L-1 Identity Solutions Inc. Q1 2009 Earnings Call Transcript

L-1 Identity Solutions Inc. (ID)

Q1 2009 Earnings Call

May 6, 2009 4:00 pm ET

Executives

Lisa Cradit – Financial Dynamics

Robert V. LaPenta – Chairman, President and Chief Executive Officer

James DePalma – Executive Vice President, Chief Financial Officer and Treasurer

Analysts

Daniel Meron – RBC Capital Markets

John Croke – Jefferies & Co.

Michael French – Morgan Joseph

Paul Coster – JP Morgan

James Ricchiuti – Needham and Company

Michael Kim – Imperial Capital

Brian Ruttenbur – Morgan Keegan

Jeff Kessler – Imperial Capital

Timothy Quillin – Stephens Inc.

Presentation

Operator

Welcome to L-1 Identity Solution's first quarter 2009 financial results conference call. (Operator Instructions) It is now my pleasure to turn the floor over to Lisa Cradit.

Lisa Cradit

Statements that representatives of L-1 make during this call that are non-historical facts are forward-looking statements made under the Safe Harbor Provision of Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management's current beliefs and assumptions and involve inherent risks and uncertainties. Any statements made 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 statement. Representatives of L-1 plan to use a number of defined financial terms during this afternoon's call, such as adjusted EBITDA, organic growth, unlevered free cash flow, backlog, and net debt. Please refer to the company's earnings press release issued this morning for further definition of and context for the use of these terms.

With that, I am now pleased to turn the call over to Bob LaPenta.

Bob LaPenta

I'm not going to take you through the numbers. I trust that everybody's had an opportunity to go through our press release and Jim will take you through the details and give you a lot of color on the numbers. I think overall it was a very, very good quarter. All of our divisions are performing very well. And I think most encouraging to me is the fact that we see an encouraging increasing amount of opportunities that all of our divisions are participating in.

We have a very, very broad program base and we've won in the first quarter key programs that give us increased confidence toward the ramp that we need to achieve toward the back end of the year, and I think you're seeing some of that in the second quarter. So I think all in all, I'm very pleased with our performance in the first quarter, the amount of bookings and how we're positioning ourselves for the remaining portion of the year.

Just quickly going through a little bit division by division, Biometrics had a really good quarter. We're making progress on completing our 5.0 development. Our ABIS DOD software implementation is going exceedingly well and we see increased opportunities there for IP and software integration. So, that's a program that we're very, very proud of.

We received our first tranche on an increased order for [hives] and these are products that will go toward the buildup in Afghanistan. We received a nice order of our new [PON] devices for the Texas Department of Public Safety. And, we're seeing opportunities in Biometrics that I would say are more than we've seen since we acquired Identix two, two-and-a-half years ago, so I'm feeling very good about that.

In Secure Credentialing, the integration of Digimarc into Visage is going exceedingly well. The division, as you've read, had over $100 million in bookings in the first quarter. And I think the important part of that is that all of our existing customers are happy with our performance. We've gotten plus up for extensions. We have not lost one major state.

We're well-positioned in all of these opportunities and we're seeing increased sell prices for those states that are incorporating and I won't call it real ID, I'll call it enhanced or higher security drivers license. They're improving their processes upfront. They're incorporating facial recognition. They're incorporating document authentication. And we're producing higher quality cards in our centralized facilities.

The division is doing very well and we expect a commensurate ramp-up in the second half of the year. Enrollment services is doing exceedingly well. As you've read, we have over 700 centers open right now and with our current program base, including New York State HAZPRINT and TWIC and our recent win in Indiana, we expect to have over 1,000 enrollment centers by the end of the year and we're going to print over 2 million people this year.

That bodes well for the out-year as well. New York State is just ramping up and, as you've read in our press release, we expect that to hit a peak rate of over 1.8 million applicants and, without getting into a lot of the metrics, that should generate an incremental $20 million, $30 million a year for IBT. So, it's a division we're very happy with. The management is doing an exceptional job. And I think it's just a great, great story.

Enterprise Access, we've announced some new products. They're being well received in the marketplace and, again, we announced an outdoor reader that we expect to have in production sometime toward the end of the year.

Our government consulting business is doing very well. SpecTal will grow without one new program win over 20% this year. ACI, which is embedded in the Cyber Security Initiative that we've all read about, we hear about, the administration is concentrating on with all of the attacks on DOD and national networks. So we think they're well-positioned and they're going to have a good, very profitable year.

So, I think all in all, I feel really good about the quarter. I feel really good about what we've been able to accomplish as far as new bookings, our position on new programs. We talked about the second quarter. I think you're starting to see that ramp. I think we feel good about 165 to 170 and our EBITDA of 23 million to 25 million.

A lot of attention is being paid to debt and cash flow. I think you saw that we generated about $5 million of cash flow in the first quarter. We expect that number to be between I don't know, $13 million to $15 million in the second quarter. But we expect the real cash flow to be generated in the second half.

The reason for that is we're going to incur over $20 million of CapEx in the first two quarters of the year, and our budget for the year is a little bit over $30 million. So we expect to have very robust cash flow in the second half, and again, we feel confident about that. There are no issues with our ability to pay down the debt, pay the interest. So, again, things are going well in that arena.

With that, I'll turn it over to Jim to take you through some of the color on the numbers and then we will open it up for questions.

James DePalma

The press release provides a good summary regarding our first quarter results and Bob has addressed many of the key elements of our operations performance and prospects. I'll provide additional color regarding our financial performance and positioning relative to the remainder of 2009.

As Bob noted, the first quarter represented a solid start for 2009 with strong bookings and achievement of the high end of our previously provided guidance on all key metrics, revenue, EBITDA, and earnings per share. Reported results for the first quarter 2009, as you know, include the Digimarc and Bioscript acquisitions, which closed after March 31, 2008. Revenues for the first quarter grew 30% to $150 million from $116 million in the prior year.

There are several points worth noting regarding growth. As Bob noted, our Biometrics division increased 27% organically over the prior year due to strong demand across its portfolio, particularly multi-modal software, hardware, and integrated systems. Bookings for this division, well over $30 million, outpaced revenues for the quarter setting a solid foundation for growth in the second quarter, and we expect robust bookings throughout the remainder of the year.

Our enrollment in government service division continued to demonstrate strong revenue growth. Bob talked about our enrollment business growing organically in excess of 34% with the implementation of new state and federal programs. Contracts and backlog at the end of the first quarter have positioned both groups for continued sequential growth and a book of business to meet and likely exceed full year expectations.

New York and TWIC will begin generating revenue in the second quarter and ramp in the second half. Our secure credentialing business is expected to increase significantly in the second half as passport activity picks up, demand for pass cards increase, and revenue from robust first half bookings are realized.

Reported gross margins for the quarter approximated 29%, cash margins of 36%, which were in line with our expectations, an increase of 2% from last year's figures of 27%, driven by growth and expansion of margins at our Biometrics Division. Operating expenses as a percentage of revenues was just below 26%, slight decrease from prior year. The company will continue to leverage and maximize its existing resource levels, which will drive operating expenses well below the 25% by year end. Cash operating expenses for the full year as a percentage of revenue are expected to be in the 21% range.

As a result of the aforementioned, adjusted EBITDA increased 53% from $12.6 million to $19.3 million. The company continues to target 15% to 16% EBITDA margins for the full year 2009. Other items of note, total interest expense for the quarter was $10.6 million related to our senior secured debt and convertible notes. Cash interest expense was approximately $7 million, and the balance relates to non-cash charges for financing fees and an accounting change regarding accounting treatment of the convertible notes, which is detailed in our press release.

Weighted average shares increased to 84.5 million from 72.2 million, reflecting equity issued in connection with our 2008 acquisitions. The company continues to target 85 to 86 million shares on a fully diluted basis for the full year.

The balance sheet and some other matters, a couple of items to note on the balance sheet, day sales outstanding were approximately 64 days down from 68 days in the same period last year reflecting our continued efforts to drive our DSO towards our ultimate 60 to 62 day target.

Inventory levels decreased as year end backlog shipments were delivered. Total debt for the company was approximately $467 million, reflecting borrowings under our term loan and convertible notes of 292 and 175, respectively. The company was in compliance with all of its financial covenants at the end of the quarter.

The company anticipates strong free cash flow beginning in the second quarter and second half of the year, as Bob noted, as capital expenditures wind down and cash operating profits increase allowing the company significant funds to address interest, debt amortization, and additional pay down of debt levels.

Funded bookings for the first quarter were approximately $200 million, driven by state and local markets for credentialing and enrollment, as well as federal and international booking in our Biometrics Division. As a result, funded backlog increased from just over $1 billion to an excess of $1.1 billion, and will continue to grow throughout the year, as we target a book-to-bill ratio in excess of 120%.

Back to you, Bob.

Robert V. LaPenta

And we'll open it up for questioning. And before I do, though, I want to mention one other thing. I talked about second quarter guidance and cash flow, and I also want to address organic growth. We expect the organic growth in the second quarter to be somewhere, I guess, in the 3% to 5% range due to strong comps.

But the organic growth in the second half is going to be very robust. And we're comfortable with our forecast of organic growth somewhere between the 15% and 20% range. And I think that, particularly in this environment, is unique and we're very proud of having a pipeline to be able to generate that kind of organic growth.

With that, we'll open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Daniel Meron - RBC Capital Markets.

Daniel Meron – RBC Capital Markets

Can you give us a little bit more color on the prospects that you have in the pipeline, both in the U.S. and [international], as far as additional new businesses [you win].

Robert V. LaPenta

You really broke up there. Did you say could we give you some additional color on the items we have in the pipeline that give us confidence for the ramp in the second half? I didn't catch all of what you said.

Daniel Meron – RBC Capital Markets

Yes, if you can give us a little bit more color on the pipeline that you have [and use] both [in groups] and new contracts.

Robert V. LaPenta

Yes, and again, for competitive purposes, I'm not going to give a lot of detail on that. But I could tell you our opportunities in Europe, in the Middle East, in India, in Latin America for credentialing, Biometric, national ID programs are very, very robust. In Latin America, we received a preliminary purchase order, which we hope to finalize in the quarter, that I think is going to be very important for us. And it's for a program that I think is going to give us a great credential, good sales, and a reasonable profit.

If you look at the pipeline of driver's license enhanced security documents, it's very, very robust, just a $100 million booking in the first quarter. The reason for our high CapEx really reflects the fact that we've won a lot of new programs for new licenses, and we are now outfitting those facilities to begin generating revenue in the second half.

So we look at the ramp and we can compartmentalize it into a very nice ramp in the credentialing space for the ramp-up of some of the programs that are already in backlog. There's one program that we're very close to winning that would, I think, push us over the top in credentialing, as far as what we expect for their revenues this year. IBT basically has everything in backlog. It's just a function of ramping up in New York State.

We've recently taken on more responsibility on the TWIC Program, and that program is ramping up very nicely. And this is without considering additional people that are going to be added, additional categories of people, whether it's transportation workers, airport workers. And then ultimately, we think it'll be the program of record for any type of immigration reform.

So we think the opportunity there is very, very exciting. Biometrics, the ABIS is really starting to gain traction. We're very close to a national ID program, which is going to be a nice program for us. And as I had mentioned, our experience and our opportunities in the DOD space are very exciting right now.

So the nice think about where we are is we've been very successful in winning some key programs. I think we're very well positioned on some key programs that'll really kind of close whatever loop we have remaining to achieve the numbers that we're talking about for the year. I hope that addresses your question, somewhat.

Daniel Meron – RBC Capital Markets

Yes, thank you, and I'll clearer speak to you next time.

Operator

Your next question comes from John Croke - Jefferies & Company.

John Croke - Jefferies & Company

In the past, when you've talked about the state drivers license market opportunity, you've talked about average selling prices for credentials growing by a magnitude of two to three times, depending on different levels of security enhancements and other process changes.

With this big book of business you bagged here in the first quarter, do we start to see those kinds of incremental revenue opportunities per credential, or are we still a couple quarters, a couple years away from seeing that kind of step function?

Robert V. LaPenta

Well, again, we're seeing it, and if you review the contracts that we received in the first quarter, I'd say a large majority of them have increased capability, which provides additional security, document authentication, facial. So not only is the price of the card increasing, but our margins are increasing because the margins on the type of product that we're providing is going up.

So again everybody's onto quote, unquote, "real ID." All of the states realize that they have to improve their security and whether you call it real ID or just improving their operations, they're embracing it and I'm happy that they're coming to us to provide it.

Operator

Your next question comes from Michael French - Morgan Joseph.

Michael French - Morgan Joseph

Could you provide a little more color on the efforts to decrease the operating expenses?

Robert V. LaPenta

Well, we do a bottoms-up budget and we try to right-size the business to accommodate what we consider to be a realistic book of business, not only executing the backlog, but what we expect to book during the year. So our philosophy is, let's try to be as realistic as we can. And, again, in some of the businesses like Biometrics, there still is a certain amount of lumpiness, there's still a certain amount of bookings that were relying to book from foreign providers, which you're talking about the swine flu in one case, or you're talking about a government being overthrown, I mean it's a difficult area.

But we do try to be very realistic in our assessments and our assumptions, and we've taken out costs. Even this year, with Biometrics having what I think is going to be their best year ever, we've eliminated some positions there 25, 30 people, I think. And in the credentialing business, we're seeing great success in the synergies that we were expecting to gain through this combination.

We, you may recall, said that we thought we'd get somewhere between $10 million and $15 million of synergies. That group combined, this year we're expecting to do somewhere around 220, 225 and earn almost $60 million EBITDA before corporate. On a pro forma basis last year, that number would have been $40 million and something like $205 million.

Now, the other thing we're saying is, with their extensive network of field service and call centers, we're now using their capability and we're exploring what we're doing in both enrollment and in Biometrics in our state and local networks, and we're looking to consolidate. So I'm encouraged that we're going to find additional synergies in that area, as well.

James DePalma

I would like to add that we have probably 10 or 12 programs that we've put these companies together, there are some programs that we do. We're in the process of working companywide where we can take advantage of our purchasing power. And the other factor is that, while our revenue has grown significantly, our corporate fixed cost has remained relatively about the same, except for some investments we've made in marketing.

Operator

Your next question comes from Paul Coster - JP Morgan.

Paul Coster – JP Morgan

Yes, perhaps you could just give us a little bit more color about Washington, D.C. at the moment, which is confusing to many of us. There are three things that seem to be happening here at the same time. There's stimulus spending money that's going to be coming down the pipeline at some point, and we're seeing in some state and local areas, it's actually freezing spending today. Can you comment upon that?

What, if any impact, has it been on you in terms of this move to a more competitive bidding? And also I think the intent is to reduce the consultants in government. I've asked you about that before. Has there been any change, at all?

Robert V. LaPenta

In Washington there's a lot of press about a lot of things. I think we'll start with real ID, where I think we've all read that the Association of Governors and the states are basically saying that real ID is restrictive, it's an infringement of privacy, we can't afford it and Janet Reno was addressing that. What we've heard, and we don't know this for a fact, but what we believe is happening there is that she's going to look at some of these government mandates.

I think she's going to retain a lot of the teeth of what was intended by this. I think she's going to eliminate real ID as a word because it has all kinds of negative connotations. But I think what you're going to see in this area is most of the requirements retained are more secure card. Whether documentation is included or not, I'm not sure, but most of the states are incorporating it into their solution without using real ID funds or calling it real ID, and I must say that most states are incorporating the facial.

What I'm not sure is going to happen is what will happen with the HUB. Will there be a distribution of these facial images around the country? Don't know that, not anticipating any revenue on that, but I believe improved security drivers license will move forward, and there will be federal funding to a certain extent for that.

I think we're seeing opportunities in [boss] and purchase orders have been released. Recently we're well-positioned on a number of teams there. Again, I don't know how that's going to unfold, what the level of revenue's going to be. You know it's a big program. I think its a half a billion dollar program. I think it's yet to see what it's going to involve, and how the government's going to utilize that.

Relative to our Intel business, we've all been reading every day about Barack's initiatives relative to bringing a lot more government jobs in-house. I believe that that's going to really concentrated on procurement, administrative jobs. The kind of people that we have are very, very difficult to get and they're very high-end. We have not seen any large impact. I mean, the program opportunities are large, particularly in cyber, in initiatives reflecting in SpecTal, Biometrics and ACI. ACI was recently key in getting our ABIS getting added into a very, very secure Boeing program.

So you're starting the synergies that we hope we would get to our product space incorporated into our intelligence, and although the government, and I must say, they're trying to hire some of our people, they're trying to lure them back with the economy being the way it is and providing additional security and all of that. So we are seeing our turnover increase a little bit. But again, the program opportunities are there and I think all three of our divisions have a good opportunity to grow.

Operator

Your next question comes from Jim Ricchiuti - Needham and Company.

Jim Ricchiuti -Needham and Company

Bob, I wonder if you could talk a little bit about the organic growth. Clearly, in the first half of the year, it's going to be a little slower than we were expecting. Can you give us a sense how you see that accelerating Q3, and do you see much risk of some of this perhaps sliding out, just given the sometimes delays we see in government spending?

Robert V. LaPenta

Yes. And again, I mentioned that, and we had a very robust second quarter last year. I think we did, let me just go back and look at it, $145 million. This year we're looking at somewhere between $165 million, $170 million. When we look at the second half of the year, there's going to be very strong organic growth based essentially on what's already in backlog in secure credentialing. We think, for the year, they're going to do somewhere between 15% and 20%.

In enrollment, I think it's safe to assume, with just the programs that we currently have now, their organic growth this year is going to be 60%. If you look at Biometrics, I think their organic growth, and again, here's where we have the highest component of book and ship. But again, based on the programs that we booked in the first quarter and our positioning on some programs that really, we're going to know whether we won or lost and I'm confident on two of these that we're going to win within the next 60 days.

We think they're going to have organic growth in excess of 20%, 25%. SpecTal is going to grow over 20%. They did $100 million last year they're going to do $120 million this year. ACI we think will have growth somewhere around 10% and we think McClendon could be flat this year as we bring in new programs, and we're seeing some of those happening toward the latter half of the year.

I don't know if I left anything out. So again, the highest component of book and ship is in Biometrics. All of the other divisions in organic growth that I mentioned to you are on pretty much, programs that already in backlog.

Operator

Your next question comes from Michael Kim – Imperial Capital.

Michael Kim – Imperial Capital

Just hoping you could go and talk a little bit more about the Biometric opportunities, specifically on the military side with HIIDE 5. If you go into Afghanistan, if the requirements are going to look similar to what they were in Iraq or if you'd see a combination of earlier HIIDE 4s and HIIDE 5s through the remainder of the year?

Robert LaPenta

As we mentioned in our press release, we received the first tranche. What we believe, there are going to two tranches of additional, really 4.0 procurements for Afghanistan. We have the Middle East order that we booked last year that is progressing. We have people on the ground in that country integrating the unit.

We would expect right now that to be maybe our first, possibly our second 5.0. And then again, as we mentioned, we're producing a newer, I don't want to call it lower end device, but we think a device that'll have less stringent requirements, lower cost device, lower size-wise and we believe we're going to have that in the second half.

So we have a good marketing programming going there. We're concentrating a couple of key areas. I don't want to, again, for competitive reasons, mention what areas we're concentrating on, but we're call it relatively comfortable that we're going to sell these products in different areas, both domestically and internationally.

Operator

Your next question comes from Bryan Ruttenbur – Morgan Keegan

Bryan Ruttenbur – Morgan Keegan

The questions I have deal first of all with your debt and cash generation. It was a little bit confusing I guess, because the convertible change from fourth quarter to first quarter. Can you address that a little bit, how that changed and how they impacted you?

James DePalma

There was a new accounting pronouncement. We had in essence mark-to-market the convertible debt so that the effective interest rate went from 3.75 to like 7.5 and that had the effect of reducing the convertible debt outstanding at 175 down 17 million to 158. And so, other than payments that we've made to amortize the secured debt, there really is an accounting change that reduces the convert.

Bryan Ruttenbur – Morgan Keegan

What is your availability on your line? I didn't hear that.

James DePalma

Our availability on our line is the full line of $135 million less, I think, about $5 million to $10 million we have outstanding on letters of credit.

Robert LaPenta

It's undrawn.

James DePalma

Yes. At the end of the quarter, we had $16 million of cash on hand.

Bryan Ruttenbur – Morgan Keegan

And then assuming you don't make any more acquisitions this year, I don't know if that's a good or bad assumption, but can you say what your cash and debt situation should be at the end of the year?

James DePalma

We think in addition to our normal amortization on the secured debt, we would have another $25 million to $30 million to pay down additional debt. And on the acquisition front, we're always looking for good opportunities that come down the road.

Bryan Ruttenbur – Morgan Keegan

So I think $450 million of debt. Is that right?

James DePalma

Yes. Roughly $467 another $27 and, yes, we think we might even be able to do a little more.

Bryan Ruttenbur – Morgan Keegan

So, you would take that $467 amount if you didn't make any more acquisitions down by $25, $30 million.

James DePalma

In addition to the amortization.

Robert LaPenta

I think we would take it down as much as $50 make it a little bit, $50, $55 million.

James DePalma

That's right.

Bryan Ruttenbur – Morgan Keegan

I think this was asked before, but can you name the top two or three catalysts or things that you're bidding on coming up something that the market's watching that we should be watching for, any major bids like that?

Robert LaPenta

There are three large bids one is for $50 million that is an important program for us. Another one is $100 million, these are domestic. Again, for competitive purposes...

James DePalma

It's $50 to $100.

Robert LaPenta

It's $50 to $100.

Bryan Ruttenbur – Morgan Keegan

Can you say what these programs are called?

Robert LaPenta

I can, but I won't.

Bryan Ruttenbur – Morgan Keegan

Can you tell us the timing of when we will find these out?

Robert LaPenta

You'll find one out within the next 90 to 120 days, and probably the other two toward the end of the year.

Operator

Your next question comes from Jeff Kessler – Imperial Capital

Jeff Kessler – Imperial Capital

I want to go back to TWIC. Your history with TWIC is an interesting one and a potential opportunity and profile for TWIC is interesting. You bid on it as a prime. You didn't get the prime. Somebody else won the prime. That program fell behind. It's notoriously behind, and yet as we get into May of this year, we're getting to that point at which we're going to get, one way or the other, cards out to a million people.

These cards may not be machine readable. They're made to be just checked at the door, but at least they're out there. The question is what do you see as your role going forward in TWIC now that we have a deadline, which is being made? What are the proven processes that you can bring to the program, and you've mentioned it yourself, but the size of the program, the number of people who could potentially benefit or be involved in this program as we get beyond this one million barrier by May?

Robert LaPenta

That's a great question and you're recollection of history is very accurate. We bid that. We thought this was program that would have very large potential. We thought we did a great job on that and you know the history. We have a greater partnership with Lockheed on this and we're expanding our role, but again, I can't really talk about how much we're expanding it but we're helping implement the program. Lockheed is very happy with our performance and we're getting an expanded role that's going to yield to additional revenue.

We believe, as Lockheed does, that this program will be the platform for transportation workers and any type of immigration reform. And it would be a very, very nice program for us based on our cost and our participation in the overall $120 or whatever that they charge.

Jeff Kessler – Imperial Capital

If you would permit me just to elucidate a little bit on the question, obviously. You mentioned there are other types of workers who could be part of this program. Is it possible that you could get Hazmat workers in addition to truck drivers and people who are not even connected with being credentialed by the program yet?

Robert LaPenta

The answer is yes and, again, I don't think plans have been firmed up but you could speculate and again, I don't know. You could speculate that it'll be people that operate power plants and you can go on and on and on. It's key that this program operates well, that the customer is comfortable with it and again, to make them even more comfortable we've got to come up with a solution on the back end and I believe more participation in this program and the new device that we're going to create and have by the end of the year I think we're to be in position to make progress on the car dealer side.

Jeff Kessler – Imperial Capital

You're not prepared to talk about what you're going to be doing in terms of either the processing or the new equipment at this point.

Robert V. LaPenta

We're going to do whatever Lockheed would like us to do.

Operator

Your final question is from Tim Quillin – Stephens Inc.

Timothy Quillin – Stephens Inc.

I have maybe one and a half questions. I guess the half question is the revenue expectations for the Digimarc contribution in your second quarter? And the longer question is, and you've discussed this, but if you could go through your expectations for full year guidance by your major division's Biometrics, secure, [identity] enrollment, enterprise access and government consulting?

Robert V. LaPenta

Yes, again, I'm not going to give you that color by division, but if you model this thing and you look and you say we did $150 million in the first quarter and we're going to do somewhere between $165 million and $170 million in the second quarter, that gets you to a number somewhere around 315-ish, 315, 320. In order to get to, let's say, 730 range, whatever 735 range which is a midpoint, you could say that we need an incremental 400 – we need to do $415 million in the second half versus let's say the 318 in the first, that gets you an incremental $90, $95 million plus in revenue.

We can point to high revenue in the second half from credentialing to the tune of in excess of $25 million. In enrollment we can point to another $25 million, $30 million. In biometrics probably another $20 million, but probably $10 million of that is book and ship kind of stuff, maybe 15 is book and ship.

And then there'll be incremental revenue run rate-wise at SpecTal so as always our book and ship in the second I think right now we have book and ship remaining for the next three quarters of about $90 million to $95 million. We made good progress in the first quarter.

Again, I think we're going to make good progress in the second quarter. But if you came up with a burn the earth scenario and said we were not successful on very much you could say that that $20 million to $30 million – I mean if we failed on everything then that's what the downside would be if you're looking at it from that standpoint.

Timothy Quillin – Stephens Inc.

And then the revenue contribution from Digimarc that you're anticipating in the second quarter?

Robert V. LaPenta

Second quarter is what, Jim, about $24 million, $25 million?

James DePalma

Yes, I think that's a good range. But as you know they are working hand in glove with the old Visage and so this is – it's one unit now.

Timothy Quillin – Stephens Inc.

Okay, and if I could slip in just one last question because I don't think this was in your press release, but what was your Q1 cash from operations and CapEx, the exact numbers?

James DePalma

Well I think it's included. I think CapEx was 11, 12ish and cash from operations was 11, 12ish. You can see it on the cash flow there, cash from operating and then right underneath that is CapEx.

Operator

There are no further questions at this time. I would like to turn the floor back to Mr. Bob LePenta for closing remarks.

Robert V. LaPenta

Thank you for your participation. Good questions and again, I think we got off to a good start to the year. And we look forward to having a very good year and good organic growth and cash flow. We'll talk to you again at the end of the second quarter. Thank you.

Operator

Thank you. This does conclude today's teleconference. Today's call is being recorded and will be available for replay beginning at 7:00 p.m. Eastern Standard Time today. The dial in number for the replay is 800-642-1687 for U.S. callers and 706-645-9291 for those outside the U.S. Please use passcode 93522933. Please disconnect your lines at this time and have a wonderful evening.

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