September 05, 2012 - 2:18pm EST by
2012 2013
Price: 2.02 EPS $0.00 $0.00
Shares Out. (in M): 58 P/E 0.0x 0.0x
Market Cap (in $M): 117 P/FCF 0.0x 0.0x
Net Debt (in $M): 67 EBIT 0 0
TEV (in $M): 184 TEV/EBIT 0.0x 0.0x

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  • Telecommunications
  • Government contractor
  • Sum Of The Parts (SOTP)



TSYS: Sum-of-the-Many-Parts: $5.40

Investment Summary:

Beginning in 2009, TSYS attempted to buy their way into the perceived higher growth “commercial” sector. This is a common theme in the smallcap world, especially in government/defense, when growth slows and Wall Street places a higher multiple on growth, management convinces the Board of Directors to go shopping and “buy a higher multiple” and with the benefit of hindsight took place at TSYS.

An example of this flawed strategy can be seen through TSYS’ 2009 acquisition of “Networks In Motion” for $170MM and subsequent pre-tax impairment charge of $126MM on July 26, 2012. Since 2009, TSYS has completed six commercial focused acquisitions, with one being in the government/defense space. This transaction was Trident Space & Defense, which was not an exact fit with their core government contractor business, but did add Jon Kutler to the Board of Directors. Kutler currently owns 3,046,748 shares (see below for further commentary on Kutler).

But without the missteps above, the opportunity to purchase TSYS well below its intrinsic value of $5.40 per share would not be possible. I believe the solid Government Services business, E-911 potential and active patent/IP monetization is worth much greater than the current whole. I do not believe the Commercial Services division is a net negative, but the “trend is not their friend” and remains the biggest ongoing concern to the TSYS story.  However, the recent big contract wins on the Government Services highlight the hidden value on that side of the TSYS house.

Below are recent segment updates and IP/patent monetization efforts.

Government services

On 8/29/12 Along with seven other companies, TSYS won a major contract with the Defense Information System Agency and Global Services Administration. The contract offers a maximum payout of $2.6B and will be extended over a 5-year lifespan, the first three years are guaranteed, with the last two years as being optionable. This is a major contract win for TSYS and the company continues to track ~30 such contracts with a value of ~$40B according to company sources. This is a lumpy business, but provides access to large revenue generation.

Commercial services:

The commercial technology is monetized under for business models: Location-based services, Telematics, Messaging and E9-11. With the exception of E9-11, I have written off the other businesses (see Networks In Motion impairment) as they have become commoditized and under serious margin pressure.  A quote from Maurice Tose, Chairman/President/CEO on the July 26, 2012 conference call highlights this issue “carriers are focused on building their mobile broadband markets than their branded applications, which has allowed large scale access by subscribers to applications through channels other than carriers.”

However, E9-11 is showing real signs of life and could see $1.2B of non-recurring spending and $300MM of recurring spending over the next three years. Management recently reiterated these numbers on the April 26, 2011 earnings conference call. So far, there have been implementations in Tennessee, Iowa and North Central Texas. TSYS’s Secure the Edge portfolio should keep the competition to a minimum. “TCS’ expertise to deliver security from the core of the network to the mobile device that access it” according to page 25 of the corporate presentation.

Patent portfolio monetization:

Evaluating the strength and enforceability of each patent is tedious and time consuming, so TSYS entered into partnership agreements with patent specialists Acacia Research and ThinkFire. Acacia is focused on the “intercarrier messaging” or ICM portfolio whereby TSYS only retains an ownership interest in the patents. TSYS has 33 messaging patents or 13% of total TSYS patents.

ThinkFire is implementing a strategy for the “location-based services” IP portfolio which consists of 81 issued U.S. patents and 135 pending U.S. patent applications.

It is important to note that TSYS had “patented related gains” of $8MM in 2008 and $16MM in 2009. And in September 2011 ipCapital submitted a report to TSYS management valuing the entire patent portfolio from $114MM to $171MM.

Acacia and ThinkFire are both well regarded IP specialists, but these things take time.

TSYS: Sum of the parts valuation



TTM Revenue















Patent portfolio






Less: net debt



TSYS equity



Diluted shares



Per share:



Above is my sum-of-the-parts valuation. Please note my multiples for the Commercial and overall valuation for the patent portfolio are significantly lower than management’s (see corporate presentation) due to my belief they are greatly underestimating the difficulties facing the location-based services side (patents as well), but there is still significant upside from the low $2’s.


Backlog from 10-K filed 3/7/12




Commercial funded contract backlog



Government funded contract backlog








Below is a description of the various segments and some notes from the company's filings - lots of ramblings...

TSYS develops and delivers highly reliable and secure wireless communication technology through two operating segments, Commercial (45% of 2011 revenue) and Government (55% of 2011 revenue).


Commercial Segment: The commercial services and systems enables wireless carriers to deliver location-based information (LBS), internet content, short text messages and other enhanced communication services to and from wireless phones. TSYS provides software, related systems, hosted services, and maintenance and customization services to wireless carriers, VoIP service providers and users of electronic map and related LBS technology based on their patented IP.

  • TSYS earns carrier software-based revenue through the sale of licenses, deployment and customization fees and maintenance fees, which are priced based on the volume capacity purchased by the carrier.
  • TSYS’s IP portfolio includes 136 issued patents and more than 300 pending applications worldwide as of the end of 2010. The portfolio is monetized via improved delivered products and licensing.


Commercial Product and Service Offerings

  • Commercial Services: TSYS operates network operation centers at several locations that host software for which customers make recurring monthly usage payments, usually measured on the volume of usage. The hosted aspects of TSYS’s services are commonly called “cloud computing.” The hosted services include wireless and VoIP E9-1-1 and commercial LBS applications. These subscription services using their client software applications (navigation, traffic and points of interest) are sold with TSYS acting as a “white label” vendor to the wireless carriers.
    • “Turn-by-Turn Navigation,” “People-Finder” and “Asset Tracker” are application-based services that use “location-based” technology and are sold through wireless carriers, for which subscribers pay recurring monthly fees. TSYS also offers real-time downloadable mobile applications that deliver easy access to maps, directions, points-of-interest directories, film and event information, traffic conditions, speed camera alerts and weather info.
    • Hosted LBS Infrastructure, including E9-1-1: TSYS’s E9-1-1 service bureau works with wireless carriers and local emergency services in compliance with the FCC requirements. When a wireless subscriber covered by this service makes a 9-1-1 call from his/her wireless phone the software (1) identifies the call as an emergency call (2) accesses the handset’s location info from the wireless network (3) routes the call to the appropriate public safety jurisdiction (4) translates the info to a dispatcher-friendly format (5) transmits the data to the local emergency service call center. As of December 31, 2010…TSYS is under contract t provide E9-1-1 services to more than 40 customers including wireless carriers and VoIP service providers.
    • Software and System Maintenance: For installed base of systems in use by customers, TSYS provides ongoing operational support, including system administration of system components, system optimization and configuration management. Maintenance services include tracking customer support issues, trouble shooting and developing and installing maintenance releases. TSYS provides maintenance services for an annual or quarterly fee paid in advance, and generally priced based on the cumulative license fees they have billed for the systems being supported.
    • Professional Services and Solutions for Telematics: TSYS provides custom software development and professional services to customers engaged in telematics, which is the use of GPS technology, electronic maps and related data integrated with computers and mobile communications technology in automotive navigation systems. Customers include Denso Corporation, Mercedes-Benz and ATX Group for Hyundai Motors America and services include points-of-interest applications and compilation and maintenance of geographic information databases used in vehicle navigation systems for products including Toyota, Lexus and others.
  • Commercial Licensed Software-Based Systems: TSYS designs and develops software products for wireless carriers and enterprise networks that enable the delivery of secure personalized content, services and transactions to wireless devices.  The TSYS designed software uses industry standards for easy implementation, customization and interoperability with other network components. A majority of the TSYS commercial software is designed and delivered together with third-party software and related hardware, which is integrated into new and existing networks by TSYS engineers. The primary commercial software-based software offerings include:
    • Xypoint Location Platform (XLP) for Mobile Location-based Services: this infrastructure system interacts with wireless networks to extract the precise location (the “X/Y” coordinates) of a user’s device. In order to determine a user’s location with sufficient precision for U.S. public safety compliance and for commercial location-based applications, TSYS’s technology interacts with networks that have incorporated “Assisted GPS systems that use GPS chips in user handsets. The XLP can also work with network triangulation software which some carriers have added to cell towers and switches in the network.  “The XLP platform architecture efficiently integrates TSYS’s presence, location, call control and messaging technology, resulting in reduced costs, increased reliability, more efficient deployments and a migration path to 3G services.”
    • Short Message Service Center and Wireless Intelligent Gateway: TSYS’s SMS Center software enables wireless carrier subscribers to send and receive text or data messages to and from wireless devices. The Wireless Intelligent Gateway is a portal for two-way data communication between users of wireless networks and the Internet. The Gateway allows users to customize the services they receive on wireless devices by setting up a user profile through a single Internet-based procedure. Wireless carriers can access these user profiles and usage data to gain a better understanding of customer behavior.
  • Commercial Market Opportunities and Strategy: TSYS plans to continue to develop and sell software and engineered systems which are delivered through deployment in customer wireless networks; hosted and subscription business models. The “development investment” is focused on the delivery of location information, short messages, corporate network and internet data and other enhanced data-communication services to and from wireless devices. TSYS’s engineers design solutions to optimize the balance of functionality between the device and the hosted network components, or “cloud.” The following trends are driving demand for TSYS’s products and services:
    • Improving Wireless Device Functionality: Manufactures continue to increase the functionality of mobile devices including phones and PDAs through higher resolution, color screens, and increased computing capability for sophisticated applications. The devices enable the user to take advantage of the high-speed data networks for Internet and data usage. Broad adoption of LBS has required, among other things, handsets incorporating components for interoperation with GPS satellites and LBS network components that TSYS has developed and provides. “Proliferation of improved handheld devices has increased the size of the market for our technology.”
    • Cellular Network Improvements to Next Generation Capabilities: Mobile operators are deploying high-speed data networks based on 3G and 4G technologies that, in many cases, equal or surpass data rates that are available for residential wireline users.  The deployment of high speed wireless data networks has made it possible to “wireless enable” many services that previously required a wireline connection. TSYS’s LBS technology and applications incorporating map graphics take advantage of these network enhancements.
    • Growth in Wireless and VoIP Subscribers: Driving this growth is the replacement of landline connections with wireless connections. For example, some households now using cellular phones exclusively, including young adult households and those in developing countries where wireless may be the only available communications. VoIP service offers cost advantages over previous wireline service.
    • The FCC’s E9-1-1 Mandate: TSYS is one of the two leading providers of E9-1-1 service to wireless and VoIP service providers in the U.S. In 1996, the FCC mandated the adoption of E9-1-1 technology by wireless carriers and in 2005, the FCC ordered providers of VoIP service to provide E9-1-1 services to all their customers as a standard feature. TSYS is actively pursuing E9-1-1 business and are working toward deploying solutions in three states.
    • Growing Use of Commercial Location-Based Wireless Services:  A driver of wireless communication subscriber revenue growth is the delivery of timely, highly specialized, interactive and location-specific information. Technology incorporated in a growing number of networks and handsets now enables the determination of the handset’s location with sufficient precision to allow useful applications beyond E9-1-1. Enterprises benefit from wireless location technology for routing and tracking their mobile field forces. TSYS’s XLP systems enable device location determination for carriers including Verizon, MetroPCS and Bell Mobility in Canada.
    • Growing Uses of Short Messaging and Internet Applications: The number of SMS users and messages per individual are projected to increase. Mobile operators in the US are experiencing rapid SMS traffic growth and with TSYS’s share of the market it “ensures” they will benefit from expanding application of SMS in near areas such as: Machine-to-Machine (“M2M”). (see NMRX and RFII). TSYS provides solutions for mobile operators to receive and route e-mail and SMS through their Short Message Service Center and Wireless Intelligent Gateway systems.
  • Key Elements to TSYS’s Commercial Segment Strategy:
    • Offer carriers the complete LBS solution continuum, with the expertise to enable infrastructure, middleware and application functionality: Mobile operators have made large capital investments in infrastructure for wireless data and location determination technologies and are motivated to enhance subscriber loyalty and average revenue per user. Also higher data consumption by end users has led operators to upgrade and enable a wide array of value-added services. “TSYS is well positioned to provide carrier-branded enhanced services that efficiently use the carriers’ capacity to deliver a user experience that merits incremental service payments and continuous use.”
    • Expand Sales and Marketing Channel Relationships: TSYS is developing relationships with communication infrastructure providers in order to expand sales channels for carrier software products and services. Historically, TSYS has leveraged strategic relationships with OEM manufactures (Huawei, Alcatel-Lucent and QCOM) to market Commercial Segment products to wireless carriers worldwide.
    • Grow Wireless Carrier and VoIP Customer Base: TSYS serves or is under contract with ~60 wireless carrier networks and VoIP service providers in 15 countries and intend to expand domestic and international carrier base via expanding sales and field support organizations.
    • Develop and Enhance Technology: TSYS’s technology reflects more than $220MM invested in R&D over the last 16 years, to develop proprietary wireless location based services.
    • Pursue Select Acquisitions: “Intend to continue to selectively consider acquisitions of companies and technologies in order to increase the scale and scope of our operations, market presence, products, services and customer base.”

  January 31, 2011: TSYS completed the purchase of Trident Space and Defense, a leading provider of engineering and electronics solutions for global space and defense markets. Payment included cash and 3MM shares of TSYS.

  At the time of the acquisition 12/10 Trident expected $40MM in revenue and EBTIDA margins of 15%. Jon Kutler, a recognized investor and expert in the A&D industries joined the Board of Directors of TSYS as part of the transaction.

  “Trident adds engineering depth to our solutions team. The Trident organization is proficient in development of electronic components and SSDs for aerospace applications which we expect to enhance TSYS’s ability to continue to reduce the form factor of deployable communications solutions.”


Government Segment: Designs, installs, and operates wireless and data network communication systems, including SwiftLink deployable communication systems which integrate high speed, satellite and IP technology with secure Government approved cryptologic devices. TSYS also own and operate secure satellite teleport facilities, resell access to satellite airtime (known as space segment) and provide professional services including field support of TSYS systems.  Cyber security training for the U.S. Dept. of Defense and other government and foreign customers is included in TSYS’s professional services.

  • Our Government Segment strategy is to be a leading secure wireless communications solution vendor, by building scale and a continuum of related technical capabilities. Our company has a solid foundation as a provider of deployable, tactical systems and related field support and maintenance, operator of fixed teleports and reseller of space segment. Related extensions of these core competencies include high growth professional services areas such as cyber-security contract work. We intend to continue to selectively consider acquisitions of companies and technologies in order to increase the scale and scope of our operations, market presence, products, services and customer base.”

  “More than 2,500 of our deployable communication systems are in use for security, defense and law enforcement activities around the world. In 2006, we were name one of six prime contractors on the U.S. Army’s Worldwide Satellite Systems (WWSS) contract vehicle, with a ceiling value of up to $5B in procurements through 2011.”

  Government Product and Service Offerings: TSYS enters into fee-for-service contracts under which revenue is generated based on contract labor billing rates or based on fixed fees for deliverables. These services are typically under multi-year contracts or contract vehicles:

  Integrated Logistics Support (ILS) Services: field and maintenance support for wireless deployable communication systems including SwiftLink systems, as well as other vendors’ systems. This includes basic and extended maintenance services, training, depot support (supply chain management), product resets and documentation.

  Cyber Security and IT Training and Professional Services: provide cyber security training, secure network communication and encryption engineering, project management, information assurance, program and business management and enterprise modernization.  TSYS also provides ongoing network operation and management support services including telecom expense management under multi-year contracts with government customers.

  Secure Satellite Teleport Data Landing and Transmission Services: TSYS owns and operates high-speed satellite communications teleport in Manassas, Virginia that is connected to the public switched telephone network and operates two facilities in Europe for government customers. These facilities provide transport services for IP-based media content consisting of VoIP, Internet, video and messaging data using Very Small Aperture Terminal (VSAT) technology as part of a communications solution for customers.

  Government Systems: TSYS’s SwiftLink product line is a series of ruggedized, secure communication systems, which can be rapidly deployed in remote areas for wireless satellite based or point-to-point communications where other means of reliable communication my not be available. SwiftLink products provide secure voice, video and data communications for multiple personnel. All of the SwiftLink systems can be deployed by a single person in less than ten minutes, creating critical communication channels from any location around the world. SwiftLink is designed to provide secure voice and data communications through encrypted satellite links.

  Since 2006, TSYS has made large volume shipments of systems under the U.S. Army’s Worldwide Satellite Systems contract.

  Government Market Opportunities and Strategy: The following trends are driving demand for TSYS’s products and services

  • Expanding Need for Secure, Deployable, Wireless Communication Solutions: The U.S. Army awarded the 2006-11 WWSS 5 year procurement contract vehicle to six prime contractors, including TSYS. WWSS encompasses systems like SwiftLink and TSYS has generated significant revenue under WWSS. “TSYS has prepared for participate in U.S. military procurement successors to WWSS that are expected to be awarded in 2011.”
  • Growing Need for Cyber Security: By acquiring Solvern in late 2009, TSYS has contract vehicles for the government’s surging demand for IT cyber security training, cyber technical solutions, and related procurement support. The expertise and processes developed for the Government Segment can be adapted to meet the online security needs of commercial clients.
  • Government Outsourcing of Network and Telecom Technical Functions: Federal agencies, as well as state and local governments are increasingly contracting with specialist teams for functions such as network management and for long-term projects such as software development and systems integration.  Since TSYS’s founding, they have built relationships with federal agencies, as well as the State of MD and city of Baltimore. Since 2004, TSYS has made it a management priority to aggressively expand their base of long-term service contract engagements. In 2009, expanded through an acquisition which added experienced sales personnel and enhanced their relationships with system integrators and specialist vendors.
    • In 2009 TSYS completed four acquisitions with the goal of providing enhancements to products and services as specialists in highly reliable, secure mobile communications technology.
    • Page 10 of December 31, 2010 10-K lists acquisitions.
    • Growing Use of Secure Wireless Communications and Location Technology for Defense, Intelligence and Homeland Security: Wireless communications and location technology are key initiatives within the federal government for both security and supply-chain management. Wireless communications in emergencies are of paramount importance, as emergency personnel need to be able to communicate and share information across agencies and departments where wireline systems may be unavailable.
    • Secure Teleport, Space Segment and Integration Capabilities with Deployable Systems as a Bundled Solution: Government agencies can benefit from single-sourcing secure communications solutions which include a secure U.S. landing site for backhaul traffic as we as network engineering expertise and secure remote terminals. TSYS believes it enjoys a competitive advantage, because it can offer all of these elements from a single vendor.
    • Application of Commercially Proven Technology to Government Solutions: Government customers are increasingly using commercial carrier networks; procurement officers have expressed a preference for solutions that incorporate proven commercial technology, rather than reliance on government R&D funding. TSYS’s software, patented IP and teams of wireless and encryptions specialists position them to seize upon this trend.



  • Commercial Segment: TSYS’s commercial customers are wireless telecommunication carriers in the U.S. and around the world, either directly or through channel partners. TSYS provides licensed software-based systems, and hosted applications to carriers around the world.
    • Verizon Wireless, AT&T Mobile, T-Mobile, Sprint, MetroPCS, Cricket Communications, Telus and Hutchinson Whampoa.
    • E9-1-1 customers: LLL, Comcast.
    • Electronic map technology solutions to telematics vendors: Denso, Mercedes-Benz, ATX Group for Hyundai Motors America.
  • Government Segment: U.S. federal government agencies accounted for 36% of total 2010 revenue.



  • Commercial Segment: Intrado Inc., divison of Wet Corporatin, Motorola, ERICY, OPWV, Comverse Technology, TeleNav, Motricity and NOK.
  • Government Segment: GD, CACI, GCOM, CSC, VSAT and COL


New Government Contracts
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