS & CO. - ANALYST
Multimodal would seem to give you a leg up in that regard, would it not?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Well, as we indicated in our press release, we think our iris, which has
outperformed all other competition by 50 to 1, certainly is the best technology
in this space. We think in facial, where we were at least equivalent to another
party, but had we incorporated our latest algorithms, there's no question we
would have been number one there and in ABIS, we really, right now, are the
DoD's de facto standard for our multimodal AFIS/ABIS capability.
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PETER BARRY - BEAR, STEARNS & CO. - ANALYST
My second one is to the degree you can, could you add color to the LG accord and
what the nature of your future partnership might look like?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
I really -- it is at a very sensitive time and I can only tell you that I am
probably more encouraged today than I have been since buying Iridian.
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PETER BARRY - BEAR, STEARNS & CO. - ANALYST
If I might sneak a last one in this last minute here, back to your acquisition
pipeline, would it overstate the case to theorize your speaking of a merger of
equals? Second part of that, would it likely, whatever it is, be accretive or
dilutive and does it take you into a new space or simply deepens where you are
now?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Very synergistic and accretive, and we would be the surviving party.
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PETER BARRY - BEAR, STEARNS & CO. - ANALYST
In a space you already occupy?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
I really don't even want to talk about that.
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PETER BARRY - BEAR, STEARNS & CO. - ANALYST
That's all for me, thank you.
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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OPERATOR
Jeremy Grant, Stanford Group.
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JEREMY GRANT - STANFORD GROUP COMPANY - ANALYST
I think that was a compliment, Bob, so thank you. A couple questions. One, I
wanted to dig in a little bit to the HIIDE. I know you talked about the '08
budget outlook both on the R&D site as well as procurement. '09 budgets just
came out in Washington. DoD is still letting some of the information trickle
out, particularly around supplemental funding on the war request, which is where
I know a lot of the HIIDE funding is coming from. Any idea as to what the
budgets are going to look for in fiscal year '09?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
I could tell you and -- with eight to $9 million of government funding, they are
not spending that money to develop next generation and Super HIIDEs for nothing.
I don't want to speculate what their game plan is or what they hope to do. But I
could tell you there is talk. You know, when we -- Super HIIDE will be a
PDA-type device with incredible capabilities. Liquid lens, mesh network, GPS
capability, it's going to be integrated into all of the biometrics system
networks. I mean, you can go from anywhere from these are going to lower-priced
units, we think, so you may sell more units at roughly equivalent revenue. Two,
these can become something like standard issue, where you're talking about 18,
20, 25,000 units. I don't even want to go there. I don't want to speculate. As I
indicated, SecuriMetrics is one of our lumpy businesses. We're looking to
broaden our customer base. We're looking to increase the amount of software in
IP to take some lumpiness out of their business and give us some more visibility
going forward. I just don't have that right now.
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JEREMY GRANT - STANFORD GROUP COMPANY - ANALYST
All right, thanks. As a follow-up, more of housekeeping question, is there a
breakout of products and services? I know you guys gave, from the previous
quarters, some results division by division, but didn't get into what the IBT or
the Identix revenues were. I wanted to know if you could shed a little more
light on those.
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Well, I thought I said -- you mean in the quarter?
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JEREMY GRANT - STANFORD GROUP COMPANY - ANALYST
In the quarter, yes.
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
In the quarter, IBT revenue in the quarter was, like, $15, $16 million. Identix
was, like, 17ish. Again, if had Panama come in, it would've been closer to 20.
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JEREMY GRANT - STANFORD GROUP COMPANY - ANALYST
You said SecuriMetrics was around 16, despite only around 1200 HIIDEs shipping,
so that means that was some other devices going?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Yes.
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FINAL TRANSCRIPT
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FEB. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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JEREMY GRANT - STANFORD GROUP COMPANY - ANALYST
Great, I appreciate it. Thanks.
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OPERATOR
Matthew McKay, Jefferies & Co.
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MATTHEW MCKAY - JEFFERIES & CO. - ANALYST
Thank you for taking my question. Back in October, you made the comment on the
last conference call that in the fourth quarter, about 90% of revenue, the
guidance in revenue was coming from backlog, which implies about 113, $114
million of revenue that you thought would just come out of backlog. The question
really is what -- did just the book and ship business not produce anything or
did some of that backlog prove to be a little bit squishier than you might have
thought?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Well, I think -- I'm not sure what the date was that we talked about that
number, but if you look at the miss in revenue, there was about -- we built
about -- or have all of the parts where we can finish a build on HIIDE. We built
about 1000 and have them in inventory right now in anticipation of some order.
We expected some of that to happen in the fourth quarter, so the two items were
HIIDE, about five or $6 million, and Panama, three to $4 million. So we could
have come in around $125 million in revenue and again, Panama came in and we
slipped the high order out of the first quarter trying to be a little more
conservative. There was nothing wrong with the backlog.
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MATTHEW MCKAY - JEFFERIES & CO. - ANALYST
Yes, also you made the comment -- this was the last conference call in the
quarter, in October -- you said you had 1400 HIIDE devices in backlog. You said
- -- and you also expected that number to increase shortly at that time. Then you
also said that you shipped 1200 HIIDE devices in -- during the fourth quarter.
So --
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
That's right. So we got up to 2500 plus HIIDE devices and there's probably right
now about 1100 in inventory.
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MATTHEW MCKAY - JEFFERIES & CO. - ANALYST
Okay, that helps. Thanks a lot, guys.
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OPERATOR
Brian Ruttenbur, Morgan Keegan.
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BRIAN RUTTENBUR - MORGAN, KEEGAN & COMPANY - ANALYST
Can you talk about, number one, the share count going forward, what we should be
modeling?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Yes, 73 million shares is a good number. As I indicated --
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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. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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BRIAN RUTTENBUR - MORGAN, KEEGAN & COMPANY - ANALYST
That is a fully diluted number, right?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Yes.
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BRIAN RUTTENBUR - MORGAN, KEEGAN & COMPANY - ANALYST
Okay, and that -- Bioscrypt is going to add how many to that?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Bioscrypt would add about 2.6 million shares.
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
For those that aren't -- the maximum -- regardless of our share price, the
maximum shares to be issued in connection with Bioscrypt is 2.6, so right now,
that represents about a $33 million purchase price. We're looking forward to
making that a very good investment for the current Bioscrypt shareholders.
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BRIAN RUTTENBUR - MORGAN, KEEGAN & COMPANY - ANALYST
Now when does that close?
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Hopefully the end of February.
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BRIAN RUTTENBUR - MORGAN, KEEGAN & COMPANY - ANALYST
Then last question, then, the FBI system, what is your potential take if you get
a piece of that, with the size and when?
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JIM DEPALMA - L-1 IDENTITY SOLUTIONS - EVP, CFO
I don't want to comment on that for competitive reasons. It would be, needless
to say, a very nice win for us.
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BRIAN RUTTENBUR - MORGAN, KEEGAN & COMPANY - ANALYST
Thank you.
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Before we -- is Joel Fishbein out there? He always is mad at me after the call
because we didn't give him an opportunity to ask a question. Okay, Joel, if you
are there or not there, don't be mad at me, okay. Is that it?
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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. 13. 2008 / 11:00AM ET, ID - Q4 2007 L-1 IDENTITY SOLUTIONS, INC. EARNINGS
CONFERENCE CALL
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OPERATOR
Yes, I will now turn the floor back over to Mr. LaPenta for closing remarks.
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BOB LAPENTA - L-1 IDENTITY SOLUTIONS - CHAIRMAN, PRESIDENT, CEO
Okay, thanks again for participating in the call. We are encouraged and feel
good about '08 and building the great Company going forward. Thanks so much.
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OPERATOR
Thank you. This concludes today's L-1 Identity Solutions fourth-quarter and
full year 2007 results conference call. You may now disconnect and have a
wonderful day.
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