Cogent Shares Rise 50% in IPO
Big Brother can mean big money on Wall Street.
Shares of Cogent Inc., a South Pasadena company that makes fingerprint identification systems, rocketed 50% in value in their first day of trading Friday. The strong debut made Cogent one of the hottest initial public stock offerings of the year, and it also made company founder Ming Hsieh a billionaire.
Hsieh, the company’s chairman and chief executive, retained 60 million Cogent shares, worth $1.07 billion based on Friday’s closing price of $17.98 on Nasdaq.
Cogent, founded in 1990, makes systems that allow government agencies to compare millions of fingerprints from far-flung computer databases in seconds. The company says more than half of its revenue comes from the Department of Homeland Security, created in the wake of the Sept. 11, 2001, terrorist attacks.
A 48-year-old USC graduate and South Pasadena resident, Hsieh started his career as a research and development engineer at computer chip maker International Rectifier Corp. of El Segundo.
Hsieh, who owns 77% of Cogent’s shares, also will receive a $65.5-million dividend payment as a result of the public offering.
Neither Hsieh nor Cogent Chief Financial Officer Paul Kim was available for comment Friday. Kim, who joined the company in January, has 950,000 Cogent stock options, which are now worth $16 million.
In addition to the Department of Homeland Security, Cogent also does work for the FBI; the Bureau of Alcohol, Tobacco, Firearms and Explosives; the U.S. Immigration and Naturalization Service; and the Los Angeles County Sheriff’s Department. Foreign clients include the Bulgarian National Police and the Royal Brunei Police Force, according to Cogent’s offering statement.
The company also had a hand in identifying Lee Boyd Malvo, convicted late last year in the Washington-area sniper attacks. Malvo, a Jamaica native, was identified when police lifted prints from an Alabama robbery that they believed was committed by the snipers. Malvo’s prints were in INS files, which were linked through Cogent’s system.
Nearly all of Cogent’s U.S. government customers have vastly expanded their use of fingerprint identification systems since the terrorist attacks. And the future of the “biometric” identification industry is bright, expected to grow from about $1 billion today to more than $4.6 billion in 2008, according to Cogent’s filing with the Securities and Exchange Commission.
Cogent has benefited mightily from that growth. Revenue, which amounted to $13 million in 2001, was $32 million in the first six months of 2004, according to the company, which has 119 full-time employees.
Profit, nonexistent in 2001, reached $12.5 million for the first six months of 2004. (Pro forma profit for the same period was lower, at $7.3 million, adjusting for taxes the company will pay under its new structure.)
Cogent’s rapid rise in revenue and profitability helped fuel demand for its shares, industry experts said. The company, which had initially planned to sell 18 million shares for $8.50 to $10.50 a share, instead was able to price the stock at $12 late Thursday. By the end of Friday’s trading, the stock had risen $5.98 to $17.98, making Cogent the third-hottest IPO of 2004, according to Thomson Financial.
“Big Brother sells on Wall Street,” said Tom Taulli, co-founder of CurrentOfferings.com, a Newport Beach-based IPO research firm. “There are profits there, a compelling business model and it ties in with a pressing international trend. Terrorism isn’t going away.”
