Enabling Convergent Technologies - · PDF fileEnabling Convergent Technologies ... Certain statements in this presentation are forward-looking statements under the ... deployable satellite

August 2014

Secure, Highly Reliable Wireless Communication

Enabling Convergent Technologies®


Investor CautionForward-Looking Statements: Certain statements in this presentation are forward-looking statements under the Federal

Securities Laws. Generally, forward-looking statements represent our current beliefs regarding future events. All forward-

looking statements are subject to risks, uncertainties and other factors. Investors are cautioned not to place undue reliance

on these forward-looking statements. You should understand that these statements are not guarantees of performance or

results and are preliminary in nature, and consider the areas of risk described under the heading “Cautionary Note Regarding

Forward-Looking Statements” and “Risk Factors” in our periodic reports filed with the Securities and Exchange Commission

under the Exchange Act, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, in

connection with any forward-looking statements that may be made by us and our businesses generally. Except for our

ongoing legal and regulatory obligations to disclose material information, we undertake no obligation to release publicly any

updates or revisions to any forward-looking statements or to report the occurrence or non-occurrence of anticipated or

unanticipated events.

Basis of Presentation of Financial Data: Unless noted otherwise in this presentation, company financial data is being

presented as of the dates indicated with the specific data.

Non-GAAP Financial Measures: Adjusted EBITDA and Adjusted Net Income as used throughout this presentation are financial

measures not in accordance with GAAP. A description of these measures and reference to a reconciliation of these measures

to the most directly comparable GAAP financial measures is available at www.telecomsys.com under the “Financial Model”

selection, via the “Investors” menu.

2

This presentation is ©2014 TeleCommunication Systems, Inc. (TCS) and Proprietary - All Rights Reserved

http://www.telecomsys.com/


OverviewTCS delivers secure, innovative, highly

reliable solutions using converging digital,

internet protocol, and wireless technology:

• Patented technology for location-based and messaging services, including routing of 9-1-1 calls, for wireless platforms, devices and network operators around the world

• Cyber Security & C4ISR – Satellite and other wireless communication systems, components, field support and training for federal agencies and international customers

3

TCS QUICK FACTS

• Founded 1987, Annapolis, MD as a

technology-driven company

• $345.9M TTM Revenue

• $36.6M* TTM Adj. EBITDA

• $9.3M* TTM Adj. Net Income

• 5-year CAGR: 10% revenue, 4% adj. EBITDA

• 361 patents, 300+ applications, 37 patent

monetization projects underway

• 1,300 employees, mostly technical

*See non-GAAP definitions on slide 28


1987Defense data networking and integration contracts formed the foundation for secure digital communications expertise

1996Text messaging – the entry point of data to wireless; TCS wrote SMS infrastructure software for message delivery over the PSTN’s pre-IP packet network control channel – still used by leading cellular carriers

19999-1-1 – Delivered the first wireless 9-1-1 call, requiring highly reliable messaging and precise location-based mobile technology. Now a leader in public safety communications and location-based services technology

2006Wireless comms for warfighters – Contract for engineering and support of mission-critical encrypted tactical comms terminals used widely by military for satellite, line of sight and beyond line of sight voice, video and data

2010 Cybersecurity training contract for U.S. military

2014 & Beyond

Converged solutions – Nextgen 9-1-1, APIs/SDKs, tropo and protected comms, mesh networks, FirstNet build-out, telemedicine

Enabling Convergent Technologies: Milestones

4


What We Do• World leader in highly reliable & secure

mobile communication technology

• Unique depth of expert technical resources

for enabling communication using wireless

networks, including:

• >400 satcom, cyber security & network engineering professionals

• 400 cellular infrastructure & apps engineers

• 200 public safety network technologists

• TCS size and experience are differentiators

as we bid on government contracts and

platform & carrier alliances globally

5

Comprehensive Solutions for Converging Wireless Technology

Cyber SecurityTraining

Offense/Defense

GovernmentSecure Satellite, Tropo Comms,

Aerospace Components

CommercialLocation-based Services, E9-1-1,

Telematics & Cloud Messaging

InformationAssurance

Next Gen 9-1-1,

Total Mobility Management

Mobile Alerts, Lawful

Intercept, M2M

Mobile Security, vertical market

solutions


We Address Growing Markets

• 9-1-1 Call Management and Next

Generation Public Safety Infrastructure

• Cyber Security

• C4ISR (Command, Control,

Communications, Computers,

Intelligence, Surveillance &

Reconnaissance) for Government

6


NextGen 9-1-1 Market

• Frost & Sullivan expects the Nextgen ESInet software market to grow by a factor of 5+, and TCS

has more than 50% share in this market

• TCS also sells Nextgen call-taker stations, competing with Intrado & Airbus (formerly Cassidian)

7

$0

$50

$100

$150

$200

$250

$300

2012 2013 2014 2015 2016 2017 2018 2019 2020

ESInet Software Market ($millions)

Source: Frost & Sullivan, Aug. 2014

Emergency Services IP Network Market Share Q1’14

TCS56%

Intrado31%

Bandwith.com 8%

Solacom5%


Cyber Security Market• U.S. Federal cyber security market to grow at 7% CAGR

over next five years (2013–2018), with a cumulative

market valued at $65.5B

• DoD to spend $5.5B on cyber security in FY2014. Even in

a constrained budget environment, cyber security will be

relatively protected across the federal government.1

• Pentagon increasing cyber security force from 900 to

4,900 troops & civilians over next several years. TCS 5-

year (2010-15) Joint Cyber Analysis Course training

contract to help build this force. 2

• TCS secure communications proficiency is applied to

commercial products and customers.

8

Federal IT Cyber Security Addressable Market Forecast

Source: Market Research Media, 4/131) TechAmerica, 10/13)

2) Washington Post, 1/27/13


Military & Government Satellite

Communications Market Growth*

C4ISR Market*

TCS government comms business:

• Deployable satcom and tropo systems, solid

state drives & other system components

• Field engineers and maintenance for systems

both domestic & international

• VSAT teleport and managed services

• Engineering support, procurement and quality

assurance for critical electronic components

and systems

9

* Market as defined covers end-user equipment and associated bandwidth services; excludes production, launch and operation of satellites.

Source: Northern Sky Research, 9/13

“The Military Communications Market (of which satcom is part) is expected to grow from $18 billion in 2014 to $30 billion in 2019, a CAGR of 7.2%, as companies continue to search for open and distributed architectures.” – MarketsandMarkets.com 5/14


TCS TTM Revenue and Gross Profit (@ 6/30/14)

10

See further details at www.telecomsys.com under the “Financial Model” selection, via the “Investors” menu.

Gross Profit Mix

($ Millions) Coml Govt Total $ %

Services $147 $118 $266 $120 45%

Systems 26 55 80 20 25%

Total $ 173 $ 173 $346

Gross Profit $97 $44 $141

% of revenue 56% 25% 41%

Revenue Gross Profit


http://phx.corporate-ir.net/phoenix.zhtml?c=123361&p=irol-reportsother


Commercial Segment

11

Revenue Gross Profit$ Millions $ Millions %

Services $147 $86 59%

Systems 26 11 41%

Total $173 $97 56%

TTM

The 9-1-1 business

continues to grow, while

the business models for

platforms & apps are

evolving from carrier

dependence to other

customer markets.


SystemsServices

Wir

ele

ss C

arri

er

Pla

tfo

rms

&

Ap

plic

atio

ns

Pu

blic

Saf

ety

(9-1

-1)

Commercial Segment

12

• Call routing

• Network monitoring

• Engineering & deployment services

• Software maintenance

Nextgen 9-1-1 ESInet systems and call-taker stations

Comm. Services TTM revenue: $147 million Comm. Systems TTM revenue: $26 million

Licenses & related equipment for in-customer network infrastructure

•Hosted/managed LBS

•Cloud-based navigation & locator applications

• In-network LBS & SMS infrastructure maintenance


TTM Commercial Revenue

9-1-1Location-

based Apps

LBS & SMS Platforms, IP Monetization

Commercial Segment Revenue

13

• 9-1-1 / Safety and security

• Cellular voice, SMS and VoIP E9-1-1 call routing and

network monitoring billed monthly on volume

• Next Generation 9-1-1: Internet Protocol system

implementations, followed by software

maintenance & managed services revenue

• Managed services and maintenance revenue from

installed base of LBS & SMS software/systems and IP

monetization through licenses, sales, partnerships

• Location-based Apps: Navigation, people and asset

locator applications for wireless carriers, device and

microprocessor companies


9-1-1 / Safety & Security

• TCS has been one of 2 companies since 1999 fulfilling FCC’s requirement for wireless and VoIP network operators’ E9-1-1 call-routing to public safety answering points

• Nextgen 9-1-1 (Internet Protocol) solutions -major near-term growth

• ESInet (Emergency Services Internet Protocol network) infrastructure,

• NENA i3-compliant Public- Safety Answering Point customer premise call-taking stations, and a mature Geographic Information Systems suite

• Distribution through channel alliances with a tier-one nationwide operator, CenturyLink and Cincinnati Bell, as well as direct sales

14

TCS Network Operations Center (NOC)


NextGen 9-1-1 Growth Opportunity

TCS estimates ~15% of ESInet business has been awarded to date, with

another 7.5% to 15% to be awarded or contracted by end of 2015.

15

NG9-1-1 Implementation Status

NG9-1-1 Planning Started

NG9-1-1 Preparation at State Level

NG9-1-1 Preparation at Sub-State Level

NG9-1-1 Implementation in Progress at State Level

NG9-1-1 Implementation in Progress at Sub-State Level

NG9-1-1 Implemented at State Level

Pre NG9-1-1 Planning, IP Network Only, or No Available Info

Source: NENA, August 2014


LBS Infrastructure Market Share

Location Based Services (LBS) Platforms & Apps

Global Revenue for Mobile Location Platforms will

grow to $400 million by 2017 (ABI Research, 12/13)

• TCS is the clear leader in deployments of high accuracy platforms with 58% market share (ABI Research, 12/13)

• Network operators value TCS as an expert in both applications and infrastructure

• Customers increasingly include OEM device and component companies as LBS business models and technology shift to more “in-device” vs. “in-network”

16

Source: ABI Research, 12/13


Commercial Applications • Architecture: TCS code incorporates

Application Program Interfaces (APIs) which are attractive to device and related platform producers for incorporating LBS in the Internet of Things (which is going far beyond phones and computers)

• Three platform companies have contracted to make TCS toolkits available to their developer communities

• TCS Global Location Agent enables device monitoring and data collection

• Mobile Resource Management: TCS locator apps are the highest-ranked prepackaged MRM solution targeted at horizontal markets (Source: Frost & Sullivan, 12/13)

17


Commercial Segment Customers

18

North Central Texas Council of Governments

http://www.navtech.com/

http://www.navtech.com/

http://www.comcast.com/default.html

http://www.comcast.com/default.html

//upload.wikimedia.org/wikipedia/en/3/36/Tennesseestateseallrg.png

//upload.wikimedia.org/wikipedia/en/3/36/Tennesseestateseallrg.png


Government Segment

19

Revenue Gross Profit$ Millions $ Millions %

Services $118 $34 29%

Systems 55 10 18%

Total $173 $44 25%

TTM

2013 was

impacted by

federal gov’t

funding delays

and budget

uncertainties

2012 included

$50 million of

non-recurring

‘pass-through’

revenue


Government SegmentGov’t Systems 2010 revenue: $94 million

20

Services

•Cyber security training, consulting

•Data & telecom network design, deployment and management

•Maintenance & field engineering support of systems

•Teleports & resale of space segment airtime

Systems

•Secret / non-secure IP access point (SNAP) satcom and tropo systems

•Secure cellular systems

•Hardened solid-state drives and microprocessors for defense & space programs

Consulting & IT Services

Global Satellite Services

Deployable Wireless Communication kits

Highly Reliable System

Components

Gov’t Services TTM revenue: $118 million Gov’t Systems TTM revenue: $55 million


TCS TotalCom® for Government

21

TCS TotalCom

solutions enable

flexible, secure end-

to-end wireless

communications.

~$200M market

opportunity for TCS

3T Tropo platform

over next 5 years.


Protected Communications Satellite Terminals

22

Northrop Grumman and Lockheed Martin have teamed with TCS to produce highly affordable satellite terminals for protected communications on the move and at the halt.

The Low Cost Terminal solution uses Northrop and Lockheed’s Milstar and Advanced Extremely High Frequency (AEHF) anti-jam engineering and TCS’ leadership in highly secure, deployable satellite communication systems.

P-SNAP

• TCS is the exclusive marketing and sales agent,

with the sole right to manufacture & sell:

- Protected Comms-on-the-Move (P-COTM) Terminals

- Protected SIPR/NIPR Access Point (P-SNAP) Terminals

• Program expected to be ~$400 million over 7 yearsTerminal Control

Module


• Prime or sub on ~25 other contracts, and tracking about 30

“major capture” opportunities for which TCS is qualified

TCS Government Contracts & Vehicles

23

• Prime vendor for Army’s Global Tactical Advanced Communication Systems $10.2 billion

IDIQ contract, 2012-2017. TCS won more than 40% of all task orders awarded on GTACS’

predecessor Worldwide Satellite Systems $5B contract.

• Prime contractor for the Defense Information Systems Agency 5-year (2012-17), $2.6

billion Custom SATCOM Solutions IDIQ contract

• Prime contractor for Navy-led Joint Cyber Analysis Course training

• Prime awardee for Department of Homeland Security $22 billion, 7 year Enterprise

Acquisition Gateway for Leading Edge II


High-Ranking Defense Industry Recognition

In 2012, TCS was ranked among the top 25 in

Defense Systems’ first Super 75 which recognizes

“the most innovative and agile companies in the

net-centric battlespace.”

24

“The middle section of the list includes a variety

of companies that dominate their markets, and

are the go-to companies that the military relies

on for specific defense solutions. That includes…

TeleCommunication Systems for satellite

communications...”- Defense Systems, 11/2012

Company Rank

Lockheed Martin 1

Raytheon 2

Northrop Grumman 3

TeleCommunication Systems 21

IBM 30

Microsoft 53


Government Segment Customers

PM WIN-TProject Management

Warfighter Information Network

- Tactical

Japanese Aerospace Exploration Agency

Army Marine CorpsAir Force Navy

Homeland Security State Dept.

SpecialOperations

Nat’l Aeronautics & Space Admin.

25


Business Partners

26


Monetizing TCS Intellectual Property• TCS owns 361 issued patents & more than 300 pending

patent applications (6/30/14)

• Since 2008, TCS’s patent portfolio has generated over $40

million of gross proceeds. TCS sold an email patent for $8M

net (6/08), and settled a patent suit against Sybase for $23M

(12/09), yielding $16M net proceeds to TCS

• 4 patent groups entailing about 20 infringement cases are

currently under enforcement actions, including

collaborations with Acacia subsidiaries. Marathon Patent

Group, and Patent Monetization Associates (Robert

Westerlund) for certain messaging patents (March 2014)

• ipCapital Group appraised TCS patent portfolio in 2011 at

$114M - $171M, when patent count was 173 vs. 361 today

27

Cumulative Patents & Patent Applications1

1) as of 12/31/13.


Income Statement Highlights

28

($ millions, except per share amounts) 2013

2014

Guidance³

Total Revenue $362 $365 - $375

Adjusted EBITDA¹ $36 $35 - $38

Adjusted Net Income² $5 $10 - $14

Adjusted Net Income per Diluted

Share²$0.09 $0.17 - $0.23

1) Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation to Net Income, see “Financial Model” referenced above. 2) Adjusted net income is defined as GAAP Net Income plus noncash acquired intangibles amortization, noncash stock-based compensation charges, and noncash tax

and financing charges. For a reconciliation to Net Income, see “Financial Model” referenced above.3) Guidance issued and effective only on 7/31/14.

See further details at www.telecomsys.com in the “Financial Model” section under the “Investors” menu.


http://phx.corporate-ir.net/phoenix.zhtml?c=123361&p=irol-reportsother


Balance Sheet Highlights

29

* Additional undrawn delayed draw bank term loan is available to refinance the remaining 4.5% Convertible Notes due 11/14.

($ millions) 06/30/14 12/31/13

Cash, equivalents and marketable securities $63.5 $61.9

Receivables 66.4 61.8

Inventory and other current assets 28.1 41.5

Property & equipment, net 35.1 38.4

Goodwill 104.2 104.2

Other assets 28.4 44.2

Total Assets $325.7 $352.1

Payables and accruals $48.5 $38.8

Deferred revenue 24.0 24.8

Bank debt* 61.4 66.1

Seller notes and capital leases 10.2 16.9

Convertible 4.5% notes due 11/14* 14.6 14.6

Convertible 7.75% notes due 6/18 50.0 50.0

Other liabilities 4.3 1.1

Stockholders' equity 112.7 139.9

Total Liabilities and Equity $325.7 $352.1


($ Millions, except per share

amounts)TTM Revenue Valuation Multiple Basis

Commercial $173 1.00x - 1.75x $173 - $303Recent technology company M&A

activity and equity market valuations

Government $173 0.75x - 1.25x 130 - 216Recent gov't satcom services M&A

activity and equity market valuations

Patent Portfolio

Valuation114 - 171

ipCapital Group report to management

Sept 2011

417 690

Less net debt (6/30/14) (73) (73) Includes convertible notes

TSYS Equity Value $344 $617

÷ TSYS Diluted Shares (6/30/14) 61 61 Excludes shares for notes convertible @ $10+

Price Per Share Valuation $6 - $10

Valuation RangeValuation

Multiple

Enterprise Value

Sum of the Parts Valuation*

30

* This presentation contains estimates with respect to certain valuation ranges, including “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. This presentation should not be considered an actual valuation of TCS, but rather an example of possible outcomes when readily available public information is applied to TCS metrics as of the date indicated and the ipCG report to management is considered. The ipCG report to management was based on ipCG’s analysis of the relevant competitive patent landscape, industry forecasts, foreign filing data, third-party market research, industry margins, and royalty rates derived from research into comparable intellectual property licensing and sale transactions, and does not take into account any non-published patent applications, invention disclosures, any future inventions and patents, trade secrets, or non-patented intellectual property assets or know-how. Forward–looking statements and estimates are inherently subject to various risks and uncertainties. These assumption and judgments may or may not prove to be correct and there can be no assurance that any forward-looking statements or estimates are attainable or will be realized. Actual amounts, results, events and circumstances may differ materially. The presentation of this slide is as of 6/30/14 and TCS undertakes no obligation to release publicly any future revisions it makes to these estimates after the date hereof or to reflect the occurrence of unanticipated events. We caution you not to put undue reliance on these valuation ranges.


31

• Scale and depth in secure, highly reliable

converged wireless solution technology:

Key Take Aways

• Growing 9-1-1 business for wireless, VoIP, and state/local next generation public safety, and FirstNet funding ramps over next several years

• Cybersecurity and C4ISR prime contractor positions with DoD and DHS for deployable comms, training, and support – growth back from 2013 funding lull is expected

• LBS software engineered to support the Internet of Things – addressing new markets

• Extensive patented intellectual property, with licensing monetization initiatives

Investor Relations

Scott Liolios, President

Liolios Group, Inc.

Tel (949) 574-3860

[email protected]

For More Information

32

Tom Brandt, SVP & CFO

TeleCommunication Systems, Inc.

275 West Street, Annapolis, MD 21401

Tel (410) 280-1001

www.telecomsys.com


Documents

Enabling Convergent Technologies - · PDF fileEnabling Convergent Technologies ... Certain statements in this presentation are forward-looking statements under the ... deployable satellite