Exhibit 99
TeleCommunication Systems, Inc. Reports Second Quarter 2004 Results
Record $40 Million Revenue Yields Basic Earnings Per Share of $0.03 for
Quarter, or $0.14 Per Share Adjusted for $0.11 Non-cash Charges Per Share
ANNAPOLIS, Md., July 29 /PRNewswire-FirstCall/ -- TeleCommunication
Systems, Inc. (TCS) (Nasdaq: TSYS), a global leader in mission-critical
wireless data technology, today announced results for the quarter ended June
30, 2004.
(Logo: http://www.newscom.com/cgi-bin/prnh/20030618/TSYSLOGO )
TCS reported total revenue for the quarter of $40.4 million vs. $20.1
million a year ago. The increase includes $11.3 million from the Enterprise
segment acquired effective January 1, 2004 and $9.0 million, or a 45%
increase, from stronger results generated by both the Wireless Carrier and
Government segments in 2004. Second quarter 2004 revenue was up $7.7 million
or 24% from the first quarter's $32.8 million on higher Wireless Carrier
software and Government revenue.
Net income for the quarter ended June 30, 2004 was $0.9 million, or $0.03
per basic share and $0.02 per diluted share, versus a net loss of $11.4
million, or ($0.38) per share basic and diluted, in the second quarter of
2003. Non-cash charges in Q2-04 were $3.6 million, including $0.6 million of
debt financing amortization related to the private placement completed during
the first quarter, vs. Q2-03's $10.0 million, which included a $7.0 million
accelerated amortization charge, and $3.3 million in the first quarter of
2004.
The company's second quarter 2004 Adjusted Operating Income/loss, which is
a non-GAAP measure, was a record $0.14 per share (basic) vs. a loss of ($0.05)
per share in 2003, and a loss of $(0.01) in the first quarter of 2004.
Management believes that Adjusted Operating Income/(Loss), computed before
non-cash charges, is a useful measure in assessing operating performance and
generation of cash in addition to but not as a substitute for earnings
measured in accordance with generally accepted accounting principles, because
it is indicative of the availability of discretionary funds and the capacity
to service debt.
As of June 30, 2004, we had unfulfilled orders, or backlog, of
approximately $83 million, of which we expect to realize approximately $34
million in the balance of this year and $52 million in the next twelve months.
"This quarter's results represent profitability in three of the last four
quarters and positive second quarter profit for the first time as a public
company, reflecting solid execution of the company's business plan," commented
Maurice B. Tose, TCS' Chairman, President and CEO. "As the second half of the
year is historically stronger for us than the first, management is optimistic
about full year results."
"When we began the second quarter we were uncertain about the timing of
carrier customer purchases of messaging license capacity, and we are pleased
that such major procurements have been made sooner rather than later. Year to
date revenues are on track to meet our goals for the year, and our initiatives
in all three of our market segments should lead to higher serial quarterly
revenues," concluded Tose.
OPERATIONAL HIGHLIGHTS
Government Segment
* We introduced the latest model in the SwiftLink suite of products, the
SWIFTLINK(R) 1400. This product is a highly portable reach-back
communications terminal that provides encrypted access to classified or
sensitive information from the field. With support for both wire line
and wireless infrastructure, the 1400 is the smallest in the SwiftLink
product line with a footprint equivalent to a notebook computer.
* Substantial progress was made during the quarter in rebuilding and
expanding our communications engineering service business under multi-
year contracts.
Wireless Carrier Segment
* Inquam affiliate, RadioMovel, selected TCS for its Xypoint Location
Platform software and we signed an agreement to supply its first Code
Division Multiple-Access (CDMA) Assisted Global Positioning Systems
(AGPS) precise location solution throughout Europe. Initially to be
deployed in Portugal, TCS' solution will allow Inquam to offer a variety
of Location-Based Services (LBS) to its growing subscriber base.
* We are now deploying Phase II E9-1-1 for precise location information
for Golden State Cellular in their local California market serving the
central Sierras of California, including Yosemite, Mariposa, Sonora,
Angels Camp, and Jackson. Golden State Cellular was already using TCS'
E9-1-1 Phase II Hosted Position Determining Entity (HPDE) service.
* CommPartners has contracted with TCS to provide its E9-1-1 Voice Over
Internet Protocol (VoIP) service, a set of comprehensive capabilities
meant to address the broad range of challenges for emergency services
which are posed by current VoIP technologies.
Enterprise Segment
* Progress was made during the quarter toward entering into new reseller
arrangements for Blackberry mobile office device users in addition to
the data network service that we currently provide our customers.
* The Enterprise group's newest product, marketStream(TM), is now in
trials with more than 100 companies globally. The marketStream(TM)
service provides global, real-time streaming access to equity security
prices and volume, foreign exchange rates, futures, commodities and
fixed income prices, as well as news and charts via any Java(TM)-based
Blackberry handheld and is compatible with mobile phones and PDAs
including the Sony Ericsson P800 and P900 and wireless-enabled PocketPC
devices.
* Corporate Express has now deployed more than one-third of its vehicles
and distribution centers with TCS' 20/20 Delivery(TM) logistics
management/point-of-delivery solution.
FINANCIAL DETAILS
Revenue and Gross Profit (revenue minus direct cost of revenue):
Total revenue was $40.4 million in the second quarter of 2004, up 24% from
$32.8 million in the first quarter, and up 101% from $20.1 million in the
second quarter of 2003. The addition of revenue from the acquired Enterprise
segment added $11.3 million to year-over-year results and both the Wireless
Carrier and Government segments contributed significantly higher year-over-
year results.
The composition of second quarter revenue was as follows:
Wireless
($ millions) Government Carrier Enterprise Total
Service bureau and subscriber $- $9.6 $10.5 $20.1
Software systems - 8.2 0.8 9.1
Network solutions 11.3 - - 11.3
Total $11.3 $17.8 $11.3 $40.4
This compares to first quarter revenue of:
Wireless
($ millions) Government Carrier Enterprise Total
Service bureau and subscriber $- $9.1 $11.6 $20.7
Software systems - 3.5 1.0 4.5
Network solutions 7.5 - - 7.5
Total $7.5 $12.6 $12.6 $32.8
Total gross profit (revenue minus direct cost of revenue) was $17.5
million for the quarter, including $2.9 million contributed by the new
Enterprise segment, up $9.2 million from second quarter 2003's $8.3 million.
The company's overall gross margin was 43% in the most recent quarter, vs. 41%
a year ago, as high Wireless Carrier software license revenue in the quarter
just ended more than offset the effect of including the lower average margin
on Enterprise business. Compared to first quarter 2004 gross profit of $12.9
million, the $4.6 million improvement reflects Wireless Carrier software
license revenue and higher Government volume.
Service bureau and subscriber revenue, substantially all of which is
month-after-month charges to customers, was $20.1 million in the second
quarter of 2004, down $0.6 million or 3% from Q1-04. The expected $0.5
million quarter-to-quarter increase in service bureau revenue was more
than offset by the expected subscriber churn in low-margin Blackberry
mobile office subscribers. Our Blackberry business is transitioning to a
market of multiple carrier alternatives, and in some cases, TCS now earns
commissions on Blackberry placements in lieu of reseller margins.
The gross profit from TCS service bureau and subscriber business was $7.4
million, or 37% of revenue in the second quarter, consistent with $7.5
million or 36% reported in Q1-04.
Software systems revenue was $9.1 million in the second quarter of 2004,
up 100% from $4.5 million in the first quarter, and up almost three-fold
from second quarter 2003 revenue of $2.3 million. Software systems
revenue was comprised of over $8 million from the Wireless Carrier segment
including a large purchase of messaging license capacity, and almost $1
million from the recently acquired Enterprise segment.
The gross profit from software systems was $5.9 million, or 65% of
revenue, in the most recent quarter, up $3.7 million from $2.1 million, or
47% of revenue, reported last quarter, and up $4.9 million from the $0.9
million, or 41% of revenue in the second quarter of last year. Revenue
from the second quarter of this year was comprised of a higher proportion
of higher-margin license revenue than was reported in prior comparative
periods.
Government Network Solutions revenue from systems integration and digital
communications projects largely for government customers was $11.3 million
in the second quarter, up from $7.5 million in the first quarter of 2004,
and $9.5 million in the second quarter of 2003.
The gross profit from Government Network Solutions was $4.2 million, or
38% of revenue, vs. $3.3 million and 44% of revenue last quarter, and $3.0
million or 32% of revenue in the second quarter of 2003. The fluctuation
in margins is attributable to changes in the Government Network Solutions
sales mix.
Operating Expenses:
Second quarter 2004 cash operating expenses (R&D, sales and marketing, and
G&A) were $12.6 million, slightly down from $12.7 million in the prior
quarter, and up $3.1 million from the second quarter of 2003. The increase
from prior year arises predominantly as a result of expenses associated with
the Enterprise segment.
Research and development expenses for the quarter were $4.6 million. This
spending level compares to R&D investments of $5.0 million in the preceding
quarter and $4.7 million in the second quarter of 2003.
Sales and marketing expenses totaled $3.3 million, up slightly from $3.2
million in the previous quarter, and from $2.2 million in the prior year.
General and administrative expenses were $4.8 million in the second
quarter of 2004, up from $4.5 million last quarter, and from $2.7 million in
the second quarter of 2003, with the increase primarily associated with the
Enterprise segment and expenses associated with Sarbanes-Oxley 404 compliance.
Net income for the second quarter 2004 was $0.9 million, or $0.03 per
basic share and $0.2 per diluted share, compared to a loss of $3.4 million, or
($0.11) per share, basic and diluted, in the first quarter of 2004 and a loss
of $11.4 million or ($0.38), basic and diluted, in the second quarter of 2003.
Basic per share figures were computed on the basis of 32.6 million, 31.9
million, and 29.6 million weighted average outstanding shares, respectively,
in Q2-04, Q1-04, and Q2-03. Diluted weighted average shares outstanding were
36.6 million during the quarter ended June 30, 2004.
The company's cash and cash equivalents balance was approximately $16
million at June 30, 2004 versus $20 million at March 31, 2004. Our
aforementioned operating earnings before non-cash charges of $0.14 per share
equates to $4.5 million. The net use of cash during the quarter was primarily
to fund the larger working capital balance associated with higher revenue, and
for capital expenditures associated with our E9-1-1 business. Approximately
$7 million was available under the Company's bank line of credit at June 30.
CONFERENCE CALL
The company has scheduled a conference call for this evening, Thursday,
July 29, 2004 at 5:00 PM EDT. The company's Chairman, President and CEO,
Maurice B. Tose, and Tom Brandt, Senior Vice President and CFO, will discuss
the second quarter 2004 results and other corporate information. A question
and answer session will follow management's presentation. To participate in
the conference call, Investors can dial the appropriate number below shortly
before the 5:00 PM start time and ask for the TeleCommunication Systems
conference call hosted by Mr. Tose. The teleconference dial-in numbers are as
follows:
Domestic callers: 1-888-285-0969
International callers: 1-706-679-7848
The conference call will be broadcast simultaneously on the company's web
site, http://www.telecomsys.com. Investors are advised to go to the web site
at least 15 minutes early to register, download, and install any necessary
audio software. A replay of the call will be available on Thursday, July 29,
2004 beginning at 8:00 PM EDT and will be accessible until Friday, August 6,
2004 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
8716102.
ABOUT TELECOMMUNICATION SYSTEMS, INC.
TeleCommunication Systems, Inc. (TCS)(Nasdaq: TSYS) is a leading provider
of mission critical wireless data solutions to carriers, enterprise and
government customers. TCS' wireless data offerings include location-based
Enhanced 9-1-1 services, and messaging and location service infrastructure for
wireless operators, real-time market data and alerts to financial
institutions, mobile asset management and mobile office solutions for
enterprises, and encrypted satellite communications to government customers.
For more information visit http://www.telecomsys.com.
This press release discloses the Company's adjusted net income/(loss)
before non-cash charges (depreciation, amortization, and other non-cash
expenses), 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 Adjusted operating income/loss 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 required under the 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, Mr. Tose's comments that the Company
is optimistic about full year results, year-to-date revenues are on track to
meet goals for the year, and that its initiatives should lead to higher serial
quarterly revenues.
Our backlog at any given time may be affected by a number of factors,
including contracts being renewed or new contracts being signed before
existing contracts are completed, and some of our backlog could be cancelled
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.
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) sustain 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 the Enterprise net assets acquired from Aether Systems, Inc.
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)
Three months ended Six months ended
June 30, June 30,
2004 2003 2004 2003
(unaudited) (unaudited)
Revenue
Service bureau and subscriber $20,103 $8,310 $40,839 $15,865
Software systems 9,065 2,280 13,602 5,888
Network solutions 11,279 9,490 18,763 17,619
Total revenue 40,447 20,080 73,204 39,372
Operating costs and expenses
Direct cost of service bureau and
subscriber revenue 12,718 3,961 25,985 7,967
Direct cost of software systems
revenue 3,203 1,352 5,607 3,037
Direct cost of network solutions
revenue 7,046 6,492 11,245 11,852
Research and development expense 4,555 4,664 9,601 8,579
Sales and marketing expense 3,323 2,213 6,513 4,606
General and administrative expense 4,766 2,707 9,253 5,610
Non-cash stock compensation
expense 346 389 703 762
Depreciation and amortization of
property and equipment 1,912 1,690 3,644 3,235
Amortization of acquired
intangible assets 532 139 1,064 277
Amortization of software
development costs 239 7,774 326 8,804
Subtotal non-cash operating
expenses 3,029 9,992 5,737 13,078
Total operating costs and
expenses 38,640 31,381 73,941 54,729
Loss from operations 1,807 (11,301) (737) (15,357)
Cash interest expense (298) (204) (561) (436)
Non-cash financing cost (559) (12) (1,103) (56)
Other (expense)/income, net (87) 125 (182) 409
Net income/(loss) $863 $(11,392) $(2,583) $(15,440)
Earnings/(loss) per share-basic $0.03 $(0.38) $(0.08) $(0.52)
Earnings/(loss) per share-diluted $0.02 $(0.38) $(0.08) $(0.52)
Weighted average shares outstanding-
basic 32,566 29,610 32,225 29,589
Weighted average shares outstanding-
diluted 36,591 29,610 32,225 29,589
Management believes that Adjusted Operating Income/(Loss), excluding non-
cash charges, in conjunction with the complete Statement of Operations, is
helpful in assessing the operating performance of the Company. It is
calculated by adjusting GAAP net income/(loss) to exclude the effects of non-
cash compensation expense, depreciation and amortization, amortization of
software development costs, amortization of identifiable purchased intangible
assets, and non-cash interest expense. A reconciliation to net income/(loss)
follows:
Net earnings/(loss) $863 $(11,392) $(2,583) $(15,440)
Add back non-cash operating
expenses 3,029 9,992 5,737 13,078
Add back non-cash financing cost 559 12 1,103 56
Total non-cash charges 3,588 10,004 6,840 13,134
Adjusted operating income/(loss),
excluding non-cash expenses $4,451 $(1,388) $4,257 $(2,306)
Adjusted operating income/(loss) per
share-basic $0.14 $(0.05) $0.13 $(0.08)
Adjusted operating income/(loss) per
share-diluted $0.12 $(0.05) $0.13 $(0.08)
TeleCommunication Systems, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands)
June 30, December 31,
2004 2003
Assets (unaudited)
Current assets:
Cash and cash equivalents $15,763 $18,785
Accounts receivable, net 27,431 20,208
Unbilled receivables 13,559 8,862
Inventory 2,836 451
Other current assets 3,085 1,915
Total current assets 62,674 50,221
Property and equipment, net 15,080 11,449
Software development costs, net 480 518
Identifiable acquired intangible
assets, net 5,755 -
Goodwill 13,802 -
Other assets 3,987 3,092
Total assets $101,778 $65,280
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued
expenses $21,515 $12,148
Deferred revenue 4,458 1,683
Current portion of capital
leases and notes payable 11,787 7,852
Total current liabilities 37,760 21,683
Capital leases and notes payable,
less current portion 5,553 6,746
Convertible subordinated
debentures, net 8,973 -
Total stockholders' equity 49,492 36,851
Total liabilities and
stockholders' equity $101,778 $65,280
SOURCE TeleCommunication Systems, Inc.
-0- 07/29/2004
/CONTACT: Tom Brandt, Senior Vice President & CFO, +1-410-280-1001,
brandtt@telecomsys.com, or Jeff Sim, Investor Relations, +1-410-280-1055,
jsim@telecomsys.com, both of TeleCommunication Systems, Inc./
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/Web site: http://www.telecomsys.com/
(TSYS)
CO: TeleCommunication Systems, Inc.
ST: Maryland
IN: CPR TLS
SU: ERN CCA