ANNAPOLIS, Md., Nov. 2 /PRNewswire-FirstCall/ -- TeleCommunication Systems, Inc. (TCS) , a global leader in mission-critical wireless communications technology, today announced results for the third quarter ended September 30, 2006.
* Revenue from continuing operations was $30.8 million, down slightly
from $31.9 million in the previous quarter and up 6% from $29.2
million in the third quarter of 2005.
* Gross profit from continuing operations was $13.6 million, down 4%
from $14.2 million in the previous quarter and up 16% from $11.7
million the third quarter of 2005.
* GAAP income from continuing operations was $0.8 million or $0.02 per
share, unchanged from $0.8 million or $0.02 per share in the previous
quarter, and compared to a GAAP loss from continuing operations of
$0.3 million or ($0.01) per share in the third quarter of 2005. Costs
and expenses included non-cash stock-based compensation of $0.7
million ($0.02 per share) in the third quarter of 2006, $0.9 million
($0.02 per share) in the previous quarter and $0.2 million ($0.00 per
share) in the third quarter of 2005.
* Based on Enterprise asset disposition progress at the end of the third
quarter, the company booked a non-cash impairment charge of $13
million in the third quarter of 2006 against book value of
discontinued operations assets, reducing the book value of Enterprise
division goodwill included in the assets of discontinued operations on
the company's balance sheet. The valuation adjustment has no effect
on continuing operations.
* After the impairment charge, GAAP net loss from combined continuing
and discontinued operations was $13.7 million, or ($0.35) per basic
and diluted share, compared to a net loss of $2.2 million, or ($0.06)
per basic and diluted share for the third quarter of last year.
* EBITDA (continuing operations) was $4.6 million or $0.12 per basic and
diluted share, up from $2.4 million or $0.06 per basic and diluted
share in the third quarter of 2005. (See important discussion about
the presentation of EBITDA, below.)
"This is our third consecutive quarter of positive income from continuing operations," noted Maurice B. Tose, TCS chairman, president and CEO, "and TCS expects to meet or exceed the 2006 results we anticipated going into the year. The quarter was also highlighted by a number of major wins. Our Government segment was taken to a new level when TCS was selected as one of six prime contractors for a multi-billion dollar world wide satellite services contract. For our Commercial segment, continued growth in the use of text messaging in the U.S. resulted in another major carrier purchase of message center software license capacity. This validates our strategy of continued investment in carrier software R&D by creating strong carrier software results in the third quarter -- again demonstrating our carrier license/maintenance strategy is sound and effective."
Tose added, "During the quarter we also continued to optimize benefits from our investment in intellectual property. We also secured our 46th U.S. patent, and took other steps to monetize the value of this growing portfolio. We worked intensively with prospective buyers of our Enterprise division assets and expect to conclude dispositions by year-end."
3rd Quarter 2006 Highlights
Commercial Highlights
* Location Platform Was Deployed at Mid-sized US Wireless Carrier. TCS
made its largest ever US in-network Xypoint location-based system sale
to a large, tier 2 wireless carrier.
* Lucent Technologies and TCS Signed Global Reseller Agreement to Offer
Location Solutions to Mobile and Converged Carriers. The agreement
calls for Lucent to distribute and resell globally TCS location-based
solutions and applications. Location-based solutions enable service
providers to offer their enterprise and residential customers a broad
array of useful new services.
* TCS Signed Reseller Agreement with ConneXon Telecom for TCS VoIP
E9-1-1 Service. The agreement opens enterprise markets to TCS.
Designed for mobility, TCS VoIP E9-1-1 service enables ConneXon to
provide affordable emergency call routing to small to medium-size VoIP
providers and enterprises.
* A Multi-Million Dollar Sale of TCS's Short Message Service (SMS)
License Capacity was made. This represented the third consecutive
quarterly carrier purchase. SMS enables wireless users to send short
text messages to wireless and wireline text-message-capable devices.
* 44th and 45th Patents Awarded for TCS's Fourth Precise Location Patent
and Canadian Short Message Service Patent. The 44th patent relates to
providing precise location services to devices on wireless networks.
The 45th patent issued by Canada covers a TCS invention that relates
to sending a text message to a wireless subscriber from multiple Short
Message Service Centers (SMSCs).
* TCS Continued to Expand Location Patent Portfolio with Award of
Assisted GPS Patent. With this 46th patent, TCS now has 13 location-
based patents as part of its location patent portfolio. As Location-
Based Services (LBS) become increasingly adopted, TCS is building a
location-based patent portfolio that meets the requirements of its
carrier customers.
* Intellectual Property Monetization Efforts Progressed. Company
management worked with counsel and consultants to negotiate sales of
patents not actively used in the current business, and to address
cases of apparent infringement.
* TCS Successfully Demonstrated Location Interoperability With New
Handsets During Latest Open\Mobile Alliance TestFest. TCS successfully
passed all planned test cases, setting the gold standard for network
interoperability and functionality. The interoperability
demonstration gave evidence to the increasing number of handsets
expected to be available to support precise location solutions in GSM
and UMTS networks.
* TCS Introduced Next-Generation E9-1-1 Database. The Global ALI with
Location Enhanced Objects (GALILEO(TM)) database supports IP-based
Next Generation 9-1-1 initiatives while remaining compatible with
legacy E9-1-1 systems. This allows TCS to provide location and
callback number information on behalf of wireless, landline, or VoIP
service providers while supporting future data exchange needs, such as
personal information or Vehicle Emergency Data from telematics
providers.
Government Highlights
* TCS Was Named as Awardee in $5 Billion World-Wide Satellite Systems
IDIQ Contract. As one of only six prime contractors awarded, TCS will
offer turn-key, single source and quick reaction solutions for
emerging communications requirements worldwide in support of all
federal missions. TCS expects to work with General Dynamics
Information Technology, Radyne and Data Path Inc. as part of this
program. TCS's entire Swiftlink(R) suite of products and services
that support secure, deployable communication are some of the
solutions TCS will be providing under this program.
* U.S. Navy Selected TCS for SATCOM Terminal Program. The Space and
Naval Warfare (SPAWAR) Systems Center in North Charleston, SC,
selected TCS as one of eight vendors to provide satellite
communications products under a five-year program. The aggregate
value of the program is expected to reach approximately $50 million.
Shipments are expected to begin during the fourth quarter 2006.
* U.S. Marine Corps Selected Swiftlink for Emergency Contingency
Communications. TCS was awarded a contract by U.S. Marine Corps
Forces, Pacific (MARFORPAC) to provide a satellite-based, encrypted
emergency communications network for back-up communications.
* TCS Achieved Major Technological Breakthrough with Availability of
Swiftlink 2510 SLICK. The new highly portable wireless device greatly
reduces the weight and size associated with deployable communication
systems. It supports individual and rapid response team needs for
reliable commercial or U.S. government-type encryption, remote
location networking and broadband Internet Protocol (IP) global area
networking.
Financial Details
Revenue and Gross Profit from continuing operations compared to third quarter 2005 results:
Three months ended September 30
2006 2005
Comml. Govt. Total Comml. Govt. Total
Revenue ($millions)
Services $14.2 $7.3 $21.5 $14.3 $5.7 $20.0
Systems 5.4 3.9 9.3 2.9 6.3 9.2
Total revenue $19.6 $11.2 $30.8 $17.2 $12.0 $29.2
Gross profit ($millions)
Gross Profit-services 6.7 2.0 8.7 7.5 1.8 9.3
As % of rev 47% 27% 40% 53% 32% 46%
Gross Profit-systems 3.7 1.2 4.9 0.7 1.6 2.3
As % of rev 69% 31% 53% 24% 25% 25%
Total Gross Profit $10.4 $3.2 $13.6 $8.2 $3.4 $11.6
As % of rev 53% 29% 44% 48% 28% 40%
(Gross Profit = revenue minus direct cost of revenue, including amortization of software development costs and related non-cash stock compensation, excluding Enterprise Division operations.)
Services revenue and gross profit
Revenue from hosting, subscriber, and maintenance services, mainly for wireless and VoIP carriers, and technical services, mainly for government customers, was $21.5 million in the third quarter of 2006, down 5% from $22.6 million in the previous quarter, and up 7.5% from $20.0 million in same year- ago quarter. The year-over-year growth is due mainly to continuing growth in Voice over IP E9-1-1 business, and in professional and teleport-based services for government customers. The gross profit from this category of revenue was $8.7 million or 40% of revenue in the third quarter of 2006, as compared to $9.1 million or 37% of revenue in the previous quarter, and $9.3 million or 47% of revenue in the third quarter of 2005.
Systems revenue and gross profit
Revenue from sales of systems was $9.3 million, unchanged from $9.3 million the previous quarter, and up 1.1% from $9.2 million for the same period in 2005. Commercial systems revenue was $5.4 million for the quarter, up 42% from $3.8 million in the previous quarter and up 86% from $2.9 million in the same period in 2005. Sales of government systems were $3.9 million in the third quarter of 2006, down 29% from $5.5 million in the previous quarter, and down 38% from $6.3 million a year ago.
The gross profit from systems sales was $4.9 million in the third quarter of 2006 or 53% of revenue, versus $5.2 million or 56% of revenue in the previous quarter, and $2.3 million or 25% of revenue in the third quarter of 2005. Gross profit has been higher in quarters when large capacity license sales occur.
Cash operating expenses (research and development & sales, general, and administrative expenses)
Research and development expense in the third quarter of 2006 was $3.0 million, down 14% from $3.5 million in the previous quarter and down 14% from $3.5 million in the same period in 2005. Sales and marketing expenses totaled $2.8 million in the third quarter of 2006, down 10% from the previous quarter's $3.1 million, and up 8% from $2.6 million in the same period in 2005. General and administrative expenses totaled $4.3 million in the third quarter of 2006, up slightly from $4.1 million in the previous quarter, and up 23% from $3.5 million the third quarter of 2005. G&A expense in 2006 includes higher legal fees associated with intellectual property related activity than in 2005.
Non-cash operating expenses (Depreciation, amortization, and non-cash stock compensation expenses)
Depreciation and amortization of property, equipment, and acquired intangible assets totaled $1.9 million, which is unchanged from $1.9 million in the previous quarter, and compared to $2.1 million in the third quarter of 2005. Non-cash stock compensation expense in the third quarter of 2006 increased to $0.7 million from $0.2 million last year, mainly due to the recognition of compensation expenses as a result of the application of SFAS 123(R).
Liquidity, capital resources, and assets held for sale
At September 30, 2006 the company had $10.7 million of cash and cash equivalents, or about the same as at the end of the previous quarter. Sources of funds were the company's $4.6 million continuing operations EBITDA and net revolving credit borrowings of $5.5 million. Funds were used for capital investments (including software development) of $1.3 million, cash interest of $0.4 million, net spending associated with discontinued operations of $3.9 million, and $1.3 million of net lease and term debt principal reduction. Working capital investment increased by $3.0 million, reflecting the return of days' revenue in receivables to historical levels.
The company recorded a third-quarter $13 million write-down of the value of Enterprise division assets that are held for sale. Negotiations and due diligence are continuing with prospective buyers, and the write-down reflects an updated estimate of proceeds that the Company expects to realize upon conclusion of the disposition process.
Backlog
As of September 30, 2006, the company's continuing operations backlog was approximately $95 million, compared to $104 million at the end of the previous quarter. Backlog expected to be realized in the next 12 months is $60 million, as compared to $57 million at the end of the previous quarter and $60 million at year end 2005.
About the Presentation of EBITDA
EBITDA and 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. We define EBITDA as net income/(loss) before non- cash stock compensation expense; amortization of software development costs, property and equipment and other intangibles; depreciation; and interest expense and other non-cash financing costs. Other companies (including our competitors) may define EBITDA differently. We present 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. You 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.
GAAP to non-GAAP Reconciliation Three months ended September 30,
(amounts in thousands) 2006 2005
Consolidated Statement of Operations (unaudited)
Reconciliation
Net loss on a GAAP basis $ (13,749) $ (2,212)
Cash interest, financing, and other costs 427 133
Depreciation and amortization of property and
equipment 1,895 2,133
Non-cash interest, financing, and other costs 398 88
Amortization of software development costs 369 156
Non-cash stock compensation expense 701 153
Amortization of acquired intangible assets 37 66
Subtotal non-cash charges, continuing ops 3,400 2,596
Writedown of discontinued operations goodwill 13,000 -
Loss from Enterprise operations held for sale 1,510 1,899
Subtotal discontinued ops 14,510 1,899
EBITDA from continuing operations $ 4,588 $ 2,416
Consolidated Statement of Operations
Reconciliation per Share
Net loss on a GAAP basis $ (0.35) $ (0.06)
Cash interest, financing, and other costs 0.01 0.00
Depreciation and amortization of property and
equipment 0.05 0.05
Non-cash interest, financing, and other costs 0.01 0.00
Amortization of software development costs 0.01 0.00
Non-cash stock compensation expense 0.02 0.00
Amortization of acquired intangible assets 0.00 0.00
Subtotal non-cash charges, continuing ops 0.09 0.07
Writedown of discontinued operations goodwill 0.33 -
Loss from Enterprise operations held for sale 0.04 0.05
Subtotal discontinued ops 0.37 0.05
EBITDA from continuing operations 0.12 0.06
Shares used in calculation 39,468 39,003
Conference Call
TCS will host a conference call to discuss the results later today (Thursday, November 2, 2006) at 5:00 PM ET. The company's chairman, president and CEO, Maurice B. Tose, and senior vice president and CFO, Tom Brandt, will host the call. A question and answer session will follow management's presentation.
To participate in the call, dial the appropriate number below shortly before the 5:00 PM start time. Ask for the TeleCommunication Systems conference call hosted by Mr. Tose, with Conference ID#: 35467986. The teleconference dial-in numbers are as follows:
Domestic callers: 1-866-700-7173
International callers: 1-617-213-8838
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 later that evening, beginning at 7:00 PM EST, and will be accessible until November 9, 2006 at 07:00 PM ET. The replay call-in number is 1-888-286-8010 for domestic callers and 1-617-801-6888 for international. The access number is 97929412.
About TeleCommunication Systems, Inc.
TeleCommunication Systems, Inc. (TCS) produces wireless data 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 and engineered satellite-based services, and commercial location applications, like traffic and navigation, using the precise location of a wireless device. Customers include leading wireless and VoIP carriers around the world, and agencies of the U.S. Departments of Defense, State, and Homeland Security. For more information, visit http://www.telecomsys.com/.
(Logo: http://www.newscom.com/cgi-bin/prnh/20030618/TSYSLOGO )
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 statements that (a) TCS is positioned to meet or exceed the 2006 results previously expected; (b) our carrier license/maintenance strategy is sound and effective; (c) TCS is building a location-based patent portfolio that meets the requirements of its carrier customers; (d) we plan to conclude asset dispositions by year-end, (e) shipments of satellite communications products to SPAWAR are expected to begin during the 4th quarter of 2006; and (f) backlog expected to be realized in the next twelve months is $60 million. Also, while management currently expects to fully realize the $5.7 million net book value of assets held for sale upon disposition, there can be no assurance that we will do so.
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. Some of our backlog could be canceled for causes such as late delivery, poor performance, or other factors. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be indicative of eventual actual revenue.
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) reach and sustain profitability when anticipated, (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 business offerings in the new wireless data industry, (vi) 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 Nine months ended
September 30 September 30
2006 2005 2006 2005
(unaudited) (unaudited)
Revenue
Services $ 21,473 $ 20,028 $ 66,060 $ 54,427
Systems 9,337 9,141 28,380 21,002
Total revenue 30,810 29,169 94,440 75,429
Direct costs of revenue
Direct cost of services revenue 12,813 10,660 39,565 28,212
Direct cost of systems 4,423 6,849 13,497 12,949
Total direct cost of revenue 17,236 17,509 53,062 41,161
Services gross profit 8,660 9,368 26,495 26,215
As a % of revenue 40% 47% 40% 48%
Systems gross profit 4,914 2,292 14,883 8,053
As a % of revenue 53% 25% 52% 38%
- - - -
Total gross profit 13,574 11,660 41,378 34,268
Total gross profit as a
% of revenue 44% 40% 44% 45%
Operating costs and expenses
Research and development expense 2,994 3,455 9,403 10,920
Sales and marketing expense 2,787 2,604 8,976 8,205
General and administrative
expense 4,275 3,494 12,649 11,025
Depreciation and amortization of
property and equipment 1,895 2,133 6,196 6,187
Amortization of acquired
intangible assets 37 66 111 140
Total operating costs and
expenses 11,988 11,752 37,335 36,477
Income/(loss) from continuing
operations 1,586 (93) 4,043 (2,209)
Cash interest expense (473) (165) (1,275) 1,280
Non-cash financing cost (398) (84) (1,042) (2,017)
Other income/(expense), net 46 29 137 (259)
Income/(loss) from continuing
operations 761 (313) 1,863 (3,205)
Loss from discontinued operations
before impairment charge (1,510) (1,899) (5,878) (5,133)
Writedown of discontinued
operations goodwill (13,000) (13,000)
Net loss $(13,749) $ (2,212) $(17,015) $ (8,338)
Income/(loss) per share-basic
and diluted
Income/(loss) per share from
continuing operations $ 0.02 $ (0.01) $ 0.05 $ (0.08)
Loss from discontinued
operations (0.37) (0.05) (0.48) (0.14)
Net loss per share-basic $ (0.35) $ (0.06) $ (0.43) $ (0.22)
Weighted average shares
outstanding-basic 39,468 39,003 39,290 38,743
Weighted average shares
outstanding-diluted 39,813 39,003 39,838 38,743
TeleCommunication Systems, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands)
September 30, December 31,
2006 2005
Assets
Current assets:
Cash and cash equivalents $ 10,675 $ 9,320
Accounts receivable, net 21,076 20,886
Unbilled receivables 7,051 6,361
Inventory 3,892 3,197
Other current assets 3,707 2,970
Assets of discontinued operations 13,154 22,891
Total current assets 59,555 65,625
Property and equipment, net 12,587 16,323
Software development costs, net 4,218 3,825
Acquired intangible assets, net 893 1,004
Goodwill 1,813 1,813
Other assets 2,157 1,982
Total assets $ 81,223 $ 90,572
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 12,649 $ 14,146
Deferred revenue 4,164 4,123
Current portion of capital leases and
notes payable 9,672 13,181
Liabilities of discontinued operations 7,470 6,719
Total current liabilities 33,955 38,169
Capital leases and notes payable, less
current portion and net of debt discount 8,499 3,341
Total liabilities 42,454 41,510
Total stockholders' equity 38,769 49,062
Total liabilities and stockholders'
equity $ 81,223 $ 90,572
AP Archive: http://photoarchive.ap.org/
PRN Photo Desk
