Science & Technology
Science and Technology
Science and Technology
Mon, August 3, 2009
Fri, July 31, 2009
Thu, July 30, 2009
TeleCommunication Systems, Inc.: TeleCommunication Systems Reports Second Quarter 2009 Results
ANNAPOLIS, MD--(Marketwire - July 30, 2009) - TeleCommunication Systems, Inc. (TCS) (
Second Quarter 2009 Results
-- Revenue was $67.1 million, an increase of 53% from $43.9 million in the second quarter of 2008. Total funded and unfunded backlog at quarter end was $406 million versus $206 million at June 30, 2008. -- EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization, including non-cash stock-based compensation) for the quarter was $14.5 million or $0.28 per diluted share, which was up 103%, excluding the $8.1 million gain from the patent sale in the year ago quarter (see discussion about the presentation of EBITDA below). -- Pre-tax income was $10.8 million or $0.21 per diluted share. Excluding the $8.1 million or $0.18 per diluted share gain from the sale of a patent in Q2 2008, pre-tax income in the second quarter 2009 increased 167% over the same year ago quarter. -- Net income after a 39% tax provision in Q2 2009 was $6.6 million or $0.13 per diluted share, versus $0.26 in the second quarter of 2008 which included $0.18 per diluted share from the patent sale gain, and reflected an insignificant income tax provision.
Summary of Reported Income (unaudited)
Three months ended June 30 --------------------- 2009 2008 --------- --------- Revenue: $ 67,136 $ 43,911 --------- --------- Income: EBITDA (see accompanying reconciliation) $ 14,545 $ 7,168 Noncash charges (3,536) (3,026) --------- --------- Income from operations before gain on sale of patent 11,009 4,142 Gain on sale of patent - 8,060 --------- --------- Income from operations 11,009 12,202 Other income/(expense) (173) (85) Tax provision (4,230) (152) --------- --------- Net Income $ 6,606 $ 11,965 ========= ========= Income per diluted share EBITDA (see accompanying reconciliation) $ 0.28 $ 0.16 Noncash charges (0.07) (0.07) --------- --------- Income from operations before gain on sale of patent 0.20 0.09 Gain on sale of patent - 0.18 --------- --------- Income from operations 0.21 0.27 Tax provision (0.07) (0.00) --------- --------- Net Income $ 0.13 $ 0.26 ========= ========= Shares used in calculation - Diluted 51,968 45,664 ========= =========
Management Commentary
"Our second quarter continued the strong, across-the-board operational performance we realized in Q1 and advances us solidly towards exceeding our goals for 2009," said Maurice B. Tosé, TCS chairman and CEO. "We closed on the purchase of LocationLogic assets, and we are already realizing new leverage with the team and products that we are integrating with our incumbent location portfolio.
"Recurring services revenue and profit grew to record levels with the contributions from these acquired location applications, as well as organic growth in E9-1-1 and software maintenance revenue, and growth in government professional services, teleport and maintenance business.
"Systems revenues were also up, as demand for text messaging licenses was driven by continuing sharp growth in wireless subscriber usage. The favorable outlook for continued demand through 2010 is becoming clearer as planning and negotiations are proceeding. Government systems volume and mix were favorable to our expectations, and reflect continued progress in expanding our penetration of secure satellite-based communication solution opportunities.
"Finally, we closed on an expanded senior lending facility, so that we ended the quarter with $59 million of cash and $29 million of unused revolving credit availability. Our company is a platform for growth in exciting areas, and we intend to continue to make judicious investments towards fulfilling the company's full potential."
Second Quarter Financial Highlights
Revenue and Gross Profit (unaudited):
Three months ended June 30 ------------------------------------------------------------- 2009 2008 Incr. (Decr.) ------------------- ------------------- -------------------- Coml. Govt. Total Coml. Govt. Total Coml. Govt. Total ----- ----- ----- ----- ----- ----- ------ ------ ------ Revenue ($millions) Services $20.7 $13.9 $34.6 $16.5 $ 7.8 $24.3 $ 4.2 $ 6.1 $ 10.3 Systems 12.4 20.1 32.5 9.1 10.5 19.6 3.3 9.6 12.9 ----- ----- ----- ----- ----- ----- ------ ------ ------ Total revenue $33.1 $34.0 $67.1 $25.6 $18.3 $43.9 $ 7.5 $ 15.7 $ 23.2 ===== ===== ===== ===== ===== ===== ====== ====== ====== Gross profit ($millions) Gross profit- services $12.3 $ 3.5 $15.8 $ 8.6 $ 1.5 $10.1 $ 3.7 $ 2.0 $ 5.7 As % of rev 59% 25% 46% 52% 19% 42% Gross profit- systems 10.0 4.3 14.3 6.3 2.8 9.1 3.7 1.5 5.2 As % of rev 81% 21% 44% 69% 27% 46% ----- ----- ----- ----- ----- ----- ------ ------ ------ Total Gross Profit $22.3 $ 7.8 $30.1 $14.9 $ 4.3 $19.2 $ 7.4 $ 3.5 $ 10.9 ===== ===== ===== ===== ===== ===== ====== ====== ====== As % of rev 67% 23% 45% 58% 23% 44%
(Gross Profit = revenue minus direct cost of revenue, including amortization of software development costs and related non-cash stock-based compensation.)
Commercial Segment Revenue and Gross Profit:
Commercial segment revenue was a record $33.1 million, up 29% from the same year-ago quarter, and gross profit was up 50% to a record $22.3 million. Services revenue growth includes higher maintenance and E9-1-1 revenue, as well as subscriber-based revenue from LocationLogic applications following the May 19, 2009 acquisition. Commercial systems revenue was up 37% year-over-year to $12.4 million.
Commercial segment gross profit was 67% of commercial revenue, up from 58% a year ago. The higher gross profit on commercial services reflects inclusion of LocationLogic subscriber based revenue for part of the quarter, and higher systems gross profit reflects the higher volume of license sales to accommodate customer growth in the use of our text messaging software.
Government Segment Revenue and Gross Profit:
Revenue from government customers for the quarter was $34 million, up 86% from the same year-ago quarter. Services revenue was up $6.1 million or 78% over the second quarter of 2008, and systems sales were up $9.6 million or 91% over the year-ago quarter.
Gross profit from government customers was $7.8 million in the second quarter of 2009, up 81% from same year-ago quarter. The gross profit as a percentage of government segment revenue was about the same as the year-ago quarter at 23%.
Operating Costs and Expenses:
R&D: Second quarter 2009 R&D expense was $4.9 million (7% of revenue), up $1 million or 26% from $3.9 million (9% of revenue) in the second quarter of 2008. Investments include development of LocationLogic application software acquired during the quarter, along with continuing work on location platform, electronic map applications, VoIP and wireless E9-1-1, text messaging, and deployable satcom technology.
SG&A: Second quarter 2009 selling, general and administrative expense was $12.6 million (19% of revenue), up from $9.6 million (22% of revenue) in the second quarter of 2008. Direct and variable sales and marketing programs have been increased for both the commercial and government business segments. Administrative expenses include transaction costs associated with acquiring the assets of LocationLogic.
Noncash charges: Total non-cash charges to operating profit were $3.5 million in the second quarter of 2009 versus $3 million in the same year-ago quarter.
Income from Operations:
Income from operations was $11 million for the second quarter of 2009, down 10% from $12.2 million in the same year-ago quarter, which included an $8.1 million gain on sale of patent.
Income Taxes:
The company recorded a $4.2 million provision for income taxes against pre-tax income for the second quarter of 2009, representing an effective tax rate of approximately 39%. In the second quarter of 2008, which was prior to the year-end reversal of the deferred tax asset (benefit) reserve, the only tax provision was $0.2 million for alternative minimum taxes.
Net Income:
Net income for the second quarter was $6.6 million or $0.13 per diluted share, compared to net income of $12 million or $0.26 per diluted share in the second quarter of 2008, which included an $8.1 million patent sale gain. The increase in the diluted share count from 45.6 million for the 2008 second quarter to 52.0 million for the second quarter of 2009 mainly reflects the impact on employee options due to higher market price, and the issuance of 1.4 million shares during the quarter for the LocationLogic acquisition, and the fourth quarter 2008 exercise of 1 million investor warrants.
Liquidity and Capital Resources:
At June 30, 2009, TCS had $59 million of cash and equivalents, compared to $35 million at the end of last quarter. Funds were generated in the second quarter from $14.5 million in EBITDA, $22.5 million from new financing and lease financing of fixed asset purchases and $1.3 million from stock option exercises. Uses of cash during the quarter were $15 million for acquiring the assets of LocationLogic (in addition to $10 million of new stock), $3.6 million of capital expenditures, including software development, $7.3 million for debt repayment, and a $12.4 million increase in working capital. We had approximately $29 million of unused borrowing availability under our available lines of credit.
Intellectual Property:
TCS was issued six patents during the second quarter, and acquired 11 patents and 11 patent applications as part of acquiring the assets of LocationLogic. The company's patent portfolio includes 87 patents issued in the U.S. and abroad, with 252 patent applications pending. The company continued efforts to monetize its patents through licensing and other arrangements, as well as use them to position the company for competitive advantages.
Backlog: New Orders/ 3/31/2009 Acquisitions Revenue 6/30/2009 ---------- --------- --------- ---------- Funded Contract Backlog ($mil) Commercial $ 87.8 $ 47.7 $ (33.0) $ 102.5 Government $ 68.9 $ 27.9 $ (34.1) $ 62.7 ---------- --------- --------- ---------- Total Funded Contract Backlog $ 156.7 $ 75.6 $ (67.1) $ 165.2 Customer Options $ 257.8 $ (16.8) $ - $ 241.0 ---------- --------- --------- ---------- Total Backlog $ 414.5 $ 58.8 $ (67.1) $ 406.2 ========== ========= ========= ==========
Funded contract backlog on June 30, 2009 was approximately $165 million of which the Company expects to recognize approximately $124 million in the next twelve months. Total backlog was approximately $406 at the end of the second quarter of 2009. Funded contract backlog represents contracts for which fiscal year funding has been appropriated by our customers (mainly federal agencies), and for our hosted services is computed by multiplying the most recent month's recurring revenue times the remaining months under existing long-term agreements, which we believe is the best available information for anticipating revenue under those agreements. Total backlog, as is typically measured by government contractors, includes orders covering optional periods of service and/or deliverables, but for which budgetary funding may not yet have been approved. Company backlog at any given time may be affected by a number of factors, including the availability of funding, contracts being renewed or new contracts being signed before existing contracts are completed. Some of our backlog could be canceled for causes such as late delivery, poor performance and other factors. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be indicative of eventual actual revenue.
About the Presentation of EBITDA
EBITDA (from continuing operations) is not a financial measure calculated and presented in accordance with U.S. generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income, operating income or any other financial measures so calculated and presented, nor as an alternative to cash flow from operating activities as a measure of liquidity. The company defines EBITDA as net income/(loss) before depreciation; amortization of non-cash stock-based compensation; amortization of software development costs, property and equipment and other intangibles; taxes; and interest expense and other non-cash financing costs. Other companies (including competitors) may define EBITDA differently. The company presents EBITDA because management believes it to be an important supplemental measure of performance that is commonly used by securities analysts, investors and other interested parties in the evaluation of companies in the industry. Management also uses this information internally for forecasting and budgeting. It may not be indicative of the historical operating results of TCS nor is it intended to be predictive of potential future results. Investors should not consider EBITDA in isolation or as a substitute for analysis of the company's results as reported under GAAP. See "GAAP to non-GAAP Reconciliation" below for further information on this non-GAAP measure. Shares used in the calculation of GAAP diluted earnings per share are the same as the shares used in the calculation of diluted adjusted operating income/(loss) per share except when the company reports a GAAP loss.
Three months ended GAAP to non-GAAP Reconciliation June 30 (amounts in thousands) ------------------ 2009 2008 --------- -------- Consolidated Statement of Operations Reconciliation (unaudited) Net income on a GAAP basis $ 6,606 $ 11,965 Depreciation and amortization of property and equipment 1,434 1,506 Amortization of stock-based compensation 1,218 923 Interest, financing, and other costs 173 85 Amortization of software development costs 762 560 Amortization of acquired intangible assets 122 37 Provision for income taxes 4,230 152 --------- -------- EBITDA from continuing operations including gain on sale of patent 14,545 15,228 --------- -------- Less gain from sale of patent - (8,060) --------- -------- EBITDA from continuing operations before gain on sale of patent $ 14,545 $ 7,168 ========= ======== Consolidated Statement of Operations Reconciliation per Share-Diluted Net Income (loss) per share on a GAAP basis $ 0.13 $ 0.26 Depreciation and amortization of property and equipment 0.03 0.03 Amortization of stock-based compensation 0.02 0.02 Interest, financing, and other costs 0.00 0.00 Amortization of software development costs 0.01 0.01 Amortization of acquired intangible assets 0.00 0.00 Provision for income taxes 0.08 0.00 --------- -------- EBITDA from cont. ops per share incl gain on sale of patent - Diluted 0.28 0.33 --------- -------- Less gain from sale of patent - (0.18) --------- -------- EBITDA from continuing operations before gain on sale of patent $ 0.28 $ 0.16 ========= ======== Shares used in calculation - Diluted 51,968 45,644 ========= ========
Conference Call
TCS will hold a conference call later today (Thursday, July 30, 2009) to discuss these second quarter 2009 financial results. The company's chairman, president and CEO, Maurice B. Tosé, and senior vice president and CFO, Tom Brandt, will host the call starting at 5:00 p.m. Eastern time. A question and answer session will follow management's presentation.
To participate in the call, dial the appropriate number 5-10 minutes prior to the start time, ask for the TeleCommunication Systems conference call and provide the conference ID:
Dial-In Number: 1-800-862-9098 International: 1-785-424-1051 Conference ID#: 7TELECOM
The conference call will be broadcasted simultaneously on the company's Web site at [ www.telecomsys.com ]. For the webcast, please go to the Web site at least 15 minutes early to register, download, and install any necessary audio software. If you have any difficulty connecting with the conference call or webcast, please contact the Liolios Group at 949-574-3860.
A replay of the call will be available after 8:00 p.m. Eastern time on the same day and until August 30, 2009:
Toll-free replay number: 1-800-688-7945 International replay number: 1-402-220-1370 (No passcode required)
About TeleCommunication Systems
TeleCommunication Systems, Inc. (TCS) (
This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. These statements are based upon TCS' current expectations and assumptions that are subject to a number of risks and uncertainties that would cause actual results to differ materially from those anticipated. The words, "believe," "expect,'' "intend," "anticipate,'' and variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Statements in this announcement that are forward-looking include, but are not limited to statements that (a) are made by Mr. Tosé generally, including that the Company's second quarter performance advances the Company toward exceeding goals for 2009, (b) integration of LocationLogic assets will create new competitive leverage, (c) services revenues are recurring; (d) the demand for text messaging licenses will continue and produce growth in the Company's Commercial segment, (e) the Company expects to continue expanding penetration of secured satellite based communication solution opportunities, (f) the Company intends to make judicious investments towards fulfilling its potential, (g) the Company will continue its efforts to monetize its patents, and (h) the Company's assumptions regarding the backlog are accurate.
Additional risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission (SEC). These include without limitation risks and uncertainties relating to the Company's financial results and the ability of the Company to (i) sustain profitability, (ii) continue to rely on its customers and other third parties to provide additional products and services that create a demand for 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. Condensed Consolidated Balance Sheets (amounts in thousands) June 30, December 31, 2009 2008 ----------- ----------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 59,014 $ 38,977 Accounts receivable, net 48,137 61,827 Unbilled receivables 20,360 21,797 Inventory 12,483 2,715 Investment in marketable securities 60 78 Deferred income tax benefit 9,736 9,736 Deferred costs and other current assets 4,944 3,791 ----------- ----------- Total current assets 154,734 138,921 Property and equipment, net 15,559 12,391 Software development costs, net 10,805 2,773 Acquired intangible assets, net 4,105 562 Goodwill 13,377 1,813 Defered income tax benefit 17,614 24,309 Other assets 2,407 1,190 ----------- ----------- Total assets $ 218,601 $ 181,959 =========== =========== Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued expenses $ 37,182 $ 51,588 Deferred revenue 11,528 4,349 Current portion of capital leases and notes payable 6,697 3,837 ----------- ----------- Total current liabilities 55,407 59,774 Capital leases and notes payable, less current portion, and other long term debt 21,969 7,913 Total stockholders' equity 141,225 114,272 ----------- ----------- Total liabilities and stockholders' equity $ 218,601 $ 181,959 =========== =========== TeleCommunication Systems, Inc. Consolidated Statements of Operations (amounts in thousands, except per share data) Three months ended Six months ended June 30, June 30, ------------------ ------------------ 2009 2008 2009 2008 -------- -------- -------- -------- (unaudited) (unaudited) Revenue Services $ 34,594 $ 24,334 $ 65,218 $ 47,100 Systems 32,542 19,577 72,419 37,224 -------- -------- -------- -------- Total revenue 67,136 43,911 137,637 84,324 Direct costs of revenue Direct cost of services revenue 18,820 14,179 37,189 27,837 Direct cost of systems 18,266 10,520 45,154 17,711 -------- -------- -------- -------- Total direct cost of revenue 37,086 24,699 82,343 45,548 Services gross profit 15,774 10,155 28,029 19,263 As a % of revenue 46% 42% 43% 41% Systems gross profit 14,276 9,057 27,265 19,513 As a % of revenue 44% 46% 38% 52% -------- -------- -------- -------- Total gross profit 30,050 19,212 55,294 38,776 Total gross profit as a % of revenue 45% 44% 40% 46% Operating costs and expenses Research and development expense 4,915 3,935 9,789 8,023 Sales and marketing expense 4,172 3,595 8,163 6,694 General and administrative expense 8,398 5,997 15,290 11,315 Depreciation and amortization of property and equipment 1,434 1,506 2,888 2,996 Amortization of acquired intangible assets 122 37 159 74 -------- -------- -------- -------- Total operating costs and expenses 19,041 15,070 36,289 29,102 -------- -------- -------- -------- Gain on sale of patent - 8,060 - 8,060 -------- -------- -------- -------- Income from operations 11,009 12,202 19,005 17,734 Cash interest expense (225) (200) (413) (529) Amortization of debt issuance expenses (53) (22) (58) (146) Other income/(expense), net 105 137 284 (276) -------- -------- -------- -------- Income before income taxes 10,836 12,117 18,818 16,783 Provision for income taxes (4,230) (152) (7,345) (200) -------- -------- -------- -------- Net income $ 6,606 $ 11,965 $ 11,473 $ 16,583 ======== ======== ======== ======== Net income per share-basic $ 0.14 $ 0.28 $ 0.25 $ 0.39 ======== ======== ======== ======== Net income per share-diluted excl. patent sale $ 0.13 $ 0.09 $ 0.22 $ 0.19 Gain on sale of patent per share-diluted $ - $ 0.18 $ - $ 0.18 -------- -------- -------- -------- Net income per share-diluted $ 0.13 $ 0.26 $ 0.22 $ 0.37 ======== ======== ======== ======== Weighted average shares outstanding-basic 46,765 42,486 46,170 42,380 Weighted average shares outstanding-diluted 51,968 45,644 51,557 44,800
