TeleCommunication Systems Reports Fourth Quarter and Full Year 2012 Results
Feb 06, 2013 (Close-Up Media via COMTEX) --
TeleCommunication Systems, Inc. (TCS), a provider of highly reliable and secure mobile communication technology, reported results for the fourth quarter and fiscal year ended December 31.
In a release on Jan. 31, the Company noted fourth quarter 2012 results compared to the same year-ago quarter:
-Revenue increased 9 percent to $132.7 million.
-Gross profit was up 20 percent to a record $47.2 million.
-EBITDA (Earnings before interest, taxes, depreciation, amortization and non-cash stock-based compensation) was up 45 percent to $20.4 million (see discussion about the presentation of EBITDA and Adjusted net incom e, both non-GAAP terms, below).
-Adjusted net income was $13.1 million or $0.20 per diluted share, up 126 percent from $5.8 million or $0.10 per diluted share in Q4 2011.
-GAAP net income was $9.3 million or $0.15 per diluted share, up 8-fold from $1.0 million or $0.02 per diluted share in the same year-ago period.
Full Year 2012 Results Compared to 2011
-Revenue was up 15 percent to a record $487.4 million.
-Gross profit increased 6 percent to a record $160.2 million.
-EBITDA was $55.3 million as compared to last year's $59.0 million.
-Adjusted net income was $25.1 million or $0.41 per diluted share, as compared to last year's $27.9 million or $0.45 per diluted share.
-GAAP net loss was $98 million or $(1.69) per diluted share after a $125.7 million pre-tax, non-cash goodwill and other intangibles impairment charge in Q2 2012 related to a 2009 acquisition, compared to GAAP net income of $7.0 million or $0.12 per diluted share in 2011.
"Our company had a strong final 2012 quarter, resulting in another year of record revenue and gross profit," said Maurice B. Tose, TCS chairman and CEO. "Our results were driven primarily by continued strong results from TotalCom government customer solutions, commercial 9-1-1 services revenue growth, sales of navigation technology into new markets, and traction in monetizing the company's growing portfolio of protected intellectual property. We have built internal processes for intellectual property sales, licensing and license enforcement and closed two patent monetization transactions during the quarter: one with a subsidiary of Acacia Research acquiring the rights to a portion of our wireless data patent portfolio, and another with IP Cube Partners, a Korean company, which bought two of our navigation patents.
"Operationally, collaborations among our network and software engineers across business units have increased, as TCS tailors wireless communication solutions to address growing demand for in-building wireless, public safety and enterprise connectivity. During the second half of 2012, TCS was selected as a prime vendor on two multi-billion-dollar five-year federal communications contract vehicles: the Army's GTACS and DISA/GSA's CS2/FCSA, broadening and extending our access to new business opportunities.
"Our growth has brought TCS to a scale that positions us to participate in major global markets. And the company's 25 years of experience with converging communication technologies cellular, satellite, data, voice, packet-switched, and encrypted positions the company as an attractive source of secure and highly reliable wireless technology with multiple solutions, customers and channels."
Government Segment Revenue and Gross Profit:
Government segment revenue in the fourth quarter of 2012 was $82.6 million, up 12 percent from $73.5 million in the fourth quarter of 2011. Government services revenue was up 22 percent to $42.1 million from $34.6 million, with growth coming from in-building wireless and other professional service projects. Government systems revenue was up 4 percent to $40.5 million from $38.9 million in the fourth quarter of 2011 on sales of a variety of deliverables.
Government segment gross profit in the fourth quarter of 2012 was up 29 percent to $19.6 million or 24 percent of revenue from $15.2 million or 21 percent of revenue in the same year-ago period. Gross profit for Government services was up 20 percent to $11.8 million or 28 percent of revenue from $9.8 million or 28 percent of revenue in the same year-ago period, reflecting the higher volume of business. Government systems gross profit was up 44 percent to $7.8 million or 19 percent of revenue from $5.4 million or 14 percent of revenue in the prior-year quarter on a more favorable mix of sales.
For the full year, Government segment revenue was $304.7 million, up 30 percent from $234.2 million in 2011. Government services revenue was up 13 percent to $146.1 million from $129.2 million, and Government systems revenue was up 51 percent to $158.6 million from $105.0 million in 2011, including about $50 million of mid-year low margin pass-through sales.
Government segment gross profit for the full year 2012 was up 16 percent to $63.1 million or 21 percent of revenue from $54.3 million or 23 percent of revenue in 2011. Gross profit dollars were up in 2012 as compared to 2011 on higher volume.As a percentage of revenue, the average was brought down by below-normal margin on pass-through systems sales in the mix. Full year 2012 gross profit dollars from Government services was about flat, as higher volume offset the effect of a lower average margin mix. Government systems gross profit was up 65 percent to $24.9 million or 16 percent of revenue from $15.1 million or 14 percent of revenue in 2011 on higher volume.
Commercial Segment Revenue and Gross Profit:
Commercial segment revenue in the fourth quarter of 2012 was $50.1 million, up 4 percent from $48.2 million in the same year-ago period. Commercial services revenue was down 7 percent to $41.0 million from $44.3 million in the same year-ago period, as higher revenue from 9-1-1 business offset the year-over-year decline in carrier channel navigation revenue. Commercial systems revenue was more than double that of last year's fourth quarter from sales of software licenses and other infrastructure for next generation 9-1-1, proceeds from patent sales, and navigation revenue from new markets.
Commercial segment gross profit in the fourth quarter of 2012 was $27.6 million or 55 percent of revenue, up 15 percent from $24.1 million or 50 percent of revenue in the same year-ago quarter, largely from the improvement in system sales.
For the full year, Commercial segment revenue in 2012 was down 4 percent to $182.7 million from $191.2 million in 2011. The mix of business shifted towards 9-1-1 with the added contribution from the company's mid-year acquisition of nextgen specialist microDATA. Commercial services revenue was down 9 percent to $159.0 million from $174.7 million in the prior year, as 9-1-1 revenue was up and carrier channel application revenue was down. Systems revenue for the year was up 44 percent to $23.7 million from $16.5 million in 2011, reflecting higher nextgen 9-1-1 infrastructure revenue.
Commercial segment gross profit for the full year 2012 was $97.1 million or 53 percent of revenue, which was about the same as 2011's $96.9 million or 51 percent of revenue.
Operating Costs and Expenses:
R&D: Fourth quarter 2012 R&D expense was $9.2 million (7 percent of revenue), down 11 percent from $10.3 million (8 percent of revenue) in the year-ago quarter. For the full year, R&D expense was $36.6 million (8 percent of revenue), down slightly from $37.1 million (9 percent of revenue) in 2011. TCS continues to invest in wireless, VoIP and next generation 9-1-1, secure satellite-based communications technology for government customers, and infrastructure and applications for network operators and the telematics supply chain.
SG&A: Fourth quarter 2012 selling, general and administrative expense was $21.6 million (16 percent of revenue), up 6 percent from $20.5 million (17 percent of revenue) in the fourth quarter 2011. For the full year, selling, general and administrative expense was $85.0 million (17 percent of revenue), up 12 percent from $75.6 million (18 percent of revenue) in 2011. The increases reflect selective deployment of incremental sales resources for new markets, higher investments associated with intellectual property initiatives, and accruals for variable compensation associated with improved operating performance in the quarter.
Non-cash charges: Fourth quarter 2012 non-cash charges to operating profit were $8.6 million, down 16 percent from $10.3 million in the same year-ago quarter following the second quarter 2012 write-down of some acquired intangibles. For the full year, non-cash charges were $161.0 million compared to $38.1 million in 2011, including the pre-tax, non-cash goodwill and other intangibles impairment charge of $125.7 million in Q2 2012 related to TCS' 2009 acquisition of Networks In Motion.
For the fourth quarter of 2012, the company recorded $0.7 million or a 7 percent provision for income taxes against pre-tax income, and for the full year 2012 booked a $15.5 million benefit or 14 percent effective rate provision.
Liquidity and Capital Resources:
At December 31, TCS had $51.5 million of cash, equivalents and marketable securities, compared to $64.6 million at the beginning of the quarter. Funds were generated in the fourth quarter of 2012 from $20.4 million in EBITDA, $6.7 million in net borrowings under bank and lease facilities, and $0.1 million in proceeds from exercise of employee stock options. Uses of cash during the quarter included $9.6 million for early retirement of $10 million of 4.5 percent convertible notes, a $19.4 million increase in working capital, $4.4 million for capital expenditures including software development, $4 million for scheduled debt repayments, and $2.9 million for cash interest, cash taxes, and other expenses. At the end of the quarter, the company had approximately $77 million of total available liquidity, including $25 million of unused borrowing availability under its bank credit line.
TCS was issued nine U.S. and two foreign patents during the fourth quarter of 2012, and two patents were sold, bringing the quarter-end patent portfolio to 263 patents issued in the U.S. and abroad, and more than 350 patent applications pending.
Funded contract backlog on December 31, was $308.7 million, of which the company expects to recognize approximately $218 million in the next 12 months.
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