TeleCommunication Systems CEO Discusses Q2 Results - Earnings Call Transcript

TeleCommunication Systems, Inc. (TSYS)

Q2 2012 Earnings Call

July 26, 2012 05:00 pm ET


Maurice Tose - Chief Executive Officer and President Board Chairman

Bruce White - Senior Vice President, General Counsel and Corporate Secretary

Tom Brandt - Senior Vice President and Chief Financial Officer Member, Board of Directors


Scott Sutherland - Wedbush Securities

Mark Jordan - Noble Financial

Mike Latimore - Northland Capital



Welcome to the TeleCommunication Systems, Inc Second Quarter 2012 Earnings Conference Call. During today's presentation, all parties will be a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Thursday, July 26 th of 2012.

I would now like to turn the conference over to our host, Mr. Maurice Tose, Chairman and CEO. Please go ahead sir.

Maurice Tose

Good evening. Thank you for joining us to discuss TeleCommunication Systems' second quarter 2012 results. With me are Tom Brandt, our CFO; and Bruce White, our General Counsel.

Before proceeding, Bruce will advise listeners as to cautions with regard to the content of this call and following our presentation, we'll open the lines for Q&A. Bruce.

Bruce White

Thank you, Maurice. Some of the statements you will hear during this call are forward-looking within the meaning of federal securities laws. Some but not all of these statements include language such as believes, expects or anticipates and you should listen to these statements with the knowledge that actual results may differ materially from the forward-looking statements. For example without limitation risks or statements about 2012 outlook, visibility and specific revenue expectations, our principal growth platforms, market opportunities and the timing of possible contracts and anticipate of funding and demand for our products and services are all forward-looking. The risk factors that could cause the results to differ maybe found in our SEC filings, including Forms 10-K and 10-Q. We encourage all investors to read these documents.

Also, during this call, we may refer to measures of income that are not computed in accordance with generally accepted accounting principles. To the extent we refer to non-GAAP data, we have provided a reconciliation in our press release and on our website. Maurice?

Maurice Tose

Thank you, Bruce. Our second quarter 2012 earnings release was issued about 4:15 today, and a full text copy of our press release has been distributed via e-mail and is also available on our website.

We are pleased to report growth in second quarter revenue driven by total comp solutions for federal government customers and commercial 9-1-1 services for network operators and state and local governments.

We continue to see increasing federal needs for our C4ISR secure communication solutions and skilled field support for continuous mission-critical service. Our government business has a robust pipeline of high value contract opportunities, of which several award notices are expected in the second half of this year.

As I indicated in our press release, TCS is now a company with depth of expert technical resources for secure, highly reliable wireless communication. We have nearly 500 SATCOM and network security professionals and about 400 cellular infrastructure and application engineers and specialist, and more than 200 personnel engaged in the network technology that enables public safety communications. These are scarce and valuable resources for enabling secure and reliable communications for government and enterprise. An example is the emerging opportunity into many facets of secure cellular and the efforts of these engineers are expanding our proprietary intellectual property.

On July 6 th, we announced the acquisition of microDATA GIS, a leading next-generation 9-1-1, or next-gen provider. We believe that state and local governments are in the early innings of upgrading their existing 9-1-1 systems from circuit switch to IP-based networks, internet protocol-based networks.

The SEC has predicted total non-recurring next-gen spending of $1.2 billion over 10 years, and an additional $1.5 billion for in fact recurring connectivity posting in operation and maintenance expenses. microDATA's next-gen 9-1-1 roadmap compliments TCS. In addition to complementing TCS's emergency services, internet protocol network or ESInet products, microDATA brings TCS products for customer premise equipment, or CPE, which includes computer aided dispatch integration dashboards, call management products and call handling software and geographic information systems software. Together with TCS's technology, scale and leadership serving the public safety community, we expect to be a formidable competitor in the rapidly growing next-gen 9-1-1 market.

Turning now to highlights of the second quarter, our Government segment's revenue was up $20 million, or 38% compared to the same quarter of last year, including a $22 million increase in pass-through contract revenues.

Government segment first half revenue was $130.3 million, up 38% growth over first half 2011, while gross profit was $25.8 million, up 7%. Government services revenue for the quarter was $33 million, up 2% from a year ago and contributed $8.4 million of gross profit, down from $11 million last year due to pricing compression on some contracts.

TCS was recently awarded a Multi-Million Dollar subcontract to provide managed network service in support of telemedicine applications. Our federal civilian pipeline has grown to over $170 million with growth in IT professional services network integration and in-building wireless solutions.

Our in-building wireless solutions deployed at Walter Reed National Military Medical facilities, Aberdeen Proving Grounds and U.S. hospital at Fort Belvoir, enhanced telemedicine capabilities for the doctors and nurses providing critical, real-time medial information.

Incremental funding of $8 million was received in Q2 to provide integrated, global logistic support for U.S. Marine Corps wireless point-to-point linked solutions in theater, and in mid-July we were awarded an $11 million contract for additional technical assistance on this contract. This growth is a testament to the value of our mature field support and technical training personnel provide.

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