TeleCommunication Systems Reports Third Quarter 2009 ResultsRevenue Up 27% Year-Over-Year to $71.6M; Net Income Up 97% Year-Over-Year to $5.4M or $0.10 per Diluted Share and EBITDA Up 125% to $13.3M or $0.25 per Diluted Share
ANNAPOLIS, MD -- (Marketwire - October 29, 2009) - TeleCommunication Systems, Inc. (TCS) (NASDAQ: TSYS), a leading provider of mission-critical wireless communications technology, reported results for the third quarter ended September 30, 2009.
Third Quarter 2009 Results
- Revenue was $71.6 million, an increase of 27% from $56.5 million in the third quarter of 2008.
- EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization, including non-cash stock-based compensation) for the quarter was $13.3 million or $0.25 per diluted share, up 125% from $5.9 million or $0.12 per diluted share, in the same year ago quarter (see discussion about the presentation of EBITDA below).
- Pre-tax income was $9 million or $0.17 per diluted share, an increase of 210% from $2.9 million or $0.06 per diluted share in the third quarter of 2008.
- Net income after a 39% tax provision in Q3 2009 was $5.4 million or $0.10 per diluted share, up 97% from $2.8 million or $0.06 per diluted share in the same year ago quarter. There was no material tax provision in the third quarter of 2008. Year-to-date 2008 net income included a second quarter patent sale and did not include an income tax provision.
Summary of Reported Income (unaudited)
Three months ended
September 30
---------- ----------
2009 2008
---------- ----------
Revenue: $ 71,609 $ 56,531
---------- ----------
Income:
EBITDA (see accompanying reconciliation) $ 13,288 $ 5,903
Noncash charges (3,937) (2,971)
---------- ----------
Income from operations 9,351 2,932
Other income/(expense) (344) (61)
Tax provision (3,596) (114)
---------- ----------
Net Income $ 5,411 $ 2,757
========== ==========
Income per diluted share
EBITDA (see accompanying reconciliation) $ 0.25 $ 0.12
Noncash charges (0.07) (0.06)
---------- ----------
Income from operations 0.18 0.06
Other income/(expense) (0.01) (0.00)
Tax provision (0.07) (0.00)
---------- ----------
Net Income $ 0.10 $ 0.06
========== ==========
Shares used in calculation - Diluted 52,862 49,218
========== ==========
Management Commentary
"This was the highest third quarter revenue and profit in our company's history," said Maurice B. Tosé, TCS chairman and CEO. "The company's results continue to reflect traction across the board. In the commercial segment, text messaging and location based applications volume growth, and growth in VoIP E9-1-1 including deals with leading cable multi-system operator customers, produced higher revenue and profit. In the government segment, revenue from services contracts for secure network communications technology work grew 23% in the third quarter year-over-year and 75% year-to-date, yielding smoother earnings contributions and improved operating margins, as the scale of the segment has grown to average nearly $40 million of revenue per quarter.
"The company has filed a shelf registration statement which became effective in the third quarter. Net proceeds from the sale of any securities pursuant to the shelf registration statement may be used for general corporate purposes, including working capital, as well as the repayment or refinancing of indebtedness or the acquisition of complementary products or companies."
Third Quarter Financial Highlights
Revenue and Gross Profit (unaudited):
Three months ended September 30
-------------------------------------------------------------
2009 2008 Incr. (Decr.)
------------------- ------------------- -------------------
Coml. Govt. Total Coml. Govt. Total Coml. Govt. Total
----- ----- ----- ----- ----- ----- ------ ----- -----
Revenue
($millions)
Services $23.6 $15.7 $39.3 $15.7 $ 9.2 $24.9 $ 7.9 $ 6.5 $14.4
Systems 9.5 22.8 32.3 7.0 24.6 31.6 2.5 (1.8) 0.7
----- ----- ----- ----- ----- ----- ------ ----- -----
Total
revenue $33.1 $38.5 $71.6 $22.7 $33.8 $56.5 $ 10.4 $ 4.7 $15.1
===== ===== ===== ===== ===== ===== ====== ===== =====
Gross profit
($millions)
Gross profit-
services $14.8 $ 3.2 $18.0 $ 7.6 $ 1.9 $ 9.5 $ 7.2 $ 1.3 $ 8.5
As % of
rev 63% 20% 46% 48% 21% 38%
Gross profit-
systems 7.0 3.2 10.2 4.5 3.5 8.0 2.5 (0.3) 2.2
As % of
rev 74% 14% 32% 64% 14% 25%
----- ----- ----- ----- ----- ----- ------ ----- -----
Total Gross
Profit $21.8 $ 6.4 $28.2 $12.1 $ 5.4 $17.5 $ 9.7 $ 1.0 $10.7
===== ===== ===== ===== ===== ===== ====== ===== =====
As % of
rev 66% 17% 39% 53% 16% 31%
(Gross Profit = revenue minus direct cost of revenue, including amortization of software development costs and related non-cash stock-based compensation.)
Commercial Segment Revenue and Gross Profit:
Commercial segment revenue was a record $33.1 million, up 46% from the same year-ago quarter, and gross profit was up 80% to a record $21.8 million. Services revenue growth includes higher revenue from maintenance on the cumulative installed base of our software in carrier systems, from hosted E9-1-1 services, and from location-based applications downloadable by wireless subscribers, including applications acquired via our May 2009 acquisition of the assets of LocationLogic. Commercial systems revenue was up 36% year-over-year to $9.5 million, mainly reflecting continuing growth in demand for wireless short text messaging.
Commercial segment gross profit was $21.8 million or 66% of commercial revenue, up from $12.1 million and 53% a year ago. The higher gross profit reflects more license sales in the segment mix, and inclusion of LocationLogic subscriber-based service revenue for a full quarter.
Government Segment Revenue and Gross Profit:
Revenue from government customers for the quarter was $38.5 million, up 14% from the same year-ago quarter. Services revenue of $15.7 million was up $6.5 million or 71% over the third quarter of 2008, while systems sales were down $1.8 million or 7% over the year-ago quarter, reflecting the timing of shipments.
Gross profit from government customers was $6.4 million in the third quarter of 2009, up 19% from same year-ago quarter. Gross profit as a percentage of government segment revenue was 17%, up 1% from the same year-ago quarter.
Operating Costs and Expenses:
R&D: Third quarter 2009 R&D expense was $5.8 million (8% of revenue), up $2 million from $3.8 million (7% of revenue) in the third quarter of 2008. Investments included continued work on location platform, telematics and wireless location-based applications, VoIP and wireless E9-1-1, text messaging and deployable satcom technology.
SG&A: Third quarter 2009 selling, general and administrative expense was $11.2 million (16% of revenue), up from $9.2 million (16% of revenue) in the third quarter of 2008, largely due to the addition of the LocationLogic team for the full quarter. Direct and variable sales and marketing programs have been increased for both the commercial and government business segments. Higher year over year G&A expenditures reflect investments for process control, legal and professional costs associated with protection and monetization of intellectual property, and accruals for variable compensation based mainly on profit and growth performance metrics.
Noncash charges: Total non-cash charges to operating profit were $3.9 million in the third quarter of 2009 versus $3 million in the same year-ago quarter, due mainly to higher amortization of acquired intangibles as a result of the second quarter 2009 purchase of LocationLogic.
Income from Operations:
Income from operations was $9 million for the third quarter of 2009, up 210% from $2.9 million in the same year-ago quarter.
Income Taxes:
The company recorded a $3.6 million provision for income taxes against pre-tax income for the third quarter of 2009, representing an effective tax rate of approximately 39%. In the third quarter of 2008, which was prior to the year-end reversal of the deferred tax asset reserve, the only tax provision was $0.1 million for alternative minimum taxes.
Net Income:
Net income for the third quarter was $5.4 million or $0.10 per diluted share, compared to net income of $2.8 million or $0.06 per diluted share in the third quarter of 2008. The increase in the diluted share count from 49.3 million shares for the third quarter of 2008 to 52.9 million for the third quarter of 2009 mainly reflects the issuance of 1.4 million shares during the second quarter for the LocationLogic acquisition, the fourth quarter 2008 exercise of 1.05 million investor warrants and third quarter 2009 exercise of 0.7 million remaining investor warrants, and the impact of a higher stock price on the number of in-the-money employee stock options.
Liquidity and Capital Resources:
At September 30, 2009, TCS had $79.3 million of cash and equivalents, compared to $59 million at the end of last quarter. Funds were generated in the third quarter from $13.3 million in EBITDA, a $6.6 million decrease in working capital, $2.5 million proceeds from exercise of warrants and employee stock options, and $0.9 million from new lease financing of fixed asset purchases. Uses of cash during the quarter were $1.2 million for capital expenditures including software development, and $1.8 million for scheduled debt principal payments. The company had approximately $28 million of unused borrowing availability under its lines of credit at quarter end.
Intellectual Property:
TCS was issued three patents during the third quarter which brought the total patent portfolio to 90 patents and over 270 patent applications in the U.S. and abroad. The company continued efforts to monetize its patents through licensing and other arrangements, and to use them to position the company for competitive advantages.
Backlog:
New Orders/
6/30/2009 Acquisitions Revenue 9/30/2009
---------- ------------ ------- ----------
Funded Contract Backlog ($mil)
Commercial $ 102.5 $ 21.2 $ (33.1) $ 90.6
Government $ 62.7 $ 84.7 $ (38.5) $ 108.9
---------- ------------ ------- ----------
Total Funded Contract Backlog $ 165.2 $ 105.9 $ (71.6) $ 199.5
Customer Options $ 241.0 $ (1.6) $ - $ 239.4
---------- ------------ ------- ----------
Total Backlog $ 406.2 $ 104.3 $ (71.6) $ 438.9
========== ============ ======= ==========
Funded contract backlog on September 30, 2009 was approximately $200 million of which the company expects to recognize approximately $158 million in the next twelve months. Total backlog was approximately $439 million at the end of the third quarter of 2009. Funded contract backlog represents contracts for which fiscal year funding has been appropriated by the company's customers (mainly federal agencies), and for hosted services is computed by multiplying the most recent month's recurring revenue times the remaining months under existing long-term agreements, which is the best available information for anticipating revenue under those agreements. Total backlog, as is typically measured by government contractors, includes orders covering optional periods of service and/or deliverables, but for which budgetary funding may not yet have been approved. Company backlog at any given time may be affected by a number of factors, including the availability of funding, contracts being renewed or new contracts being signed before existing contracts are completed. Some of the company's backlog could be canceled for causes such as late delivery, poor performance and other factors. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be indicative of eventual actual revenue
About the Presentation of EBITDA
EBITDA (from continuing operations) is not a financial measure calculated and presented in accordance with U.S. generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income, operating income or any other financial measures so calculated and presented, nor as an alternative to cash flow from operating activities as a measure of liquidity. The company defines EBITDA as net income/(loss) before depreciation; amortization of non-cash stock-based compensation; amortization of software development costs, property and equipment and other intangibles; taxes; and interest expense and other non-cash financing costs. Other companies (including competitors) may define EBITDA differently. The company presents EBITDA because management believes it to be an important supplemental measure of performance that is commonly used by securities analysts, investors and other interested parties in the evaluation of companies in the industry. Management also uses this information internally for forecasting and budgeting. It may not be indicative of the historical operating results of TCS nor is it intended to be predictive of potential future results. Investors should not consider EBITDA in isolation or as a substitute for analysis of the company's results as reported under GAAP. See "GAAP to non-GAAP Reconciliation" below for further information on this non-GAAP measure. Shares used in the calculation of GAAP diluted earnings per share are the same as the shares used in the calculation of diluted adjusted operating income/(loss) per share except when the company reports a GAAP loss.
Three months ended
GAAP to non-GAAP Reconciliation September 30
---------- ----------
(amounts in thousands) 2009 2008
---------- ----------
Consolidated Statement of Operations Reconciliation (unaudited)
Net income on a GAAP basis $ 5,411 $ 2,757
Depreciation and amortization of property and
equipment 1,571 1,474
Amortization of stock-based compensation 1,363 900
Interest, financing, and other costs 344 61
Amortization of software development costs 781 560
Amortization of acquired intangible assets 222 37
Provision for income taxes 3,596 114
---------- ----------
EBITDA from continuing operations $ 13,288 $ 5,903
========== ==========
Consolidated Statement of Operations Reconciliation
per Share-Diluted
Net Income (loss) per share on a GAAP basis $ 0.10 $ 0.06
Depreciation and amortization of property and
equipment 0.03 0.03
Amortization of stock-based compensation 0.03 0.02
Interest, financing, and other costs 0.01 0.00
Amortization of software development costs 0.01 0.01
Amortization of acquired intangible assets 0.00 0.00
Provision for income taxes 0.07 0.00
---------- ----------
EBITDA from continuing operations $ 0.25 $ 0.12
========== ==========
Shares used in calculation - Diluted 52,862 49,218
========== ==========
Conference Call
TCS will hold a conference call later today (Thursday, October 29, 2009) to discuss these third quarter 2009 financial results. The company's chairman, president and CEO, Maurice B. Tosé, and senior vice president and CFO, Tom Brandt, will host the call starting at 5:00 p.m. Eastern time. A question and answer session will follow management's presentation.
To participate in the call, dial the appropriate number 5-10 minutes prior to the start time, ask for the TeleCommunication Systems conference call and provide the conference ID:
Dial-In Number: 1-800-862-9098
International: 1-785-424-1051
Conference ID#: 7TELECOM
The conference call will be broadcasted simultaneously on the company's Web site at www.telecomsys.com. For the webcast, please go to the Web site at least 15 minutes early to register, download, and install any necessary audio software. If you have any difficulty connecting with the conference call or webcast, please contact the Liolios Group at 949-574-3860.
A replay of the call will be available after 8:00 p.m. Eastern time on the same day and until November 29, 2009:
Toll-free replay number: 1-800-677-6124
International replay number: 1-402-220-0664
(No passcode required)
About TeleCommunication Systems
TeleCommunication Systems, Inc. (TCS) (NASDAQ: TSYS) engineers and delivers highly reliable wireless communications technology. TCS is a leader in wireless text messaging and location-based technology, including E9-1-1 services and commercial applications like navigation that use the precise location of a wireless device, and secure satellite-based communications systems and services. Customers include leading wireless and VoIP carriers around the world, cable MSOs, automotive telematics vendors, and agencies of the U.S. Departments of Defense, State, and Homeland Security. TCS is one of six primary vendors on a $5 billion Army Worldwide Satellite Systems Contract vehicle. For more information, visit www.telecomsys.com.
This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. These statements are based upon TCS' current expectations and assumptions that are subject to a number of risks and uncertainties that would cause actual results to differ materially from those anticipated. The words, "believe," "expect,'' "intend," "anticipate,'' and variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Statements in this announcement that are forward-looking include, but are not limited to statements that (a) are made by Mr. Tosé generally, including that the Company's results reflect traction across the board, and potential uses for proceeds from the sale of any securities under the Company's effective shelf registration (b) there is continuing growth in demand for wireless short text messaging, (c) the Company's continued efforts to monetize its patent will be successful and that the Company will be able to use these efforts to have a competitive advantage and,(d) the Company's assumptions regarding the backlog are accurate.
Additional risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission (SEC). These include without limitation risks and uncertainties relating to the Company's financial results and the ability of the Company to (i) sustain profitability, (ii) continue to rely on its customers and other third parties to provide additional products and services that create a demand for TCS products and services, (iii) conduct its business in foreign countries, (iv) develop software and provide services without any errors or defects, (vii) protect its intellectual property rights, (viii) not incur substantial costs from product liability claims relating to its software, and (ix) implement its sales and marketing strategy. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update or revise the information in this press release, whether as a result of new information, future events or circumstances, or otherwise.
TeleCommunication Systems, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands)
September 30, December 31,
2009 2008
------------- -------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 79,296 $ 38,977
Accounts receivable, net 42,583 61,827
Unbilled receivables 22,860 21,797
Inventory 8,879 2,715
Investment in marketable securities 60 78
Deferred income tax benefit 9,736 9,736
Deferred costs and other current assets 4,161 3,791
------------- -------------
Total current assets 167,575 138,921
Property and equipment, net 15,228 12,391
Software development costs, net 9,450 2,773
Acquired intangible assets, net 3,883 562
Goodwill 13,377 1,813
Defered income tax benefit 14,322 24,309
Other assets 3,929 1,190
------------- -------------
Total assets $ 227,764 $ 181,959
============= =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 38,854 $ 51,588
Deferred revenue 9,683 4,349
Current portion of capital leases and notes
payable 6,739 3,837
------------- -------------
Total current liabilities 55,276 59,774
Capital leases and notes payable, less
current portion, and other long term debt 21,920 7,913
Total stockholders' equity 150,568 114,272
------------- -------------
Total liabilities and stockholders'
equity $ 227,764 $ 181,959
============= =============
TeleCommunication Systems, Inc.
Consolidated Statements of Operations
(amounts in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
2009 2008 2009 2008
--------- --------- --------- ---------
(unaudited) (unaudited)
Revenue
Services $ 39,300 $ 24,902 $ 104,518 $ 72,002
Systems 32,309 31,629 104,728 68,853
--------- --------- --------- ---------
Total revenue 71,609 56,531 209,246 140,855
Direct costs of revenue
Direct cost of services
revenue 21,245 15,486 58,434 43,323
Direct cost of systems 22,153 23,588 67,307 41,299
--------- --------- --------- ---------
Total direct cost of
revenue 43,398 39,074 125,741 84,622
Services gross profit 18,055 9,416 46,084 28,679
As a % of revenue 46% 38% 44% 40%
Systems gross profit 10,156 8,041 37,421 27,554
As a % of revenue 31% 25% 36% 40%
--------- --------- --------- ---------
Total gross profit 28,211 17,457 83,505 56,233
Total gross profit as a
% of revenue 39% 31% 40% 40%
Operating costs and expenses
Research and development
expense 5,823 3,815 15,612 11,838
Sales and marketing expense 3,579 3,128 11,742 9,822
General and administrative
expense 7,665 6,071 22,955 17,386
Depreciation and amortization
of property and equipment 1,571 1,474 4,459 4,470
Amortization of acquired
intangible assets 222 37 381 111
--------- --------- --------- ---------
Total operating costs and
expenses 18,860 14,525 55,149 43,627
--------- --------- --------- ---------
Gain on sale of patent - - - 8,060
--------- --------- --------- ---------
Income from operations 9,351 2,932 28,356 20,666
Cash interest expense (371) (205) (784) (734)
Amortization debt issuance
expenses (16) (27) (74) (173)
Other income/(expense), net 43 171 327 (105)
--------- --------- --------- ---------
Income before income taxes 9,007 2,871 27,825 19,654
Provision for income taxes (3,596) (114) (10,941) (314)
--------- --------- --------- ---------
Net income $ 5,411 $ 2,757 $ 16,884 $ 19,340
========= ========= ========= =========
Net income per share-basic $ 0.11 $ 0.06 $ 0.36 $ 0.45
========= ========= ========= =========
Net income per share-diluted $ 0.10 $ 0.06 $ 0.33 $ 0.42
========= ========= ========= =========
Weighted average shares
outstanding-basic 48,233 43,312 46,865 42,693
========= ========= ========= =========
Weighted average shares
outstanding-diluted 52,862 49,218 51,804 46,223
========= ========= ========= =========
Company Contacts:
Tom Brandt
Senior Vice President and CFO
TeleCommunication Systems, Inc.
Tel 410-280-1001
tbrandt@telecomsys.com
Scott Liolios
Investor Relations
Liolios Group, Inc.
Tel 949-574-3860
info@liolios.com
