Exhibit 99.1
Second Quarter Revenue Totals $20.1 Million;
Service Bureau/E9-1-1 Revenue Grows to $8.3 Million in Quarter;
Company Takes $7 Million Capitalized Software Write-down
ANNAPOLIS, Md., July 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 June 30, 2003.
TCS reported total revenue for the quarter of $20.1 million, up 4% from
first quarter 2003 revenue of $19.3 million, and down 16% from $23.9 million
of revenue in the second quarter of 2002. Second quarter 2003 revenue was
comprised of 11% Network Software, 42% Service Bureau, and 47% Network
Solutions, compared with 19% Network Software, 39% Service Bureau, and 42%
Network Solutions in the previous quarter. For the first six months of 2003,
TCS reported total revenue of $39.4 million, compared to $40.8 million in the
first six months of 2002.
Increased revenue and higher gross profit margins in the Company's Service
Bureau business contributed to overall gross margin of 41% in the second
quarter, compared to 32% in the quarter ended June 30, 2002, and 43% in the
first quarter of 2003. For the first six months of 2003 overall gross margin
was 42% compared to 35% for the first six months of 2002.
Second quarter 2003 earnings before interest, taxes, depreciation,
amortization and other non-cash expenses (EBITDA) loss, a non-GAAP financial
measure, was $1.3 million, or $0.04 per share. This compares to the first
quarter EBITDA loss of $1.0 million, or $0.03 per share, and second quarter
2002 EBITDA loss of $2.4 million, or $0.08 per share.
During the quarter, TCS recorded additional amortization of $7.0 million
of non-cash capitalized software development costs. Including this additional
amortization, TCS reported a GAAP net loss for the quarter ended June 30, 2003
of $11.4 million, or $0.38 per share, compared to first quarter 2003 net loss
of $4.0 million, or $0.14 per share, and second quarter 2002 net loss of $6.1
million, or $0.21 per share. Excluding the additional amortization expense,
TCS's net loss for the second quarter of 2003 was $4.4 million, or $0.15 per
share, versus a loss of $0.21 per share in the second quarter of 2002.
"We are pleased with the continuing growth of our wireless E9-1-1 Service
Bureau business. As expected, the continuation of sluggish wireless carrier
capital spending affected the results of our Software segment in the second
quarter, and revenue from our Solutions segment was below the average level we
expect for this year. Both our Solutions and Software business revenues are
'lumpy', but we remain confident that we are positioned for long-term
profitable growth," commented Maurice B. Tose, TCS's Chairman, President and
CEO. "During the quarter, we continued to manage our costs and maintained our
commitment to develop and support the technology products we believe will
deliver significant long-term returns for TCS," concluded Tose.
TCS ended the first quarter with approximately $16 million in cash and
cash equivalents, and the Company's $15 million bank line of credit remains
unused. Mr. Tose observed, "Continued E9-1-1 Service Bureau growth, cost
containment efforts, expected higher Solutions revenue, and increasing
activity in the wireless carrier capital spending environment lead us to
expect positive net income from operations beginning in the third and fourth
quarters of this year."
OPERATIONAL HIGHLIGHTS
Service Bureau Business
During the quarter ended June 30, 2003, TCS generated $8.3 million of
Service Bureau revenue, of which more than 90% is recurring. TCS's 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).
Heightened regulatory and legislative attention to the public safety benefits
of E9-1-1 have highlighted TCS as one of only two major wireless E9-1-1
service providers in the U.S.
TCS has now contracted with 25 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 can 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 Carolina West Wireless has signed a contract
with TCS to provide Phase I and Phase II E9-1-1 services. Under the
agreement, Carolina West Wireless becomes TCS's fourth customer 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's Xypoint(R) Location Platform (XLP).
TCS's end-to-end Hosted PDE Service simplifies the complex process of
Phase II E9-1-1 compliance for wireless carriers by providing an affordable,
accurate and reliable solution through the Company's integrated E9-1-1 system.
Our hosted applications enable regional carriers, for whom in-network licensed
software is not an economically attractive choice at this time, to access
TCS's world-class technology and provide the same services as larger, national
carriers.
TCS added 270 PSAP connections during the quarter and as of June 30, 2003,
served a total of 3,480 PSAP connections, up 60% from the 2,180 PSAP
connections served as of June 30, 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 Solutions
Second quarter revenue from the Company's Network Solutions business
segment was $9.5 million, up $1.4 million from the first quarter's $8.1
million. Year to date Solutions revenue of $17.6 million was down from last
year's $19.4 million, but Solutions gross profit from the first half was $5.8
million, up $1.0 million from the first half last year. TCS's 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 quarter, TCS announced it has shipped its 250th SwiftLink(TM)
deployable communication system. Also in the quarter, the Company introduced
its SwiftLink 1200 model, a reduced weight, briefcase-sized addition to the
product line. SwiftLinks provide a quick and easy means for remote voice-
over-IP, video, and data communications via secure or non-secure wireless
connections. The system delivers high-speed, high capacity communication
capabilities in a small, portable package. SwiftLink products vary in
configuration, depending on the user requirements, and can provide access for
one (1) to more than seventy (70) users at the same time in packages that
range in size from 35 to 85 pounds. SwiftLinks have been a popular
communications option among TCS's government and military customers and were
used successfully and extensively in Operation Iraqi Freedom.
The Solutions group performs integration and related projects in addition
to its SwiftLink business, and expects to have significant opportunities to
apply Company expertise to Homeland Security initiatives as they evolve and
are funded.
Network Software
As of June 30, 2003, TCS had deployed a total of 80 software systems with
wireless carriers, including TCS's Wireless Internet Gateways(TM), Short
Message Service Centers (SMSCs), and Xypoint(R) Location Platforms (XLPs).
During the quarter, TCS delivered on orders for its wireless products,
primarily the Company's SMSCs and Wireless Internet Gateways, resulting in
$2.3 million of Software segment revenue, of which license revenue was $0.8
million. In addition, the Company's installed base of software products
contributed approximately $0.8 million recurring maintenance revenue to the
$1.5 million of Network Software Services revenue reported in the second
quarter.
Yesterday, TCS announced the introduction of Xypages, the Company's first
wireless software product combining both location and messaging technologies.
Xypages allows wireless subscribers to access location-specific information
delivered via SMS to the user. The hosted application offered to wireless
carriers can be used on any existing digital carrier network and requires no
network upgrades. Xypages functionality can also be extended to include more
precise location-based services such as text-based driving directions from a
user's current location to a desired destination. Xypages features marry
TCS's wireless E9-1-1 location technology with the Company's text messaging
expertise, enabling wireless carriers to generate higher revenue per user
through the delivery of value-added services to their subscribers.
FINANCIAL DETAILS
* Total revenue was $20.1 million in the second quarter of 2003, up 4%
from $19.3 million in the first quarter of 2003 and down 16% from $23.9
million in the second quarter of 2002.
In the second quarter of 2003, the Company's Network Software revenue
from carrier licenses and related software maintenance and deployment
services was $2.3 million, compared to first quarter 2003 revenue of
$3.6 million, and $5.4 million revenue in the second quarter of 2002.
Software license revenue was $0.8 million in the second quarter, down
from first quarter 2003 sales of $2.5 million and second quarter 2002
revenue of $2.8 million, reflecting low spending by carriers on
enhancements to their networks.
TCS's Service Bureau revenue, which includes wireless E9-1-1 services
and hosted inter-carrier text message distribution services, totaled
$8.3 million in the quarter ended June 30, 2003. This represents a 10%
increase over first quarter of 2003 revenue of $7.6 million and a 51%
increase over second quarter 2002 revenue of $5.5 million, as the
Company continued to expand the number of Public Safety Answering Points
served for E9-1-1 services. For the first six months of 2003, total
Service Bureau revenue increased 39% to $15.9 million, from $11.4
million in the first six months of 2002.
TCS's Network Solutions revenue from systems integration and digital
communications projects largely for government customers was $9.5
million in the second quarter of 2003, up 17% from $8.1 million in the
prior quarter, and down from $13.1 million in the second quarter of
2002. Our historically "lumpy" quarter-to-quarter Network Solutions
revenue reflects the variability of project timing and contract
durations. SwiftLink(TM) deployable communication systems generated
$5.2 million of revenue in the second quarter, up from $3.1 million in
the first quarter.
TCS ended the quarter with revenue backlog of $81 million, approximately
the same as at March 31, 2003. Of the Company's total backlog,
approximately $42 million is expected to be realized over the next
twelve months.
* Total gross profit (revenue minus direct cost of revenue) was $8.3
million in the second quarter of 2003, approximately the same as $8.2
million in the first quarter of 2003, and up 9% from $7.6 million in the
second quarter of 2002. Total gross profit for the first six months of
2003 was $16.5 million, an increase of 16% from $14.2 million in the
first six months of 2002.
As a percentage of revenue, company-wide gross profit margin was 41% in
the second quarter, down slightly from the first quarter's 43% but up
from the second quarter 2002's gross profit margin of 32%. Gross profit
margin for the first half of 2003 was 42%, versus 35% in the first half
of 2002. Annual gross profit margin improvement primarily reflects
higher margins experienced in the Company's Service Bureau segment
resulting from economies of scale, and in the Network Solutions segment,
with a greater proportion of sales derived from value-added TCS
technology.
The gross profit margin from Network Software in the second quarter of
2003 was 41%, down from first quarter 2003 gross margin of 53%, due to a
higher proportion of revenue from software services and ancillary
equipment versus higher margin licenses.
Service Bureau gross profit in the second quarter was $4.3 million, up
23% from first quarter 2003 gross profit of $3.5 million and up 85% from
second quarter 2002 gross profit of $2.3 million. Service Bureau gross
margin was 52% in the second quarter, compared to 47% in the first
quarter of 2003 and 42% in the second quarter of 2002.
The gross profit for the Company's Network Solutions business segment
was $3.0 million in the second quarter of 2003, compared to $2.8 million
in first quarter 2003 and $3.0 million in the second quarter of 2002.
The gross profit margin in this segment was 32% in the second quarter of
2003, compared to 34% in the first quarter of 2003 and was up from 23%
in the second quarter of 2002.
* Operating expenses. Research and development expenses during the second
quarter were $4.7 million, compared to $3.9 million in the first quarter
and $4.3 million in the second quarter of 2002. Sales, marketing,
general and administrative expenses continued to decline as a result of
cost control measures, and totaled $4.9 million in second quarter, down
from $5.3 million in first quarter and $5.6 million in second quarter
2002.
* EBITDA loss was $1.3 million, or $0.04 per share in the second quarter
of 2003, compared to an EBITDA loss of $1.0 million or $0.03 per share
in the first quarter of 2003, and a loss of $2.4 million, or $0.08 per
share in the second quarter of 2002.
* Non-cash expenses included additional amortization of $7.0 million, or
$0.24 per share, resulting from a reduction to the estimated net
realizable value of the Company's currently developed software products
over their remaining useful life. Total non-cash expenses, excluding
the $7.0 million write-down, were $3.0 million, compared to $3.1 million
in the first quarter of 2003, and $3.2 million in the second quarter of
2002.
* Net loss for the second quarter of 2003 was $11.4 million, or $0.38 per
share, including the additional non-cash charge of $7.0 million, or
$0.24 per share. This compares to a net loss of $4.0 million, or $0.14
per share in the first quarter of 2003 and a net loss of $6.1 million,
or $0.21 per share in the second quarter of 2002. Per share figures
were computed on the basis of 29.6 million, 29.6 million, and 29.1
million weighted average shares, respectively, in Q2-03, Q1-03, and Q2-
02.
* Cash used during the second quarter of 2003 totaled $5.6 million,
comprised of the $1.3 million EBITDA loss, $1.3 million for fixed asset
additions, $4.0 million increase in other working capital items and $0.6
million of other items, offset by a $1.6 million net increase in debt
for fixed assets.
* The Balance Sheet at the end of the second quarter reflected $15.5
million of cash and cash equivalents compared to $21.1 million as of
March 31, 2003. The Company's $15 million bank line of credit remains
unused.
CONFERENCE CALL
The Company has scheduled a conference call for tomorrow, Friday, July 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 second
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, July 25, 2003
beginning at 11:30 AM EDT and will be accessible until Friday, August 1, 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
1790832. 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. In addition, updated
historical and forecasted financial information will be posted concurrently
with the call under the "Financial Model" selection of the Investor Relations
area of TCS's 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, net loss, operating loss, cash flows, or other measures of
financial performance prepared in accordance with GAAP. A reconciliation of
the Company's EBITDA to the Company's net loss, which we believe to be the
nearest GAAP measure has been included in the Company's 10-Q filed with the
Securities and Exchange Commission.
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's 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, Mr. Tose's belief that the Company's
technology products will deliver significant long-term returns; Mr. Tose's
comment that the Company expects that it will achieve positive net income from
operations in the third and fourth quarters of this year; the projection of
steady quarter-over-quarter revenue and profit growth for the Company's
Service Bureau business; and the statement that approximately $42 million of
the Company's backlog is expected to be realized over the next twelve months.
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 products and deliver services 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, (x) successfully integrate the assets and
personnel of acquired entities , such as Otelnet, and (xi) realize its
expected revenue backlog. 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 Six months ended
June 30, June 30,
2003 2002 2003 2002
Revenue
Network software
Network software licenses $ 788 $ 2,780 $ 3,255 $ 5,123
Network software services 1,492 2,585 2,633 4,805
Network software total 2,280 5,365 5,888 9,928
Service bureau 8,310 5,518 15,865 11,438
Network solutions 9,490 13,049 17,619 19,416
Total revenue 20,080 23,932 39,372 40,782
Operating costs and expenses
Direct cost of network software 1,352 3,116 3,037 6,043
Direct cost of service bureau 3,961 3,168 7,967 5,867
Direct cost of network solutions 6,492 10,049 11,852 14,678
Research and development 4,664 4,349 8,579 8,485
Sales and marketing 2,213 2,395 4,606 5,404
General and administrative 2,707 3,214 5,610 6,390
EBITDA (1,309) (2,359) (2,279) (6,085)
Non-cash stock compensation
expense 389 443 762 867
Depreciation and amortization
of property and equipment 1,690 1,593 3,235 3,165
Amortization of software
development costs 7,774 1,053 8,804 2,387
Amortization of Xypoint
tradename 139 138 277 276
Total operating costs and
expenses 31,381 29,518 54,729 53,562
Loss from operations (11,301) (5,586) (15,357) (12,780)
Net interest and other income
(expense) (91) (550) (83) (662)
Net loss $(11,392) $(6,136) $(15,440) $(13,442)
Loss per common share, basic
and diluted $ (0.38) $ (0.21) $ (0.52) $(0.46)
EBITDA $ (1,309) $(2,359) $ (2,279) $(6,085)
EBITDA per share $ (0.04) $ (0.08) $ (0.08) $(0.21)
Weighted average shares -
basic and diluted 29,610 29,064 29,589 28,968
TeleCommunication Systems, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands)
June 30, December 31,
2003 2002
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 15,530 $ 27,402
Accounts receivable 18,386 23,872
Unbilled receivables, net 9,151 6,987
Other current assets 1,759 1,675
Total current assets 44,826 59,936
Property and equipment, net 11,013 11,814
Software development costs, net 749 7,688
Tradename, net 254 530
Other assets 1,339 1,457
Total assets $ 58,181 $ 81,425
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued
expenses $ 12,071 $ 20,630
Deferred revenue 2,520 2,846
Current portion of capital
leases and notes payable 5,719 4,770
Total current liabilities 20,310 28,246
Capital leases and notes payable,
less current portion 4,850 5,543
Total stockholders' equity 33,021 47,636
Total liabilities and
stockholders' equity $ 58,181 $ 81,425
SOURCE TeleCommunication Systems, Inc.
-0- 07/24/2003
/CONTACT: Tom Brandt, Senior Vice President & CFO, +1-410-280-1001,
brandtt@telecomsys.com; or Bob Bannon, Investor Relations, +1-410-280-1055,
bannonb@telecomsys.com, both of TeleCommunication Systems, Inc./
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/Web site: http://www.telecomsys.com/
(TSYS)
CO: TeleCommunication Systems, Inc.; TCS
ST: Maryland
IN: CPR TLS ITE
SU: ERN CCA