SOURCE:
TeleCommunication Systems, Inc.
2008-07-31 15:05:00
TeleCommunication Systems Reports Record Second Quarter 2008 Results
TeleCommunication Systems Reports Record Second Quarter 2008 Results
Record Revenue of $43.9 Million, up 24% Year-Over-Year; Record $12.0 Million or $0.26 per Share GAAP Net Income; Record $15.2 Million or $0.33 per Share EBITDA
ANNAPOLIS, MD–(EMWNews – July 31, 2008) – TeleCommunication Systems, Inc. (TCS)
(
technology, reported record results for the second quarter ended June 30,
2008.
Second Quarter 2008 Results
-- Revenue was a record $43.9 million, an increase of 9% from $40.4
million in the previous quarter and up 24% from $35.3 million in the second
quarter of 2007. This quarter's record revenue excludes $8.1 million net
proceeds from the sale of a patent, which has been reported as other
operating income.
-- GAAP net income was a record $12.0 million or $0.26 per diluted share.
Excluding the patent sale, GAAP net income was $3.9 million or $0.09 per
diluted share, as compared to net income of $4.6 million or $0.11 per
diluted share in the previous quarter and a net loss of $6.1 million or
($0.15) per diluted share in the second quarter of 2007.
-- EBITDA (Earnings before Interest, Taxes, Depreciation and
Amortization, which includes Non-cash Stock-based Compensation) for the
quarter was a record $15.2 million or $0.33 per diluted share. This
compares to $8.4 million or $0.19 per diluted share in the previous
quarter, and $0.3 million or $0.01 per diluted share in the same year-ago
quarter. Excluding the gain from the patent sale, EBITDA for the second
quarter was $7.2 million or $0.16 per diluted share. (See important
discussion about the presentation of EBITDA, below.)
“TeleCommunication Systems is beginning to realize substantial returns from
its long term investments in enabling convergent communications technology
and the relationships that have brought this technology to market,” said
Maurice B. Tosé, chairman, president and CEO of TCS. “The value in our
wireless text messaging and E9-1-1 solutions, our secure deployable satcom
kits, as well as our patent portfolio, all contributed to record results
this quarter.
“Large July awards and orders for our Swiftlink® deployable systems and
related wireless point-to-point link systems, which have raised total
company backlog to about $450 million, demonstrate that TCS technology is
well on its way to becoming the de facto standard for man-portable secure
satellite-based communication systems, representing one of the most
critical needs of today’s American military.
“Perhaps most important, our contract backlog and the positioning of our
satcom systems, along with the continuing growth in the use of text
messaging and location-based wireless services, provide much better
visibility into our future revenues and profits. Multi-quarter arrangements
for messaging software licenses, systems maintenance, and government
technology outsource services; multi-year arrangements for E9-1-1 services;
and new large volume multi-year military procurements of our Swiftlink and
wireless point-to-point solutions, all support a strong outlook for
year-over-year growth in revenue and profitability.
“Finally, it is noteworthy that our company’s stock was added to the
Russell 2000 in June, reflecting another milestone of company progress.”
Second Quarter 2008 Operating Highlights
-- Commercial Segment:
-- Sold approximately $9 million in messaging and location software
and related systems, as compared to an average of about $4 million
per quarter in 2007.
-- Expanded services to MetroPCS to provide E9-1-1 services in major
north east markets. TCS will provide Hosted Mobile Positioning
Center (MPC) and Hosted Position Determining Entity (HPDE) services
for E9-1-1 to MetroPCS customers in Boston, New York City and
Philadelphia.
-- Partnered with Qualcomm to provide a new cell phone location-based
service to Tata Indicom in India. Deployment is expected in late
2008, and will use the TCS Xypoint Location Platform.
-- Government segment:
-- Secured approximately $15.8 million in contracts to provide a broad
range of communication solutions and services primarily to federal
government customers across civilian agencies, Department of
Homeland Security, and Department of Defense (DoD). TCS was
contracted to provide solutions to include SwiftLink products,
satellite communications services, Continuity of Operations (COOP),
and Telecom Expense Management (TEM).
-- Awarded a three-year, $2.4 million contract to build and implement
an IP-based private satellite network to support U.S. Department of
Defense (DoD) personnel in Afghanistan.
-- Intellectual property:
-- Sold wireless e-mail-related patent netting $8.1 million proceeds
to the company.
-- Issued two new patents during the quarter, one for sending text
messages to Web servers and another data transfer patent for
optimizing data transmission between data clients and applications.
-- The TCS patent portfolio now contains 58 patents and 194 patent
applications in the U.S. and abroad. The company continued efforts
to monetize its patents as well as use them to position the company
for competitive advantages.
Financial Highlights
Revenue and Gross Profit from continuing operations for the second quarter
of 2008 as compared to the second quarter of 2007 (unaudited):
Three months ended June 30
------------------------------------------------------
2008 2007 Incr. (Decr.)
----------------- ----------------- -------------------
Coml. Govt. Total Coml. Govt. Total Coml. Govt. Total
----- ----- ----- ----- ----- ----- ------ ----- -----
Revenue ($millions)
Services $16.5 $ 7.8 $24.3 $14.7 $ 8.0 $22.6 $ 1.8 $(0.2) $ 1.6
Systems 9.1 10.5 19.6 1.3 11.4 12.7 7.8 (0.9) 6.9
----- ----- ----- ----- ----- ----- ------ ----- -----
Total revenue $25.6 $18.3 $43.9 $16.0 $19.4 $35.3 $ 9.6 $(1.1) $ 8.5
===== ===== ===== ===== ===== ===== ====== ===== =====
Gross profit
($millions)
Gross profit-
services $ 8.6 $ 1.5 $10.1 $ 7.1 $ 1.9 $ 9.0 $ 1.5 $(0.4) $ 1.1
As % of rev 52% 19% 42% 48% 24% 40%
Gross profit-
systems 6.3 2.8 9.1 0.1 1.6 1.7 6.2 1.2 7.4
As % of rev 69% 27% 46% 9% 14% 13%
----- ----- ----- ----- ----- ----- ------ ----- -----
Total Gross
Profit $14.9 $ 4.3 $19.2 $ 7.2 $ 3.5 $10.7 $ 7.7 $ 0.8 $ 8.5
===== ===== ===== ===== ===== ===== ====== ===== =====
As % of rev 58% 23% 44% 45% 18% 30%
(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 gross profit for the second quarter of 2008 was more
than double that of Q2 2007 on revenue of $25.6 million, up from $16.0
million of revenue in Q2 2007. Average gross margins improved for both
services and systems in the second quarter; systems margins for the same
quarter last year were adversely affected by the absence of a messaging
license capacity sale — the only quarter in the last ten when such a sale
did not occur. Profit improvement in the second quarter was driven by SMS
license sales, including a large purchase under a six-quarter customer
capacity increase arrangement which began in Q3 2007. The commercial
segment gross profit was 58% of revenue in the second quarter of 2008,
versus 45% in the same year-ago period, reflecting a greater mix of higher
margin systems license revenue in Q2 2008.
Government Revenue and Gross Profit
Gross profit from government customers in the second quarter of 2008 of
$4.3 million was a 23% increase over the second quarter of 2007. Revenue
for the quarter was $18.3 million, down from $19.4 million or 6% from the
same year-ago quarter. The average gross margin on government revenue for
the quarter was 23%, which is an improvement from 18% from the same quarter
last year, as the margins on the system shipments in Q2 2008 were higher
due to an improved revenue mix and progress in attaining lower average
system component and assembly/integration costs.
Operating Costs and Expenses
Second quarter 2008 R&D expense was $3.9 million, down $0.2 million or 5%
from the previous quarter. R&D emphasis in the second quarter was on Voice
over IP public safety technology, wireless location based service
technology, and continuing improvement of the company’s messaging and
secure satcom deliverables.
Sales and marketing expense in Q2 2008 was $3.6 million, an increase of
$0.5 million from the previous quarter, and general and administrative
expenses in the second quarter of 2008 were $6.0 million, up $0.7 million
or 13% from the previous quarter. Increases in these expense categories in
Q2 2008 were principally due to increased accruals for variable
compensation expense and increased legal expenses.
Total non-cash charges to operating profit were $3.0 million in the second
quarter, of which $2.1 million was depreciation and amortization and $0.9
million was non-cash stock-based compensation expense.
Other Operating Income
In June 2008, the company sold a wireless e-mail-related patent for net
proceeds of $8.1 million, after legal fees and other costs concluding the
previously reported litigation involving the patent. TCS retains a limited
license in the patent for use in its own operations.
Operating Profit and Net Income
Income from operations was $12.2 million for the second quarter. Net
interest, financing expense and tax provision for the quarter was $0.2
million.
Net income for the second quarter was a record $12.0 million, including a
one-time payment of $8.1 million from the sale of a patent.
Liquidity and Capital Resources
At the end of the second quarter 2008, the company had $28.2 million of
cash and equivalents, up $9.7 million from $18.5 million at the beginning
of the quarter. Total debt was $12.3 million, down from $16.1 million at
the beginning of the year. Funds were generated in the second quarter from
$15.2 million in EBITDA, which includes $8.1 million patent sale proceeds,
and $0.9 million from stock option exercises. Funds were used during the
quarter for $1.4 million of capital expenditures (including software
development), $1.1 million for debt repayment, $0.1 million for net cash
interest and about $3.8 million increase in working capital. Unused
availability under credit facilities totaled $22.4 million at quarter end.
Litigation and Claims
TCS continues to pursue a patent litigation case against Sybase as part of
continuing efforts to monetize its intellectual property portfolio. A jury
has issued a verdict in favor of TCS for about $10 million for past
infringement, subject to post-trial motions and settlement efforts. While
significant legal expenses have been paid in connection with ongoing patent
litigation, no related revenue has been recorded pending the outcome of
appeals and possible settlement.
Backlog
New
3/31/2008 Orders Revenue 6/30/2008
--------- ------- ------- ---------
Funded Contract Backlog ($mil)
Commercial $ 89.9 $ 14.2 $ (25.6) $ 78.4
Government $ 34.9 $ 20.4 $ (18.3) $ 37.0
--------- ------- ------- ---------
Total Funded Contract Backlog $ 124.8 $ 34.6 $ (43.9) $ 115.4
Customer Options $ 100.2 $ (9.4) $ - $ 90.8
--------- ------- ------- ---------
Total Backlog $ 225.0 $ 25.2 $ (43.9) $ 206.2
========= ======= ======= =========
Subsequent to quarter-end, TCS has been selected by the U.S. Army as the
sole awardee of a contract with an initial order and options for up to $246
million of deployable satcom system-related deliverables over the next 39
months. This brings the company’s total of funded and unfunded backlog to
about $450 million.
Funded contract backlog represents contracts for which fiscal year funding
has been appropriated by TCS customers (mainly federal agencies), and for
the company’s hosted services by multiplying the most recent month’s
recurring revenue times the remaining months under existing long-term
agreements, which the company believes 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 which have not yet
been incrementally funded.
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 our 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; and interest expense and other non-cash financing costs.
Other companies (including our competitors) may define EBITDA differently.
The company presents EBITDA because we believe it to be an important
supplemental measure of our performance that is commonly used by securities
analysts, investors and other interested parties in the evaluation of
companies in our 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 our results as reported under
GAAP. See “GAAP to non-GAAP Reconciliation” below for further information
on our 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 June 30
------------------
(amounts in thousands) 2008 2007
-------- --------
Consolidated Statement of Operations Reconciliation (unaudited)
Net income on a GAAP basis $ 11,965 $ (6,138)
Depreciation and amortization of property and
equipment 1,506 1,556
Amortization of stock-based compensation 923 1,133
Amortization of software development costs 560 372
Amortization of acquired intangible assets 37 37
Interest, financing, and other costs 85 701
Write-off of unamortized debt discount and debt
issuance expenses - 2,458
Provision for income taxes 152 -
Income (loss) from discontinued operations - (145)
-------- --------
EBITDA from continuing operations including gain on
sale of patent 15,228 (2,895)
Less gain from sale of patent (8,060) -
-------- --------
EBITDA from continuing operations before gain on sale
of patent $ 7,168 $ (2,895)
======== ========
Consolidated Statement of Operations Reconciliation per
Share-Diluted
Net Income (loss) per share on a GAAP basis $ 0.26 $ (0.15)
Depreciation and amortization of property and
equipment 0.03 0.04
Amortization of stock-based compensation 0.02 0.03
Amortization of software development costs 0.01 0.01
Amortization of acquired intangible assets 0.00 0.00
Interest, financing, and other costs 0.00 0.02
Write-off of unamortized debt discount and debt
issuance expenses - 0.06
Provision for income taxes 0.00 -
Loss from discontinued operations - 0.00
-------- --------
EBITDA from cont. ops per share incl gain on sale of
patent -Diluted 0.33 0.01
Less gain from sale of patent (0.18) -
-------- --------
EBITDA from continuing operations before gain on sale
of patent $ 0.16 $ 0.01
======== ========
Shares used in calculation - Diluted 45,644 41,166
======== ========
Conference Call
TCS will hold a conference call later today (Thursday, July 31, 2008) to
discuss these second quarter 2008 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 PM 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: 1-800-894-5910 International: 1-785-424-1052 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. on the same day and
until August 31, 2008:
Toll-free replay number: 1-800-688-7945 International replay number: 1-402-220-1370 (No password required)
About TeleCommunication Systems, Inc.
TeleCommunication Systems, Inc. (TCS) (
communications technology solutions that require proven high levels of
reliability. TCS provides wireless and VoIP E9-1-1 network-based services,
secure deployable communication systems, engineered satellite-based
services, and commercial location applications, like traffic and
navigation, using the precise location of a wireless device. Customers
include leading wireless, cable and VoIP carriers around the world and
agencies of the U.S. Departments of Defense, State, and Homeland Security.
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 about (a) TCS technology being well on its way to becoming a de
facto standard for man-portable secure satellite-based communication
systems, (b) the positioning of our satcom systems and the growth in the
use of text messaging and location-based services providing us better
visibility into future revenues and profits, (c) our outlook for
year-over-year growth in revenue and profitability, (d) the expected
deployment of location-based services in India in 2008, and (e) our efforts
to monetize the patent portfolio.
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 its 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, and (viii) 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.
Consolidated Statements of Operations
(amounts in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
(unaudited) (unaudited)
Revenue
Services $ 24,334 $ 22,618 $ 47,100 $ 43,503
Systems 19,577 12,718 37,224 25,952
--------- --------- --------- ---------
Total revenue 43,911 35,336 84,324 69,455
Direct costs of revenue
Direct cost of services
revenue 14,179 13,650 27,837 26,598
Direct cost of systems 10,520 11,005 17,711 17,881
--------- --------- --------- ---------
Total direct cost of
revenue 24,699 24,655 45,548 44,479
Services gross profit 10,155 8,968 19,263 16,905
As a % of revenue 42% 40% 41% 39%
Systems gross profit 9,057 1,713 19,513 8,071
As a % of revenue 46% 13% 52% 31%
--------- --------- --------- ---------
Total gross profit 19,212 10,681 38,776 24,976
Total gross profit as a
% of revenue 44% 30% 46% 36%
Operating costs and expenses
Research and development
expense 3,935 3,266 8,023 6,371
Sales and marketing expense 3,595 3,157 6,694 6,320
General and administrative
expense 5,997 5,499 11,315 10,151
Depreciation and amortization
of property and equipment 1,506 1,556 2,996 3,224
Amortization of acquired
intangible assets 37 37 74 74
--------- --------- --------- ---------
Total operating costs and
expenses 15,070 13,515 29,102 26,140
--------- --------- --------- ---------
Income from operations before
gain on sale of patent 4,142 (2,834) 9,674 (1,164)
Gain on sale of patent 8,060 - 8,060 -
--------- --------- --------- ---------
Income from operations 12,202 (2,834) 17,734 (1,164)
Cash interest expense (200) (514) (529) (1,067)
Amortization of debt discount
and debt issuance expenses (22) (280) (146) (690)
Write-off of unamortized debt
discount and debt issuance
expenses - (2,458) - (2,458)
Other income/(expense), net 137 93 (276) 153
--------- --------- --------- ---------
Income from continuing
operations before income taxes 12,117 (5,993) 16,783 (5,226)
Provision for income taxes (152) - (200) -
--------- --------- --------- ---------
Income from continuing
operations 11,965 (5,993) 16,583 (5,226)
Loss from discontinued
operations - (145) - (269)
--------- --------- --------- ---------
Net income (loss) $ 11,965 $ (6,138) $ 16,583 $ (5,495)
========= ========= ========= =========
Income/(loss) per share- basic
Income per share from
continuing operations $ 0.28 $ (0.15) $ 0.39 $ (0.13)
Loss from discontinued
operations - (0.00) - (0.01)
--------- --------- --------- ---------
Net income/(loss) per
share-basic $ 0.28 $ (0.15) $ 0.39 $ (0.14)
========= ========= ========= =========
Income/(loss) per share-
diluted
Income per share from
continuing operations $ 0.26 $ (0.15) $ 0.37 $ (0.13)
Loss from discontinued
operations - (0.00) - (0.01)
--------- --------- --------- ---------
Net income/(loss) per
share-diluted $ 0.26 $ (0.15) $ 0.37 $ (0.14)
========= ========= ========= =========
Weighted average shares
outstanding- basic 42,486 41,166 42,380 40,990
========= ========= ========= =========
Weighted average shares
outstanding- diluted 45,644 41,166 44,800 40,990
========= ========= ========= =========
TeleCommunication Systems, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands)
June 30, December 31,
2008 2007
------------ ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 28,199 $ 15,955
Accounts receivable, net 31,982 20,424
Unbilled receivables 11,400 15,229
Inventory 4,401 5,373
Deferred costs and other current assets 7,005 4,561
Note receivable from sale of discontinued
operations 1,000 1,000
------------ ------------
Total current assets 83,987 62,542
Property and equipment, net 11,818 11,209
Software development costs, net 3,740 4,406
Acquired intangible assets, net 635 709
Goodwill 1,813 1,813
Other assets 1,230 1,445
------------ ------------
Total assets $ 103,223 $ 82,124
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 21,023 $ 17,374
Deferred revenue 6,135 4,685
Current portion of capital leases and notes
payable 3,770 5,444
------------ ------------
Total current liabilities 30,928 27,503
Capital leases and notes payable, less current
portion and net of debt discount 8,554 10,657
Total stockholders' equity 63,741 43,964
------------ ------------
Total liabilities and stockholders'
equity $ 103,223 $ 82,124
============ ============
