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TeleCommunication Systems, Inc. Message Board

  • stageharbor270 stageharbor270 Feb 13, 2010 9:39 AM Flag

    $12/share in May

    Long time holder, first time poster. The stock has reacted poorly to 4th qtr results and more importantly, to management guidance for 2K10. I shared that initial anxiety but believe upon further review that there is much to be bullish about. The 4th qtr saw revenues rise 27% from the 3rd qtr yet pretax income, excluding the one-time patent settlement of $15.7 mm went from $9 mm to $3.5 mm. I don't think we'll ever know what 4th qtr results were as I suspect may items lingering on either TSYS books or NIM's were written off, along with various costs associated with the deal. One example is that in the qtr general and administrative expenses rose 61% from the 3rd qtr to $12.7 mm. I think they cleared the books heading into this year.

    As for the 2K10 projection, lets take a second look. Revenues are projected to be up 50% to $450 mm. If you take out the projected impact of the 4th qtr acquisitions, or roughly $90 mm in 2K10, the formerly core business is projected to rise about 20%. Last February, the company was projecting growth of about 20% in '09, they did 30% which coincidentally was the same rate of growth recorded by Verizon wireless in their data services business. In '08 it was much the same with yearend results significantly exceeding preliminary mgt projections. With the funded backlog now at $650 mm and the going forward mix of business at 65:35, services vs systems, its hard to think mgt won't significantly exceed budget in the revenue department. Remember they only forecast for business in hand when published and make little assumptions about market share gains which continue to grow rapidly. Beyond Verizon, they are actively in discussions with other carriers on multi-year contracts. Last year up 30% in the worst recession in 40 or so years.

    Now lets look within the projected P&L. On the $450 mm, EBITA margins are expected to go from 16.4% in '09 to 18.9%, resulting in EBITA earnings growing 73% on what I believe to be a conservative revenue projection. The issue which has us all in a sweat is that if you remove the one-time patent settlement benefit of $15.7 mm, pretax earnings are projected to rise only 34% to $42.2 mm. Last year non-cash operating charges+ net interest expense rose about 39% to $17.7 mm. Using mgt's pretax number for 2K10, these same charges are projected to grow 240% this year! There are related costs associated with the newly acquired businesses but do think there might be some wee bit of mgt conservatism built into this number. How about $.10/sh+ after taxes or more. Between the top line potential to outperform and the flex contained within the P&L, I plan to stick with my $460mm and $.57/FD share estimates for now and expect pleasant surprises after the first quarter release or certainly by the midyear update.

    I share the concern expressed by another poster that the move prior to the earnings release from $10.20 to $8.75 would seem to indicate a disclosure leak. I agree, although I feel confident that it was beyond mgt control. My hunch is that in securing the $75 mm line of credit from Silicon Valley Bank, which in turn probably lined up a group of banks to participate, there might have been one overly-friendly banker or lawyer with the info; we'll never know for sure.

    Did you notice Friday's 13D equivalent filing from Renaissance Technologies? While others panic, they have gone over a 5% interest. As I understand, this firm has generated the best long term annualized rate of return in the business, in excess of 30% after fees over the past 20+ years. The story goes that you have to have a Ph.D for an entry level job. If you looked at Friday's The Growth Stock Wire, you saw where Dr. George Huang is talking about cloud computing being the next big thing in technology land. According to TSYS's press releases, they are on this like white on rice. This is not a one-trick pony stock.

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    • the J-curve, well can you fill in some of the critical points; so, I can get back to my never successful strategy which is buy at the lowest and sell at the highest; and, it must be better for the shareholder than the inverted V which works well for radio wave frequencies but not so well for the stock market.

    • anyone have smart money select stock screener if you go to the warren buffet predefine screen you will see tsys as a pic base on buffet criteria I also have of my own screens about 40 different screens.

    • True. But a great price can take anyone out. TSYS’s fleet of patents and market share is too appealing.

    • I'm long just like im long on TRA wich was bought OUT today 2/15/10

    • Perhaps, but remember that mgt owns 15% of the company and the Founder, Chairman & CEO holds the Class A stock with something like 10-to-1 voting rights. Nothing happens here without management's approval. Since he is in his early 50s (young man), comes from a modest background, has shed considerable blood, sweat and tears building this company over the past 25 years, has just in recent years found the commercial markets catching up to the technology originally built for government purposes, why now? Besides, it is a solid platform for his community-related activities and he now makes a very good living. Personally, I hope he lives a long, healthy life and doesn't even think beyond corporate contingency planning, about doing anything before we get to at least $1 billion in revenue. He is a big player in a rapidly growing technology niche. Great stock opportunities don't come along that often, or at least I haven't enjoyed that many. The stock has recently hit a bump in the road but has tripled from where I bought it. Can't say that about my other holdings. I do think the worst is behind us, that management-speak was better, but agree at least directionally, that Passionman is correct. This is not as good as it gets. The J-curve for this stock lies ahead.

    • TSYS is an acquisition target.

    • I concur with Marty. A separate site might be more appropriate since this relates to the level of conservatism in the financial model. That said my comment to your question is that on I believe the 3rd qtr CC the Chairman made it clear that the wireless communications market is highly fractured with numerous entrepreneurial and vc-backed efforts covering presumably a broad range of technologies and applications. There will always be the latest buzz about something new coming down the pike. I'm not being dismissive of the issue but the central issue is communicating to hand-held devices and whether there is a way of circumventing the carrier networks and satellites. The carriers may eventually offer "loss leader" applications to attempt to gain market share but clearly they haven't invested 100s of billions of dollars in the collective to give away their service overall. TSYS's contracts relate to providing the carriers with the necessary technology for being 99.999% accurate in the communication process. If there was anything near term which represented a technological breakthrough in what they do I can't imagine that Verizon would have signed a multi-year contract or that other carriers would be in similar conversations.

      Google as I understand it did limited beta testing within the company by giving their phones to employees. Now they are offering their phone through the mobile carrier T Mobile (TSYS client) and if not already, will offer their phone with the built-in capability to work on any other carriers' network, leaving it to the consumer to chose. I think TSYS has said that they plan to introduce a subscription-based pricing approach to their technology sometime in the first half of this year to meet Google's needs. Remember, Google relies on subscription-based services for over 95% of their profits. TSYS has stated that they think Google potentially can achieve a 10%-20% market share in time. My point is that I think Google is trying to provide more flexibility to the consumer but is not introducing a new technology which makes TSYS's technology obsolete.

      Hopefully, a techie can provide color on this issue. All I know is that TSYS's market share position has gone from 24% two years ago to 40% + now.

    • Well stated. I'm having a hard time deciphering this as well. Overall I love the probability that the overall market is poised to grow dramatically in the future. It feels like we are just seeing the beginning of what will become an revolution of LBS apps. Who provides these data feed services is key and unclear if the acquisition of NIM is enough.

      I'm just not smart enough on the space to understand if TSYS is well-positioned and services like Google will tap into them, or if the underlying franchise is poised to see significantly increase competiton and market share erosion in the future.

      Anyone with a better understanding care to help me out?

      Might be worth a separate topic if anyone wants.

    • I know you guys are bean counters and appreciate the knowledge, My main concern is Google and Nokia Wavemarket
      lift all boats or sink alot of boats thats what I cant figure out, What boat are we the Titantic or the Yorktown that reinvents itself

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