TeleCommunication Systems Reports Third Quarter 2011 Results

ANNAPOLIS, MD, Oct 27 (MARKET WIRE) --
TeleCommunication Systems, Inc. (TCS) (NASDAQ: TSYS), a world leader in
highly reliable and secure mobile communication technology, reported
results for the third quarter ended September 30, 2011.

Third Quarter 2011 Results

-- Total revenue was up 9% from the same year-ago quarter to a record
$112.6 million. Services revenue was up 12% on higher volume from
satcom, cybersecurity, and location-based carrier technology-related
deliverables, with Systems revenue gaining 5% on higher volume of
communication systems and components for government customers.

-- Gross profit was up 2% to $37.3 million over the same year-ago
quarter, and represented the company's second highest quarterly gross
profit following the highest record level set in the prior quarter.

-- EBITDA (Earnings before Interest, Taxes, Depreciation, Amortization
and non-cash stock-based compensation) was $14.8 million versus $17.5
million in the same year-ago quarter.

-- Adjusted net income was $6.7 million or $0.11 per diluted share,
compared to $10.5 million or $0.17 per diluted share a year ago. GAAP
net income was $1.8 million or $0.03 per diluted share, compared to
net income of $4.3 million or $0.08 per diluted share in the third
quarter of 2010. (See discussion about the presentation of EBITDA and
Adjusted Net Income, non-GAAP terms, below.)

-- Funded backlog grew from $434 million to $486 million in the quarter
reflecting net new orders and contracts.

Management Commentary

"As expected, our volume in communication solutions for government
customers has ramped up in the second half, while commercial revenue and
profit contributions from location-based technology for wireless carriers
continue at a higher run rate than last year," said Tom Brandt, TCS SVP
and CFO. "The quarter also saw a good uptick in funded backlog as
contract extensions and fiscal year end government procurements enhanced
our visibility."

Maurice B. Tose, TCS chairman and CEO, commented: "It is a good time to
be a company focused on secure and highly reliable communications
technology. We have built a suite of secure communication solutions with
federal government customers, and are increasingly bringing to bear our
expertise in cellular infrastructure to address growing government needs
for secure wireless communications. We are likewise pursuing carrier,
telematics, and next generation 9-1-1 opportunities to expand our global
footprint of highly reliable location-based solutions. And with renewed
attention to our intellectual property portfolio, we are encouraged by
the results of the recent appraisal of our patents at up to $171 million,
and the prospects for their monetization."

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

Quarter ended September 30
--------------------------
2011 2010
------------ ------------
(unaudited)

Revenue $ 112,620 $ 102,949
============ ============
EBITDA $ 14,812 $ 17,542
Non-cash charges (1) (9,529) (8,107)
------------ ------------
Income from operations 5,283 9,435
Interest and other expense (2,057) (1,490)
Tax provision (1,385) (3,623)
------------ ------------
Net Income $ 1,841 $ 4,322
============ ============
Add back tax-effected convertible debt interest
expense (2) - 757
------------ ------------
Net Income for Diluted EPS calculation $ 1,841 $ 5,079
============ ============

Diluted shares for Net Income per Share (2) 59,199 64,573

Net Income per Share - Diluted $ 0.03 $ 0.08
============ ============

Net Income $ 1,841 $ 4,322
Non-cash stock based compensation expense 2,204 2,047
Amortization of acquired intangible assets 1,404 1,161
Non-cash tax expense 1,073 2,817
Amortization of deferred finance fees 187 187
------------ ------------
Adjusted Net Income 6,709 10,534
Add back tax-effected convertible debt interest
expense (2) 664 757
------------ ------------
Adjusted Net Income for Diluted EPS calculation $ 7,373 $ 11,291
============ ============

Diluted shares for Adjusted Net Income per Share
(2) 69,201 64,573

Adjusted Net Income per Share - Diluted $ 0.11 $ 0.17
============ ============

(1)Non-cash charges are depreciation/amortization of fixed assets, acquired
intangible assets, software development costs and stock-based compensation
expense.
(2)Shares issuable via the convertible debt are included if dilutive, in
which case tax-effected interest expense on the debt is excluded from the
determination of Net Income per Share and Adjusted Net Income per Share.

Third Quarter Financial Highlights

Revenue and Gross Profit (unaudited):

Three months ended September 30
--------------------------------------------------------------
2011 2010 Incr. (Decr.)
-------------------- -------------------- ------------------
Coml. Govt. Total Coml. Govt. Total Coml. Govt. Total
----- ----- ------ ----- ----- ------ ----- ----- -----
Revenue
($millions)
------------
Services $42.3 $31.9 $ 74.2 $43.0 $23.2 $ 66.2 $(0.7) $ 8.7 $ 8.0
Systems 4.0 34.4 38.4 11.6 25.1 36.7 (7.6) 9.3 1.7
----- ----- ------ ----- ----- ------ ----- ----- -----
Total
revenue $46.3 $66.3 $112.6 $54.6 $48.3 $102.9 $(8.3) $18.0 $ 9.7
===== ===== ====== ===== ===== ====== ===== ===== =====

Gross profit
($millions)
------------
Gross
profit-
services $21.5 $ 9.9 $ 31.4 $20.1 $ 7.1 $ 27.2 $ 1.4 $ 2.8 $ 4.2
As % of
rev 51% 31% 42% 47% 31% 41%
Gross
profit-
systems 0.7 5.2 5.9 7.9 1.6 9.5 (7.2) 3.6 (3.6)
As % of
rev 18% 15% 15% 68% 6% 26%
----- ----- ------ ----- ----- ------ ----- ----- -----
Total
gross
profit $22.2 $15.1 $ 37.3 $28.0 $ 8.7 $ 36.7 $(5.8) $ 6.4 $ 0.6
===== ===== ====== ===== ===== ====== ===== ===== =====
As % of
rev 48% 23% 33% 51% 18% 36%

(Gross Profit = revenue minus direct cost of revenue, including
amortization of capitalized software development costs and related
non-cash stock-based compensation. Noncash charges =
depreciation/amortization of fixed assets, acquired intangible assets,
software development costs and stock-based compensation expense.)

Government Segment Revenue and Gross Profit:

Government Segment third quarter 2011 revenue was a record $66.3 million,
up 37% from the same year-ago quarter. Government services revenue was
$31.9 million, up 38%, and related services gross profit was $9.9 million
or 31% of revenue, up from $7.1 million or 31% of revenue in the same
year-ago period. Government systems volume continued to improve, reaching
a record quarterly level, after 2011 federal budget continuing resolution
issues were resolved earlier this year. Continued volume improvement is
expected for the balance of 2011.

Commercial Segment Revenue and Gross Profit:

Third quarter 2011 commercial services gross profit was $21.5 million or
51% of revenue for Q3 2011, up from $20.1 million and 47% in Q3 2010,
reflecting a more favorable mix of revenue and cost management
improvements on 15% lower total revenue. Lower commercial systems revenue
and gross profit was mainly the result of the expected lower revenue from
text messaging licenses.

Operating Costs and Expenses:

R&D: Third quarter 2011 R&D expense totaled $8.6 million (8% of revenue),
up 14% from the same year-ago quarter, reflecting increased 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: Third quarter 2011 selling, general and administrative expense was
$18.9 million (17% of revenue), up from $16 million (16% of revenue) in
the third quarter of 2010. The increase mainly reflects the addition of
the SG&A of Trident operations acquired in January 2011.

Non-cash charges: Total non-cash charges were $9.5 million in the third
quarter of 2011, compared to $8.1 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 $1.4 million provision for income taxes against
pre-tax income for the third quarter of 2011, representing an effective
tax rate of 43%. For the third quarter of 2010, the effective tax rate
was 46%. 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 quarter end, TCS had $52.2 million of cash, equivalents, and
marketable securities as compared to $62.4 million at the beginning of
the quarter. Funds were generated in the third quarter of 2011 from $14.8
million in EBITDA, $1.5 million from new lease financing for fixed
assets, and $0.5 million in proceeds from exercise of employee stock
options. Uses of cash for the quarter included $15.1 million to fund
higher working capital, $3.8 million of scheduled debt principal and
lease payments, $7.4 million for capital expenditures including software
development, and $0.7 million for cash interest, cash taxes and other
expenses. The company had approximately $33.4 million of unused borrowing
availability under its bank credit line at quarter end.

Intellectual Property:

A report, obtained by the company in September 2011, from ipCapital
Group, an intellectual property consulting practice, estimated the
potential value of our patent portfolio at $117 to $171 million, and
helps provide guidance to Bob Held, a Certified Licensing Professional
who we have hired to lead the continuation of our patent monetization
efforts. Recognizing that two patents generated more than $36 million of
gross proceeds to TCS in 2008-9, monetizing our intellectual property
portfolio is an increasingly important element of the company's strategy.

Backlog: New
6/30/2011 Orders Revenue 9/30/2011
---------- ------- -------- ----------
Funded Contract Backlog ($mil)
Commercial $ 277.5 $ 67.7 $ (46.3) $ 298.9
Government $ 156.3 $ 96.8 $ (66.3) $ 186.8
------------------------------------ ---------- ------- -------- ----------
Total Funded Contract Backlog $ 433.8 $ 164.5 $ (112.6) $ 485.7
Customer Options $ 791.1 $ 53.0 $ 844.1
------------------------------------ ---------- ------- -------- ----------
Total Backlog $ 1,224.9 $ 217.5 $ (112.6) $ 1,329.8
---------- ------- -------- ----------

Funded contract backlog on September 30, 2011 was $485.7 million of
which the company expects to recognize approximately $316.4 million in
the next 12 months. Backlog has been affected by unusual federal
government funding patterns in recent months.

Funded contract backlog represents 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 for which is computed by multiplying the most recent month's
contract or subscription revenue times the remaining months under
existing long-term agreements, which is 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. The company's backlog at any
given time may be affected by a number of factors, including the
availability of funding, contracts being renewed, or new contracts being
signed before existing contracts are completed. Some of the company's
backlog could be canceled for causes such as late delivery, poor
performance and other factors. For example, the third quarter 2011
termination of the Military Sealift Command contract as a result of a
protest resulted in a $315 million reduction in the Customer Options and
Total Backlog amounts above at the previous quarter end. 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, October 27,
2011 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 in the call, dial the appropriate number 5-10 minutes
prior to the start time, ask for the TeleCommunication Systems conference
call and provide the conference ID.

Dial-In Number: 1-877-941-8416
International: 1-480-629-9808
Conference
ID#: 4478434

The conference call will be broadcasted simultaneously on the company's
Web site at www.telecomsys.com. For the webcast, please go to the Web
site at least 15 minutes early to register, download, and install any
necessary audio software. If you have any difficulty connecting with the
conference call or webcast, please contact Liolios Group at 949-574-3860.

A replay of the call will be available after 8:00 p.m. Eastern time on
the same day and until November 10, 2011.

Toll-free replay number: 1-877-870-5176
International replay number:
1-858-384-5517
Replay pin number: 4478434

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 and professional services for
mission-critical communications. Headquartered in Annapolis, MD, TCS
maintains technical, service and sales offices around the world.

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.

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 that are made in the management commentary
section and by Mr. Tose and Mr. Brandt regarding our (a) enhanced
government procurements visibility; (b) technology market business
pursuits; (c) expanding global footprint; (d) estimated value of the
portfolio and strategies and prospects for monetizing patents (e)
government systems volume improvements; (e) favorable mix of revenue and
cost management improvements; (f) expectations about carry-forward
benefits shielding tax liabilities; (f) borrowing availability and (g)
ability to recognize any of the reported backlog.

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)
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, (iii) conduct its business in foreign countries,
(iv) adapt and integrate new technologies into its products and
adequately expand its data centers and data delivery systems, (v) expand
its sales and business offerings in the wireless communications industry,
(vi) develop software and provide services without any errors or defects
and with adequate security threat protections, (vii) protect its
intellectual property rights, (viii) have sufficient capital resources to
fund its operations, (ix) not incur substantial costs from product
liability and IP infringement claims and indemnification demands relating
to its software, (x) implement its sales and marketing strategy and (xi)
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

September 30, December 31,
(amounts in $000) 2011 2010
-------------- --------------
(unaudited)
Assets
Current assets:
Cash, equivalents, and marketable
securities $ 52,182 $ 81,527
Accounts receivable, net 51,383 52,073
Unbilled receivables 42,244 32,358
Inventory 7,323 5,440
Deferred income tax assets 3,103 8,179
Deferred project costs and other current
assets 17,060 8,961
-------------- --------------
Total current assets 173,295 188,538

Property and equipment, net 50,140 39,337
Software development costs, net 33,509 39,427
Acquired intangible assets, net 33,079 28,264
Goodwill 176,477 159,143
Other assets 11,984 8,100
-------------- --------------
Total assets $ 478,484 $ 462,809
============== ==============

Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 56,490 $ 56,403
Deferred revenue 17,279 18,063
Current portion of notes payable and
capital leases 20,138 24,519
-------------- --------------
Total current liabilities 93,907 98,985

Notes payable and capital leases, less
current portion 127,935 135,981
Deferred income taxes 7,741 8,382
Other liability 6,596 3,916

Total stockholders' equity 242,305 215,545
-------------- --------------
Total liabilities and stockholders'
equity $ 478,484 $ 462,809
============== ==============

TeleCommunication Systems, Inc.
Consolidated Statements of Operations

Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
($000 except EPS) 2011 2010 2011 2010
--------- --------- --------- ---------
(unaudited) (unaudited)
Revenue
Services $ 74,181 $ 66,195 $ 224,976 $ 189,468
Systems 38,439 36,754 78,689 97,060
--------- --------- --------- ---------
Total revenue 112,620 102,949 303,665 286,528

Direct costs of revenue
Direct cost of services
revenue 42,800 38,977 125,104 109,195
Direct cost of systems 32,514 27,233 66,588 73,857
--------- --------- --------- ---------
Total direct cost of
revenue 75,314 66,210 191,692 183,052

Services gross profit 31,381 27,218 99,872 80,273
As a % of revenue 42% 41% 44% 42%
Systems gross profit 5,925 9,521 12,101 23,203
As a % of revenue 15% 26% 15% 24%
--------- --------- --------- ---------
Total gross profit 37,306 36,739 111,973 103,476
Total gross profit as a
% of revenue 33% 36% 37% 36%

Operating expenses
Research and development
expense 8,610 7,523 26,786 22,612
Sales and marketing expense 7,292 5,988 21,574 17,934
General and administrative
expense 11,570 10,060 33,557 28,324
Depreciation and amortization
of property and equipment 3,147 2,572 8,798 6,805
Amortization of acquired
intangible assets 1,404 1,161 4,131 3,504
--------- --------- --------- ---------
Total operating expenses 32,023 27,304 94,846 79,179
--------- --------- --------- ---------

Income from operations 5,283 9,435 17,127 24,297

Interest expense (1,763) (2,299) (5,565) (6,888)
Amortization of debt issuance
expenses (187) (187) (611) (563)
Other income/(expense), net (107) 996 (233) 1,981
--------- --------- --------- ---------
Income before income taxes 3,226 7,945 10,718 18,827

Provision for income taxes (1,385) (3,623) (4,755) (6,400)
--------- --------- --------- ---------
Net income $ 1,841 $ 4,322 $ 5,963 $ 12,427
Add back tax-effected
convertible debt interest
expense to net income for
diluted EPS, when using if-
converted method(1) - 757 $ - $ 2,237
--------- --------- --------- ---------
Net income for diluted EPS
calculation $ 1,841 $ 5,079 $ 5,963 $ 14,664
========= ========= ========= =========

Net income per share-basic $ 0.03 $ 0.08 $ 0.11 $ 0.23
========= ========= ========= =========

Net income per share-diluted $ 0.03 $ 0.08 $ 0.10 $ 0.22
========= ========= ========= =========

Weighted average shares used in
calculation - basic 57,153 53,127 56,530 52,902
Weighted average shares used in
calculation - diluted (1) 59,199 64,573 58,772 66,068

(1)Shares issuable via the convertible debt are included if dilutive, in
which case tax-effected interest expense on the debt is excluded from the
determination of Net Income per Share.

Company Contacts:

Tom Brandt
Senior Vice President and CFO
TeleCommunication Systems, Inc.
Tel 410-280-1001
tbrandt@telecomsys.com

Graham Sorkin
Media Contact
Nadel Phelan, Inc.
Tel 831-440-2406
graham@nadelphelan.com

Scott Liolios
Investor Relations
Liolios Group, Inc.
Tel 949-574-3860
info@liolios.com

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