• Home /
• Citybiznews /
• Advertising/Media/Communications /

TeleCommunication Systems Reports Q2 2011 Net Income of $7.5M

Year-Over-Year Services Revenue Up 20% to Record $76 Million, Driving 15% Improvement in Total Company Gross Profit to Record Level

ANNAPOLIS, MD -- TeleCommunication Systems, Inc. (TCS) (NASDAQ: TSYS), a world leader in highly reliable and secure mobile communication technology, reported results for the second quarter ended June 30, 2011.

Second Quarter 2011 Results Compared to the Same Year-ago Quarter

• Revenue was $100.7 million, up 9% from $92.7 million in 2010's second quarter. Services revenue was up 20% on higher volume from satcom, cyber security, and LBS technology deliverables.

• Gross profit was $38.1 million, up 15% from $33.2 million, and represents the company's highest quarterly gross profit to date.

• EBITDA (Earnings before Interest, Taxes, Depreciation, Amortization and non-cash stock-based compensation) was $14.9 million versus $15.4 million in Q2-10.

• Adjusted net income was $7.5 million or $0.12 per diluted share, compared to $8.2 million or $0.13 per diluted share a year ago. GAAP net income was $2.1 million or $0.03 per diluted share, compared to net income of $3.1 million or $0.06 per diluted share in the second quarter of 2010. (See discussion about the presentation of EBITDA and Adjusted Net Income, non-GAAP terms, below.)

Management Commentary
"Our results for the second quarter reflect continuing steady growth in services revenue along with a resurgence in government system shipments after the 2011 federal budget finally passed in mid-April," said Tom Brandt, TCS SVP and CFO. "The record revenue in government services was driven by growth in secure wireless communications support, managed services, and cyber security training. As expected, our Commercial Segment profits reflect the shift in mix towards predominantly location-based technology sources."

Maurice B. Tosé, TCS chairman and CEO, commented: "We are focusing resources on high growth global opportunities, and making timely and appropriate investments to build on our leadership positions. Our Commercial team has been enhanced by two key personnel additions during the quarter, Brian McNealy as SVP of sales and Jay Whitehurst as SVP of carrier software. Together, these industry veterans bring more than 60 years of experience in delivering valuable communications technology to network operators. Our continuing investments in R&D have yielded a record 27 new U.S. patents issued in the first half of 2011.

"We are confident that our depth of protected intellectual property, industry experience and scale, as well as our focus on secure, reliable solutions, together positions TCS to license, partner, and continue to lead in markets that depend on trustworthy communications technology."

Government Segment Revenue and Gross Profit:
Government Segment second quarter 2011 revenue was $53.1 million, up 19% from the same year-ago quarter. Government services revenue was a record $32.2 million, up 46%, and related services gross profit was a record $11 million or 34% of revenue, up from $6.7 million or 30% of revenue in the same year-ago period. Government systems volume rebounded after early 2011 federal budget continuing resolution issues were resolved, and continuing volume improvement is expected for the balance of 2011.

Commercial Segment Revenue and Gross Profit:
Second quarter 2011 Commercial Segment revenue was about flat to the same year-ago quarter, as revenue growth from location-based deliverables offset the expected lower revenue from text messaging licenses. Commercial gross profit was $24.6 million or 52% of revenue for Q2 2011, up from $24.1 million and 50% in Q2 2010, due to a more favorable trend in mix among location-based services and licensed products.

Operating Costs and Expenses:
R&D: Second quarter 2011 R&D expense totaled $9.6 million (10% of revenue), up 47% from the same year-ago quarter, reflecting investments in location-based technology and related applications for wireless carriers, as well as telematics, messaging, and secure, highly reliable tactical communication solutions.

SG&A: Second quarter 2011 selling, general and administrative expense was $18.4 million (18% of revenue), up from $15.8 million (17% of revenue) in the second quarter of 2010. The increase includes addition of the SG&A of Trident operations acquired in January 2011.

Non-cash charges: Total non-cash charges were $8.7 million in the second quarter of 2011, compared to $8 million in the same year-ago quarter, up due to amortization of recent investments in acquired assets and software development.

Income Taxes:
The company recorded a $1.8 million provision for income taxes against pre-tax income for the second quarter of 2011, representing an effective tax rate of 46%. For the second quarter of 2010, the effective tax rate was 43%. These tax charges are mostly noncash as loss carryforward benefits are expected to shield tax liabilities through the end of 2011.

Liquidity and Capital Resources:
At June 30, 2011, TCS had $62.4 million of cash, equivalents, and marketable securities, up from $54.7 million at the beginning of the quarter. Funds were generated in the second quarter of 2011 from $14.9 million in EBITDA, $8 million from working capital, $1.1 million from new lease financing for fixed assets, and $0.6 million in proceeds from exercise of employee stock options. Uses of cash for the quarter included $8.7 million of scheduled debt principal and lease payments including a $5 million note payment related to the 2009 NIM acquisition; $6.6 million for capital expenditures including software development; and $1.6 million for cash interest, financing and other expenses. The company had approximately $33.5 million of unused borrowing availability under its bank credit line at quarter end.

Intellectual Property:
TCS was issued 11 patents during the second quarter of 2011, bringing the quarter-end patent portfolio to 173 patents issued in the U.S. and abroad, and more than 300 patent applications pending.

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 EBITDA
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 EBITDA as net income/(loss) before depreciation; amortization of non-cash stock-based compensation; amortization of capitalized 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 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 the company's results as reported under GAAP. See "GAAP to non-GAAP Reconciliation" above 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.

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 adjusted for amortization of acquired intangibles, non-cash stock-based compensation expense, non-cash tax and financing charges.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.

TeleCommunication Systems, Inc.

blog comments powered by Disqus

• Get Email Newsletter
• Subscribe to RSS
• Text Size: A A