TeleCommunication Systems, Inc. Reports First Quarter 2003 Results
Gross Margin Expands to 43% on $19.3 Million Revenue in Quarter;
Service Bureau/E9-1-1 Revenue Grows 15% Sequentially to $7.6 Million;
Company Expects Positive Net Income in the Third Quarter of 2003
ANNAPOLIS, Md., April 24 /PRNewswire-FirstCall/ -- TeleCommunication
Systems, Inc. (TCS) (Nasdaq: TSYS), a global leader in location and messaging
software and E9-1-1 services for wireless carriers, and an expert in highly
reliable and secure communications systems for government customers, today
announced results for the quarter ended March 31, 2003.
TCS reported total revenue for the quarter of $19.3 million, down from
fourth quarter 2002 revenue of $28.0 million, and up 14% from $16.9 million of
revenue in the first quarter of 2002. First quarter 2003 revenue was
comprised of 19% network software, 39% service bureau, and 42% network
solutions, compared with 26% network software, 23% service bureau, and 51%
network solutions in the previous quarter. TCS ended the quarter with revenue
backlog of $82 million, up from $78 million as of December 31, 2002, and of
which approximately $40 million is scheduled for realization over the next
twelve months.
Higher gross profit margins in the company's service bureau and network
solutions businesses resulted in an increase in the company's overall gross
margin, from 38% in the fourth quarter of 2002, to 43% in the quarter ended
March 31, 2003.
First quarter 2003 earnings before interest, taxes, depreciation,
amortization and other non-cash expenses (EBITDA) loss was $1.0 million, or
($0.03) per share. This compares to fourth quarter positive EBITDA of $1.0
million, or $0.03 per share, and first quarter 2002 EBITDA losses of $3.7
million, or ($0.13) per share. TCS reported a GAAP net loss for the quarter
ended March 31, 2003 of $4.0 million, or ($0.14) per share, a 45% reduction
from the first quarter 2002 net loss of $7.3 million, or ($0.25) per share.
"Although impacted by sluggish wireless carrier capital spending, we are
pleased with our results for the quarter, especially our continued progress in
our E9-1-1 Service Bureau business," commented Maurice B. Tose, TCS' Chairman,
President and CEO. "As the first quarter has historically been our slowest
quarter, we expect to build our revenue sequentially through the year,
resulting in positive net income in the third quarter and second half of
2003," concluded Tose.
TCS ended the first quarter with approximately $21 million in cash and
cash equivalents and the company's $15 million bank line of credit remains
unused. Mr. Tose observed, "Our strong balance sheet and cash position afford
us the confidence that we have sufficient capital to fund our operations
through sustained positive cash flow from operations, which we expect later
this year."
OPERATIONAL HIGHLIGHTS
Service Bureau Business
During the quarter ended March 31, 2003, TCS generated $7.6 million of
recurring revenue from its Service Bureau business line. TCS' Service Bureau
business is made up of wireless enhanced 9-1-1 (E9-1-1) location information
integration services to wireless carriers and Public Safety Answering Points
(PSAPs), and hosted inter-carrier text messaging services provided to text
message distributors including America Online(TM). As one of only two major
wireless E9-1-1 service providers in the U.S., TCS is playing a major role in
key public safety initiatives.
TCS has now contracted with 24 wireless carriers, including 5 of the top
10, to provide Phase I and Phase II wireless E9-1-1 service. For almost all of
these carriers, TCS is providing its comprehensive E9-1-1 deployment and
technical solutions, which include precise location technology, PSAP
integration, data management and provisioning, Automatic Location Information
(ALI) services, ongoing call routing and monitoring, and cost recovery and
billing services. Steady quarter-over-quarter revenue and profit growth is
projected for the company's E9-1-1 business as additional locations are
deployed under our existing long-term service contracts.
TCS recently announced that U.S. Cellular, the nation's eighth largest
wireless service carrier, has signed a three-year agreement with TCS for Phase
II E9-1-1 support services and also renewed its existing contract for Phase I
E9-1-1 support. Under the expanded agreement, U.S. Cellular is leveraging
the TCS Hosted Position Determining Entity (PDE) Service, which combines
precise location determination -- usually within 20 meters in a wide range of
environments -- with TCS' Xypoint(R) Location Platform (XLP). These services
enable U.S. Cellular to automatically identify and provide the calling
location and wireless phone number for all E9-1-1 calls placed on U.S.
Cellular's advanced network using a CDMA-1XRTT handset. The technology
platform also helps ensure the safety and security of U.S. Cellular customers
and enables the company to comply with all the Federal Communications
Commission's E9-1-1 requirements.
As of March 31, 2003, the number of PSAP connections served by TCS
increased to 3,150, up 64% from the 1,920 PSAP connections served as of March
31, 2002. The company is continuing to aggressively roll out Phase I and Phase
II E9-1-1 services for its wireless carrier customers, meeting regulatory
deadlines and responding to PSAP requests for deployments as they declare
themselves ready.
Network Software
For the quarter ended March 31, 2003, deployed software systems with
wireless carriers, including TCS' Wireless Internet Gateways(TM), Short
Message Service Centers, and Xypoint(R) Location Platforms (XLPs), resulted in
TCS software license revenue of $2.5 million.
During the first quarter, TCS announced that it received the Frost &
Sullivan 2003 Mobile Location Platform Award for the company's Xypoint
Location Platform (XLP). The award is presented each year to the company that
has demonstrated excellence in location software and technologies within their
industry and has launched an innovative platform that delivers high
performance and flexibility for a commercial location deployment. Frost &
Sullivan presents Market Engineering Awards to companies that demonstrate
excellence in their industry, commending the diligence, commitment, and
innovative business strategies required to advance in the global marketplace.
Location JumpStart: During the quarter, TCS announced Location JumpStart
- -- a unique end-to-end location package for wireless carriers, via a
partnership with LocatioNet, a world leader in real-time middleware,
Geographic Information Services (GIS), and location application development.
Designed as a system starter kit, Location JumpStart is a scaleable, easy-to-
deploy, low cost end-to-end location solution, allowing wireless carriers to
quickly and easily launch revenue-generating applications at minimal
investments. Location JumpStart applications include: Points Of Interest
(POI) Finder, the MyMap rich media application suite, and Web-based Fleet
Management. These applications support navigation, content and rich color maps
over a variety of mobile interfaces. Location JumpStart uses Cell ID to
locate the user and has the optional capability of interfacing with network
and handset-based precise location technologies such as Assisted Global
Positioning System (AGPS). Location JumpStart also protects the individual
user's location information by allowing unprecedented control over
personalization and privacy options.
TCS Alerts: TCS also announced during the quarter the launch of TCS
Alerts(TM), its carrier-branded intelligent push/pull messaging platform that
enables wireless carriers to manage highly relevant and easily customized
notifications, thereby increasing network subscriber usage and driving Average
Revenue Per User (ARPU) values. TCS Alerts allows wireless subscribers to
receive customized alerts and notifications, such as news, weather, sports, or
other content delivered at pre-selected times to their wireless handset. The
TCS Alerts platform provides standard, easy-to-use Web and mobile interfaces
to set up and modify user profiles, notification services and delivery
preferences. TCS Alerts integrates with the Xypoint(R) Location Platform,
allowing the use of location information to increase the customization and
relevance of subscriber alerts.
Network Solutions
First quarter revenue from the company's network solutions business
segment was $8.1 million. TCS' Network Solutions segment develops fixed and
transportable communications systems requiring high reliability and security
to government customers using wireless, satellite, and terrestrial networks.
During the first quarter, TCS continued to have success with its
SwiftLink(TM) deployable secure communication systems for government, military
and commercial organizations, providing a quick and easy means for remote
voice-over-IP, video, and data communications via secure or unsecure wireless
connections. SwiftLinks have been a popular communications option among TCS'
government and military customers and are currently being used extensively in
Operation Iraqi Freedom.
TCS announced during the quarter that Michael Patrick has joined the
company as Vice President for Network Solutions. Prior to joining TCS, Mr.
Patrick was responsible for leading the sales team and business units in
developing marketing strategies in the federal government market at Telcordia
Technologies, Inc., the world's largest provider of network software,
consulting and engineering services for the telecommunications industry.
FINANCIAL DETAILS
* Total revenue was $19.3 million in the first quarter of 2003, down from
$28.0 million in the fourth quarter of 2002 and up 14% from $16.9
million in the first quarter of 2002. The expected sequential decrease
in sales resulted from reduced revenue from the seasonally strong fourth
quarter in the company's network solutions segment and lower software
revenue, and was partly offset by continued growth in revenue from the
company's wireless E9-1-1 services.
In the first quarter of 2003, the company's Network Software revenue
from carrier licenses and related software maintenance and deployment
services was $3.6 million, compared to fourth quarter 2002 revenue of
$7.3 million, and $4.6 million revenue in the first quarter of 2002.
Software license revenue was $2.5 million in the first quarter, down
from fourth quarter 2002 sales of $5.5 million, but up from first
quarter 2002 revenue of $2.3 million, resulting mainly from sales of the
company's text messaging and location software products.
TCS' Service Bureau revenue, which includes wireless E9-1-1 services and
hosted inter-carrier text message distribution services, totaled $7.6
million in the quarter ended March 31, 2003. This represents a 15%
increase over fourth quarter of 2002 revenue of $6.6 million and a 28%
increase over first quarter 2002 revenue of $5.9 million, as the company
expanded the number of Public Safety Answering Points served for E9-1-1
services.
TCS' Network Solutions revenue from systems integration and digital
communications projects largely for government customers was $8.1
million in the first quarter of 2003, compared to $14.1 million in the
prior quarter, and up 28% from $6.4 million in the first quarter of
2002. The lower sequential network solutions revenue reflects the
variability of project timing and the seasonally strong fourth quarter.
SwiftLink(TM) deployable communication systems generated $3.1 million of
revenue for the quarter.
* Total gross profit (revenue minus direct cost of revenue) was $8.2
million in the first quarter of 2003, down from $10.7 million in the
fourth quarter of 2002, but up 25% from $6.6 million in the first
quarter of 2002. The company-wide gross profit margin was 43% in the
first quarter, up from the fourth quarter's 38% and first quarter 2002
gross profit margin of 39%. Sequential gross profit margin improvement
primarily reflects higher margins experienced in the company's Service
Bureau segment resulting from expanding economies of scale, and in the
Network Solutions segment, a mix of Solutions projects which included a
greater proportion with unique TCS technology.
The gross profit margin from Network Software in the first quarter of
2003 was 53%, down from fourth quarter 2002 gross margin of 64%, due to
a higher proportion of revenue from software services and ancillary
equipment versus higher margin licenses. Service Bureau gross profit in
the first quarter was $3.5 million, up 43% from fourth quarter 2002
gross profit of $2.5 million. Service Bureau gross margin was 47% in
the first quarter, compared to 38% in the fourth quarter, resulting from
previously expected margin expansion as the company's E9-1-1 business
scales.
The gross profit for the company's Network Solutions business segment
was $2.8 million in the first quarter of 2003, compared to $3.5 million
in fourth quarter 2002 and $1.7 million in the first quarter of 2002.
The gross profit margin in this segment increased to 34% in the first
quarter of 2003, compared to 25% in the fourth quarter of 2002 and 27%
in the first quarter of 2002.
Operating expenses. Research and development expenses declined
sequentially during the first quarter to $3.9 million, compared to $4.3
million in the fourth quarter and $4.1 million in the first quarter of 2002.
Sales, marketing, general and administrative expenses were $5.3 million in
first quarter 2003, down slightly from $5.4 million in fourth quarter 2002 and
$6.2 million in first quarter 2002.
* EBITDA loss was $1.0 million, or ($0.03) per share in the first quarter
of 2003, compared to positive EBITDA of $1.0 million or $0.03 per share
in the fourth quarter of 2002, and a loss of $3.7 million, or ($0.13)
per share in the first quarter of 2002.
* Net loss for the first quarter 2003 was $4.0 million, or ($0.14) per
share, compared to $1.8 million, or ($0.06) per share in the fourth
quarter of 2002 and $7.3 million, or ($0.25) per share in the first
quarter of 2002. Per share figures were computed on the basis of 29.6
million, 29.5 million, and 28.9 million weighted average shares,
respectively, in Q1-03, Q4-02, and Q1-02.
* Cash used during the first quarter of 2003 totaled $6.3 million,
including the $1.0 million EBITDA loss, $3.9 million for fixed asset
additions, capitalized software development costs and lease or debt
service payments, and approximately $1.4 million was used for a net
increase in working capital and other assets.
* The Balance Sheet at the end of the first quarter reflected $21.1
million of cash and cash equivalents compared to $27.4 million as of
December 31, 2002. The company's $15 million bank line of credit
remains unused.
CONFERENCE CALL
The company has scheduled a conference call for tomorrow, Friday, April
25, 2003 at 8:30 AM EDT. During the call, Maurice B. Tose, Chairman,
President and CEO, and Tom Brandt, Senior Vice President and CFO, will discuss
first quarter results and other corporate information. Investors can call
1-877-253-5218 (domestic) and 1-706-643-0801 (international) prior to the 8:30
AM start time and ask for the TeleCommunication Systems conference call hosted
by Mr. Tose. A replay of the call will be available on Friday, April 25, 2003
beginning at 11:30 AM EDT and will be accessible until Friday, May 9, 2003 at
5:00 PM EDT. The replay call-in number is 1-800-642-1687 for domestic callers
and 1-706-645-9291 for international listeners. The access number is 9802219.
The conference call will also be broadcast simultaneously on the company's web
site, www.telecomsys.com. Investors should click on the Investor Info tab and
are advised to go to the web site at least 15 minutes early to register,
download, and install any necessary audio software. The call will also be
archived on the TCS website.
ABOUT TELECOMMUNICATION SYSTEMS, INC.
TeleCommunication Systems, Inc. (TCS)(Nasdaq: TSYS) is a leading provider
of software and solutions to leading wireless telecommunication carriers
worldwide and to government customers requiring high reliability and security.
The company's Network Software segment is a global leader in wireless location
platforms, text messaging, and alerts. The Service Bureau segment provides
enhanced 9-1-1 connections to public safety call centers for the largest US
wireless carriers, as well as hosted wireless text messaging services. The
Network Solutions segment enables rapid deployment of fixed and transportable
communications systems using wireless, satellite, and terrestrial networks.
TCS makes connections that matter. Whether connecting people with voice,
data or video in a wireless world or connecting our customers and shareholders
with long-term value, TCS delivers competitive, reliable and secure products,
services and solutions to meet these needs. For more information visit
www.telecomsys.com.
This press release discloses the Company's earnings before interest,
taxes, depreciation, amortization, and other non-cash expenses ("EBITDA"),
which may be considered a non-GAAP financial measure. As used herein, "GAAP"
refers to generally accepted accounting principles in the United States.
Generally, a non-GAAP financial measure is a numerical measure of a company's
performance, financial position, or cash flows that either excludes or
includes amounts that are not normally excluded or included in the most
directly comparable measure calculated and presented in accordance with GAAP.
The Company believes that EBITDA is an appropriate measure of evaluating its
operating performance and liquidity because the measure is indicative of the
Company's availability of discretionary funds and its capacity to service its
debt, and thereby provides additional useful information to investors
regarding its financial condition and results of operations. This measure,
however, should be considered in addition to, and not as a substitute or
superior to, operating income, cash flows, or other measures of financial
performance prepared in accordance with GAAP. The non-GAAP measure included
in the Company's press release has been reconciled to the nearest GAAP measure
as is now required under the new rules of the Securities and Exchange
Commission regarding the use of non-GAAP financial measures.
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, the company expects positive net
income in the second half of 2003; Mr. Tose's comment that the company expects
to build revenue sequentially and achieve positive net income in the second
half of 2003; Mr. Tose's comment that the company has confidence that its cash
and credit will provide sufficient capital to fund the business through
sustained positive cash flow; and the projection of steady quarter-over-
quarter revenue and profit growth for the company's Service Bureau business.
The actual results realized by the Company could differ materially from
the statements made herein, depending in particular upon the risks and
uncertainties 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) reach profitability, (ii) continue to rely on its customers
and other third parties to provide additional products and services that
create a demand for its products and services, (iii) conduct its business in
foreign countries, (iv) adapt and integrate new technologies into its
products, (v) expand its sales and business offerings in the wireless data
industry, (vi) develop software without any errors or defects, (vii) have
sufficient capital resources to fund the company's operations, (viii) protect
its intellectual property rights, (ix) implement its sales and marketing
strategy, and (x) successfully integrate the assets and personnel of acquired
entities, such as Otelnet. 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.
Consolidated Statements of Operations
(amounts in thousands, except per share data)
(unaudited)
Three months ended March 31,
2003 2002
Revenue
Network software
Network software licenses $2,467 $2,343
Network software services 1,141 2,220
Network software total 3,608 4,563
Service bureau 7,555 5,920
Network solutions 8,129 6,367
Total revenue 19,292 16,850
Operating costs and expenses
Direct cost of network software 1,685 2,927
Direct cost of service bureau 4,006 2,699
Direct cost of network solutions 5,360 4,629
Research and development 3,915 4,136
Sales and marketing 2,393 3,009
General and administrative 2,903 3,176
EBITDA (970) (3,726)
Non-cash stock compensation expense 373 424
Depreciation and amortization of
property and equipment 1,545 1,572
Amortization of software
development costs 1,030 1,334
Amortization of goodwill and other
intangible assets 138 138
Total operating costs and expenses 23,348 24,044
Loss from operations (4,056) (7,194)
Net interest and other income (expense) 8 (112)
Net loss $(4,048) $(7,306)
Loss per common share, basic and diluted $(0.14) $(0.25)
EBITDA $(970) $(3,726)
EBITDA per share $(0.03) $(0.13)
Weighted average shares - basic and diluted 29,568 28,870
TeleCommunication Systems, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands)
March 31, December 31,
2003 2002
Assets (unaudited)
Current assets:
Cash and cash equivalents $21,146 $27,402
Accounts receivable 18,278 23,872
Unbilled receivables, net 8,138 6,987
Other current assets 2,214 1,675
Total current assets 49,776 59,936
Property and equipment, net 11,441 11,814
Software development costs, net 7,807 7,688
Intangible assets, net 392 530
Other assets 1,459 1,457
Total assets $70,875 $81,425
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $15,095 $20,630
Deferred revenue 2,772 2,846
Current portion of capital
leases and notes payable 4,634 4,770
Total current liabilities 22,501 28,246
Capital leases and notes payable,
less current portion 4,341 5,543
Total stockholders' equity 44,033 47,636
Total liabilities and
stockholders' equity $70,875 $81,425