TeleCommunication Systems Reports First Quarter 2014 Results

         TeleCommunication Systems Reports First Quarter 2014 Results

PR Newswire

ANNAPOLIS, Md., May 1, 2014

ANNAPOLIS, Md., May 1, 2014 /PRNewswire/ --TeleCommunication Systems, Inc.
(TCS) (NASDAQ: TSYS), a world leader in highly reliable and secure wireless
communication technology, reported results for the first quarter ended March
31, 2014.

Summary of First Quarter 2014 Results

  oRevenue was $85.1 million, up 8% sequentially from $78.6 million in the
    previous quarter and down 10% from $94.8 million in the first quarter of
    2013.
  oAdjusted EBITDA (earnings before interest, taxes, depreciation,
    amortization, and amortization of non-cash stock-based compensation) was
    $8.0 million compared to $9.5 million in the year-ago quarter (see
    discussion about the presentation of adjusted EBITDA and adjusted net
    income, both non-GAAP terms, below).
  oAdjusted net income was $2.2 million or $0.04 per diluted share, up from
    $2.1 million or $0.04 per diluted share in the first quarter of 2013.
  oGAAP net loss of $(0.01) per diluted share was the same as for the first
    quarter last year.

Commenting on the quarter, Chairman and CEO Maurice B. Tose said: "Our first
quarter operating results were better than budgeted, as we execute our plan
for growing commercial and international business, and as funding for new
government business makes its way through the requisite processes.

"First quarter government business improved over the previous quarter, as we
realized growth in cyber-related services. We were notified yesterday that the
company has been selected as an awardee under the Department of Homeland
Security's EAGLE II contract vehicle for their $22 billion 7-year technology
services contract. Our 9-1-1 business continues to grow, and we see our
commercial funded backlog building as funding for projects going forward is
improving.

"We continue to expand the elements of our commercial platform and
applications solutions into multiple ecosystems via our Application Program
Interface (API) tool kit. We added a third global-scale customer this quarter
to integrate our APIs into their development community. The API tool kit is
used by developers to rapidly integrate messaging and location-based services
into their applications, enabling access to emerging data services in support
of 'the Internet of Things.'

"We also expanded our customer footprint in Europe and the Middle East,
opening a number of new doors to the entire TCS portfolio. Together with our
growing list of intellectual property monetization projects, we see these
milestones leading to steady improvement in operating performance as we
address our increasingly overlapping markets with secure, innovative and
highly reliable wireless technology solutions."

First Quarter 2014 Highlights

  oAwarded a $6.8 million contract to supply maritime satellite systems and
    support to the U.S. Army under the Army's Global Tactical Advanced
    Communications Systems Contract (GTACS) IDIQ vehicle, which has an
    estimated ceiling of $10 billion over five years.
  oSelected as one of the awardees under the Army's multi-year Worldwide
    Communications and Infrastructure Support (WCIS) Basic Ordering Agreement
    (BOA).
  oSigned patent agreement with Patent Monetization Associates (PMA) as part
    of TCS' intellectual property monetization program, whereby PMA acquired
    certain patents from TCS' messaging patent portfolio providing TCS an
    opportunity to receive future royalties.

Summary of Adjusted EBITDA and Adjusted Net Income and Reconciliation to Net
Loss

($000 except EPS)                                      Quarter ended March 31,
                                                       2014          2013
                                                       (unaudited)
Revenue                                                $ 85,090      $ 94,794
Adjusted EBITDA                                        $ 7,977       $ 9,464
Non-cash charges ^1                                    (6,471)       (8,856)
Income from operations                                 1,506         608
Interest and other expense                             (2,235)       (2,236)
Tax benefit                                            252           799
Net loss                                               $ (477)       $ (829)
Net loss per share - diluted                           $ (0.01)      $ (0.01)
Net loss                                               $ (477)       $ (829)
Amortization of non-cash stock-based compensation      1,821         2,452
expense
Amortization of acquired intangible assets             949           1,142
Amortization of deferred financing fees                168           297
Non-cash tax expense/(benefit)                         (252)         (997)
Adjusted net income                                    $ 2,209       $ 2,065
Adjusted net income per share - diluted                $ 0.04        $ 0.04

^1 Non-cash charges are depreciation/amortization of property and equipment,
acquired intangible assets, capitalized software development costs, non-cash
stock-based compensation expense, and impairment of goodwill and long-lived
assets.

First Quarter 2014 Financial Highlights

Revenue and Gross Profit (unaudited):

($millions)        Three months ended March 31,
                   Government           Commercial           Total
                   2014  2013  Incr.    2014  2013  Incr.    2014 2013 Incr.
                               (Decr.)              (Decr.)            (Decr.)
Revenue
 Services          $     $     $ (8.5)  $     $     $ (2.8)  $    $    $
                   27.6  36.1           34.6  37.4           62.2 73.5 (11.3)
 Systems           17.5  16.7  0.8      5.4   4.6   0.8      22.9 21.3 1.6
       Total       $     $     $ (7.7)  $     $     $ (2.0)  $    $    $ (9.7)
       revenue     45.1  52.8           40.0  42.0           85.1 94.8
Gross profit
 Gross             $ 7.9 $     $ (2.8)  $     $     $ (0.1)  $    $    $ (2.9)
 profit-services         10.7           20.9  21.0           28.8 31.7
   As % of revenue 29%   30%            60%   56%            46%  43%
 Gross             3.3   2.8   0.5      2.7   1.0   1.7      6.0  3.8  2.2
 profit-systems
   As % of revenue 19%   17%            50%   22%            26%  18%
   Total gross     $     $     $ (2.3)  $     $     $ 1.6    $    $    $ (0.7)
   profit          11.2  13.5           23.6  22.0           34.8 35.5
   As % of revenue 25%   26%            59%   52%            41%  37%

(Gross Profit = revenue minus direct cost of revenue, including amortization
of capitalized software development costs and related amortization of non-cash
stock-based compensation.)

Government Segment Revenue and Gross Profit:

Government segment revenue in the first quarter of 2014 was $45.1 million
versus $52.8 million in last year's first quarter. Services revenue was lower
due mainly to the draw-down of Afghanistan field support personnel. Government
systems revenue was up due mainly to higher space and component sales, as TCS
awaits expected funding for new system deliveries later this year.

Government gross profit was $11.2 million or 25% of revenue, down from $13.5
million or 26% of revenue last year on the lower volume. Government services
gross profit was down while systems gross profit was up on the higher
components volume.

Commercial Segment Revenue and Gross Profit:

Commercial segment revenue for the first quarter of 2014 was $40.0 million
compared to $42.0 million last year. Services revenue was down due to lower
carrier application subscription revenue, and non-recurring project work in
2013, which was partly offset by continuing growth in 9-1-1-related revenue.
Commercial systems revenue was $5.4 million compared to $4.6 million last
year, up mainly due to higher location platform sales and Nextgen 9-1-1
systems deployment revenue.

Commercial segment gross profit was $23.6 million or 59% of revenue, up from
$22.0 million or 52% of revenue in the first quarter of 2013. Commercial
systems gross profit was higher on more volume and average margins were 50% of
revenue versus 22% a year ago as the higher volume absorbed fixed costs more
efficiently.

Operating Costs and Expenses:

R&D: First quarter 2014 R&D expense was $10.4 million (12% of revenue), up
from $8.5 million (9% of revenue) in the same year-ago quarter. The increase
reflects less first quarter development work being subject to capitalization
than in the first quarter last year, and investments in 9-1-1 software and
updates to location-based products, including toolkits and application program
interfaces for markets beyond network operators.

SG&A: First quarter 2014 selling, general and administrative expense was down
14% to $18.6 million (22% of revenue) from $21.7 million (23% of revenue) in
the first quarter of 2013, reflecting benefits from second half 2013 cost
reductions and efficiency improvements.

Non-cash charges: First quarter 2014 non-cash charges to operating profit were
$6.5 million, down from $8.9 million in last year's first quarter, which was
due to lower depreciation and amortization following fourth quarter 2013
write-downs of some intangible assets and lower non-cash stock-based
compensation.

Income Taxes:

After fully reserving the company's deferred tax assets in 2013, the company
expects negligible income tax charges in 2014. The small credit in the first
quarter reflects an adjustment to expected refunds receivable.

Liquidity and Capital Resources:

At March 31, 2014, TCS had $65.3 million of cash and securities, up from $61.9
million at the beginning of the quarter. Funds were generated in the quarter
from $8.0 million in adjusted EBITDA, a $0.4 million decrease in working
capital, $0.3 million in borrowings under capital lease facilities, and $0.1
million in proceeds from exercises of employee stock options. Cash was used
during the quarter for $1.9 million of debt principal payments, $1.9 million
for capital expenditures (including software development), $0.3 million in
earn-out payments, and $1.3 million for cash interest, cash taxes and other
expenses. At the end of the quarter, the company's liquidity included $30
million availability under the bank line of credit, $14.6 million undrawn
delayed draw term loan facility available for retirement of the remaining
notes due in November 2014, and up to an additional $18.9 million available on
March 31, 2015 for further borrowings as covenant requirements are met.

Intellectual Property:

TCS was issued 14 patents during the first quarter of 2014, and sold eight
issued patents and four pending applications. At quarter-end, the company's
patent portfolio totaled 355 patents issued in the U.S. and abroad, with more
than 300 patent applications pending.

Backlog:

                                   12/31/2013  New Orders  Revenue   3/31/2014
($millions)
Commercial Funded Contract         $ 223.7     $ 59.5      $ (40.0)  $ 243.2
Backlog
Government Funded Contract         64.4        28.7        (45.1)    48.0
Backlog
Total Funded Contract Backlog      288.1       88.2        (85.1)    291.2
Un-funded Customer Options         724.4       (684.1)     -         40.3
Total Backlog                      $ 1,012.5   $ (595.9)   $ (85.1)  $ 331.5

Funded contract backlog on March 31, 2014 was $291.2 million, of which the
company expects to recognize approximately $165.6 million over the next 12
months.

Funded contract backlog is based upon contracts for which fiscal year funding
has been appropriated by the company's customers (mainly federal agencies) and
for hosted services (mainly for wireless carriers). Backlog is computed by
multiplying the most recent month's contract or subscription revenue, by the
months remaining under the existing long-term agreements, which is considered
to be 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 and could expire
unused. Unfunded backlog declined as $680 million of unfunded orders under the
World-Wide Satellite Systems contract vehicle expired unused at the end of the
first quarter of 2014.

The company's backlog, at any given time, may be affected by various factors
including the availability of funding, contracts being renewed or new
contracts being signed before existing contracts are completed. The timing and
amounts of government contract funding may be adversely affected by federal
budget policy decisions, which can lead to delays in procurement of TCS
products and services. Some of the company's 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.

Conference Call
TCS will hold a conference call later today (May 1, 2014) to discuss these
financial results. The company's chairman and CEO, Maurice B. Tose, 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, please dial the appropriate number at least five minutes prior
to the start time and ask for the TeleCommunication Systems conference call.

Dial-In Number: 1-877-941-1428
International Number: 1-480-629-9665
Conference ID: 4678522

The conference call will be broadcast simultaneously via a link available in
the investors section of the company's website at www.telecomsys.com. For the
webcast, please access the link at least 15 minutes prior the call in order to
register and install any necessary audio software. If you have any difficulty
connecting with the conference call or webcast, please contact Liolios Group
at 1-949-574-3860.

A replay of the call will be available after 8:00 p.m. Eastern time through
May 15, 2014 via the same website link as well as by phone:

Replay Dial-in Number: 1-877-870-5176
International Replay Number: 1-858-384-5517
Replay PIN: 4678522

About TeleCommunication Systems, Inc.
TeleCommunication Systems, Inc. (TCS) (NASDAQ: TSYS) is a world leader in
highly reliable and secure mobile communication technology. TCS infrastructure
forms the foundation for market leading solutions in E9-1-1, text messaging,
commercial location and deployable wireless communications. TCS is at the
forefront of new mobile cloud computing services providing wireless
applications for navigation, hyper-local search, asset tracking, social
applications and telematics. Millions of consumers around the world use TCS
wireless apps as a fundamental part of their daily lives. Government agencies
utilize TCS' cyber security expertise, professional services, and highly
secure deployable satellite solutions for mission-critical communications.
Headquartered in Annapolis, MD, TCS maintains technical, service and sales
offices around the world. To learn more about emerging and innovative wireless
technologies, visit www.telecomsys.com.

About the Presentation of Adjusted EBITDA
Adjusted EBITDA 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 adjusted EBITDA as net income/(loss) before (1)
depreciation and amortization of property and equipment: (2) amortization of
non-cash stock-based compensation expense; (3) amortization of capitalized
software development costs;(4) amortization of acquired intangible assets; (5)
interest and other income (expense); (6) amortization of deferred financing
fees; (7) provision (benefit) for income taxes; and (8) impairment of goodwill
and long-lived assets and patent gains, if applicable. Other companies
(including competitors) may define adjusted EBITDA differently. The company
presents adjusted 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 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 adjusted EBITDA in isolation or
as a substitute for analysis of the company's results as reported under GAAP.
See "Summary of Adjusted EBITDA and Adjusted Net Income and Reconciliation to
Net Income/(Loss)" above for further information on this non-GAAP measure.

About the Presentation of Adjusted Net Income
Adjusted net income is not a financial measure calculated and presented in
accordance with 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. Adjusted net income is defined as GAAP net income/(loss)
adjusted for (1) impairment of goodwill and long-lived assets, and patent
gains, if applicable; (2) amortization of non-cash stock-based compensation
expense; (3) amortization of acquired intangible assets; (4) amortization of
deferred financing fees; and (5) non-cash tax expense/(benefit). TCS has
provided adjusted net income in addition to GAAP financial results because
management believes this non-GAAP measure helps provide a consistent basis for
comparison between quarters and fiscal year growth rates that are not
influenced by certain non-cash charges and credits or items not part of our
ongoing operations, and is helpful in understanding the underlying operating
results. See "Summary of Adjusted EBITDA and Adjusted Net Income and
Reconciliation to Net Income/(Loss)" above for further information on this
non-GAAP measure. For adjusted net income diluted per share calculations, the
convertible debt is treated as debt and is assuming no conversion.

Forward-looking Statements
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," "should," "prospect," 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 our IP monetization projects that are under way, our expected
backlog realization, and our liquidity and capital resources, and those that
are made in the commentary sections and by Mr. Tose that (a) we are executing
our plan for growing commercial business and we are awaiting funding for
government business later this year; (b) we see our commercial funded backlog
building as project funding is improving; (c) our customer footprint expansion
in Europe and the Middle East is opening new doors; (d) we see certain
milestones, including intellectual property monetization projects, as leading
to improvement in operating profit; and (e) we expect negligible income tax
charges in 2014.

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) accurately assess
impairment triggering events related to our intangibles, including goodwill;
(iii) 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, and to do so at prices that will allow us to continue to fund our
operations, (iv) conduct its business in foreign countries, (v)adapt and
integrate new technologies into its products and adequately expand its data
centers and data delivery systems, (vi) expand its sales and business
offerings in the wireless communications industry, (vii) develop software and
provide services without any errors or defects and with adequate security
threat protections, (viii) protect its intellectual property rights, (ix) have
sufficient capital resources to fund its operations, (x) not incur substantial
costs from product liability and IP infringement claims and indemnification
demands relating to its software, (xi) implement its sales and marketing
strategy, and (xii) successfully integrate the assets and personnel obtained
in its acquisitions and investments. 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
                                              March 31,          December 31,
(amounts in $000)                             2014               2013
                                              (unaudited)
Assets
 Current assets:
  Cash, equivalents, and marketable           $     65,289  $    
  securities                                                     61,908
  Accounts receivable, net                    44,447             45,789
  Unbilled receivables                        17,072             16,009
  Inventory                                   9,185              9,890
  Deferred project costs and other current    15,063             15,286
  assets
          Total current assets                151,056            148,882
 Property and equipment, net                  36,334             38,355
 Software development costs, net              4,389              4,178
 Acquired intangible assets, net              20,054             21,003
 Goodwill                                     104,241            104,241
 Other assets                                 4,821              4,796
          Total assets                        $    320,895   $   
                                                                 321,455
Liabilities and stockholders' equity
 Current liabilities:
  Accounts payable and accrued expenses       $     35,972  $    
                                                                 38,750
  Deferred revenue                            27,970             24,809
 Current debt:
  Bank term debt, notes payable, and capital  15,734             15,583
  leases
  Convertible notes due 2014                  14,562             14,562
          Total current debt                  30,296             30,145
          Total current liabilities           94,238             93,704
 Noncurrent debt:
  Bank term debt, notes payable, and capital  65,593             67,384
  leases
  Convertible notes due 2018                  50,000             50,000
          Total noncurrent debt               115,593            117,384
 Other liabilities                            1,017              1,124
 Total stockholders'equity                    110,047            109,243
          Total liabilities and stockholders' $    320,895   $   
          equity                                                 321,455



TeleCommunication Systems, Inc.
Consolidated Statements of Operations
(unaudited)
                                                   Three Months Ended
                                                   March 31,
($000 except EPS)                                  2014           2013
Revenue
   Services                                        $  62,269     $  73,518
   Systems                                        22,821         21,276
         Total revenue                             85,090         94,794
Direct costs of revenue
   Direct cost of services revenue                 33,415         41,801
   Direct cost of systems                          16,876         17,512
         Total direct cost of revenue              50,291         59,313
   Services gross profit                           28,854         31,717
      As a % of revenue                            46%            43%
   Systems gross profit                            5,945          3,764
      As a % of revenue                            26%            18%
         Total gross profit                        34,799         35,481
                      Total gross profit as a % of 41%            37%
                      revenue
Operating expenses
   Research and development expense                10,363         8,526
   Sales and marketing expense                     6,931          8,049
   General and administrative expense              11,647         13,648
   Depreciation and amortization of property and   3,403          3,508
   equipment
   Amortization of acquired intangible assets      949            1,142
      Total operating expenses                     33,293         34,873
Income from operations                             1,506          608
Interest expense                                   (2,204)        (1,844)
Amortization of deferred financing fees            (168)          (297)
Other income (expense), net                        137            (95)
Net loss before income taxes                       (729)          (1,628)
Income tax benefit                                252            799
Net loss                                           $    (477)  $   (829)
Net loss per share - basic                        $   (0.01)  $   (0.01)
Net loss per share-diluted                         $   (0.01)  $   (0.01)
Weighted average shares used in calculation -      59,079         58,573
basic
Weighted average shares used in calculation -      59,079         58,573
diluted

TeleCommunication Systems, Inc. Logo.



Company Contacts:
Tom Brandt                    Meredith Allen               Scott Liolios
Senior Vice President and CFO Sr. Director, Corporate      Investor Relations
                              Communications
TeleCommunication Systems,    TeleCommunication Systems,   Liolios Group, Inc.
Inc.                          Inc.
Tel 410-280-1001              Tel 410-295-1865             Tel 949-574-3860
tbrandt@telecomsys.com        MAllen@telecomsys.com        info@liolios.com

Logo - http://photos.prnewswire.com/prnh/20120503/PH99996LOGO

SOURCE TeleCommunication Systems, Inc.

Website: http://www.telecomsys.com
 
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