I've been looking at the commercial side of the business a little in a effort to identify revenue trends by segment. Here is a recap:
First step is to break out the commercial revenues into Verizon and everything else. The impact of navigation and SMS for Verizon over the past 3 years has been significant so i wanted to see what the rest of the commercial segment did:
Q2-13 $28.3m up 13% Y/Y Verizon $14 down 13%
Q1-13 $27.0m flat Verizon $15m down 6%
Q4-12 $35.6m up 24% Verizon $14.5m down 26%
Q3-12 $32.3m up 18% Verizon $16m down 16%
Q2-12 $25.1m down 12$ Verizon $16m down 16%
Q1-12 $27.2m down 9% Verizon $16m down 16%
Q4-11 $28.7m up 19% Verizon $19.5m down 28%
Q3-11 $27.4m down 4% Verizon $19m down 27%
Q2-11 $28.6m up 27% Verizon $19m down 25%
Q1-11 $29.9m up 40% Verizon $19m down 28%
Summary: Verizon killed TCS in C11 for a total decline of 27% for CY or almost $30m Their decline continued albeit slow in C12 by 18% or $14m. For the 1H-13 the decline continued to slow down 9% or $3m.
The remaining commercial revenue contributors delivered around $115m in C11 for 19% growth. This appears other customer revenues from the acquired companies (NIM/Loc Log) and from NG911. MetroPCS contributed about $42m of revenue and they had both location based services as well as the implementation of NG911 for N. Central Texas using TCS products.
C12 other commercial revenues were strong in 2H up 20% but weak in 1H down 10%. Net for year was up 5%. This appears to be the nature of N911 business based upon state awards and budgets. Seems as though state govt may have similar funding issues to federal. Also note that much of the N911 work done to date has been encouraged by federal grants to kick start projects and i suspect these are also 2H loaded.
1H-13 was up 6% over prior year.
As an top down exercise, it seems reasonable to state:
1) The impact of SMS licensing and Navigation carrier pricing is largely behind TCS.
2) Other bus is growing.
Based uon their TTM pie chart, it appears they did about $20m in location based infrastructure, with another $15m contributed from SMS and $8m in StE.
The market share info on this market shows TCS was at 21% in Oct-11, 19% in Aug-12. The recent IR deck modified the Aug-12 info to include Commscope who had 8% of the market. That appears to be the acquistiion of IP and pipeline that TCS announced recently. Commscope is preparing an S1 for an IPO so I suspect they decided this product line was inconsistent given their minimal market share, which was flat y/y.
If TCS is able to retain the 8% of market share Commscope had, that should mean an incremental $8m in trailing revenues in a growing segment.
SMS appears to be positioned to start growing again as it is now being used for CMAS and machine to machine messaging.
Navigation and location based apps are a wild card. The declines from the Verizon renegotiation are largely behind them. They have signed with QNX for Car 2 and Blackberry for their new phone. Another unannounced handheld was stated to have been signed but non disclosure stopped them from naming the company. This segment seems like it will provide some growth for C14 but I have no basis to guess total impact.
Secure the Edge is minimal. Mobile security is a very large opportunity with tons of competition so who knows how to value that segment.
Net commercial impact looking forward appears to be quite positive. I'm more cautious about NG911 implementation awards but on the whole this segment feels upbeat and could generate 10-20% top line growth in C14.
Commercial Segment revenue mix Jun-13 TTM (est from pie charts):
E/NG 9-1-1 $84m up 15% Y/Y
Location Based Infrastructure $57m down 14%
Other (SMS,StE,LBS apps) $42m up 7%
By customer: Verizon down 16%. All others up 14%
IR deck is upbeat: FCC market spending is expected to grow rapidaly over next 3 years. Per company the spending is slower than the FCC projections. Seems consistent with Jul-13 reports on 911 dot gov. Frost & Sullivan data from last year looks accurate at 56% share vs Intrado of 38% and Solacom at 6%. Lately however, it appears that Intrado and Solacom are gaining share. Solacom announced wins for state of Maine in Jun-13, Alberta in Oct-12. Intrado won Hawaii in Oct-12 and while I haven't seen any formal announcements, appears to have won both Washington and Oregon. Also concerning is that cassidian was a partner announced in 2011. I saw some reference to a lawsuit dispute between them and TCS for a contract dispute. No details so don't know any more details. NG911, Inc is a subcontractor of Solacom and they appear to have filed IP suit against a number of competitors including TCS. Could just be nuisance. TCS had the largest implementation in N. Central Texas but but that was early and seemed to have issues that remain. Iowa is a statewide implementation for TCS. Tennessee seems to have been a success with TCS. Minnesota signed TCS in 2009 for a pilot but then went to Intrado. Note that microDATA contributed $2M in 2H-12 and $2M in 1H-13.
This market is very early on and TCS seems well positioned to maintain significant share. They gain with some of their carrier technology even when they lose the RFP for implementation. should be a net tail wind for the next few years but can't yet say how much to assume. If we lag the FCC market data somewhat, the total potential in C14 is $200m. If TCS were to maintain their 56% share, that would represent $112m or up about 15% Y/Y. My guess is 7%.