Facing Government Headwinds TCS Report 19% Revenue Drop in 2nd Quarter

Annapolis, MD., July 26, 2013--TeleCommunication Systems, Inc. (TCS)  reported results for the second quarter ended June 30, 2013. Revenue was US$ 92.8 million, down 19% due mainly to lower government pass-through sales. Gross profit was up 4% to US$ 35.9 million.

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and amortization of non-cash stock-based compensation) was US$ 6.9 million, down 17% from US$ 8.4 million (see discussion about the presentation of adjusted EBITDA and adjusted net income, both non-GAAP terms, below).

Adjusted net loss was $(0.01) per diluted share versus adjusted net income of $0.03 per diluted share in Q2 2012. GAAP net loss was $(0.03) per diluted share compared to $(1.91) per diluted share in the same year-ago quarter. Q2 2012 GAAP net loss included a pre-tax, non-cash goodwill and other intangibles impairment charge of $125.7 million related to a 2009 acquisition. 

Second Quarter 2013 Operational and Financing Highlights

  • Added 51 patents to company portfolio, including 37 wireless location patents acquired and 14 newly awarded patents for innovations in messaging, wireless data, mobile devices, public safety, GIS/mapping, and solid state drive technologies. This brings the company's total patent count to 328 worldwide.
  • Received notice of a 2-year $20 million IT outsource contract award from the City of Baltimore, with three option years.
  • Closed on a new US$ 130 million senior credit facility through 2018 at low prevailing interest rates, including a US$ 43.5 million Delayed Draw Term Loan to be used to refinance remaining 4.5% Convertible Senior Notes due in 2014.
  • Exchanged US$ 50 million in aggregate principal of the company's outstanding 4.5% Convertible Senior Notes due in 2014 for 7.75% Convertible Senior Notes due in June 2018. Subsequent to quarter end, the company retired an additional $9.9 million of the 2014 notes using available cash, leaving $33.6 million of 2014 notes outstanding.

"We realized continued growth in Commercial and Government services revenue led by our cyber security, C4ISR, Nextgen 9-1-1, and emergency preparedness solutions in the quarter, while government systems volume was lower as expected," said Maurice B. Tose, TCS chairman and CEO. "Our Government team continues to execute on a growing pipeline of C4ISR and cyber security opportunities, and related mission-critical areas of federal government spending. Our expanded prime contractor footprint enhances our growth prospects in these areas which are least-affected by federal spending cuts, and we expect seasonally higher federal spending in the second half of this year, “ he added.

Government Segment Revenue and Gross Profit:

Government segment revenue in the second quarter of 2013 was down from 2012 due mainly to less low-margin pass-through revenue than the second quarter of 2012. Government gross profit was up 2% to $12.8 million or 25% of revenue from $12.5 million or 17% of revenue in the same year-ago period.

Government services revenue was up 2% to $33.5 million, and its gross profit was up 6% to $8.9 million or 27% of revenue from $8.4 million or 26% of revenue in the same year-ago period, reflecting higher volume from field support, cybersecurity, and in-building wireless business, and a more favorable business mix in the period.

Government systems revenue was $17.0 million compared to $40.8 million in Q2 2012, down mainly due to lower non-recurring, low margin pass-through revenue than in 2012, as well as to contract funding delays associated with federal procurement processes. Government systems gross profit was down 5% to $3.9 million or 23% of revenue from $4.1 million or 10% of revenue in the second quarter of 2012, reflecting the absence of the 2012 pass-through revenue.

Commercial Segment Revenue and Gross Profit:

Commercial segment revenue in the second quarter of 2013 was $42.3 million, up 3% from $41.1 million in the same year-ago period, and its gross profit was $23.1 million or 55% of revenue, up 5% from $22.0 million or 54% of revenue in the same year-ago quarter.

Commercial services revenue was up 1% to $38.1 million from $37.8 million in the same year-ago period. Commercial services gross profit was up 7% to $23.0 million or 60% of revenue from $21.5 million or 57% of revenue in Q2 2012, due to growth in location platforms and applications, including software development for a wireless platform company.

Commercial systems revenue was up 27% to $4.2 million from $3.3 million in Q2 2012 driven by higher next-generation 9-1-1 deployment project revenue, mainly associated with the purchase of microDATA in the third quarter of 2012. Gross margins after amortization of capitalized software development cost were modest in both periods.