TeleCommunication Systems, Inc.

& Cannell Capital LLC

Investor Presentation
2015

OURBACKGROUND

CannellCapitalLLChasbeenaTSYSshareholderformorethanfour
years
Multipleattemptsweremadetocommunicatewithmanagement
ManagementandBoardhavebeenunresponsive
Fundamentalconcernsremainunaddressedforthelastfouryears

REASONSFORCHANGE

Stockpriceerosion
Poorfinancialperformance
Poorrelativevaluation&performance
Weakbalancesheet
Historyofmisguidedandpoorlyexecutedacquisitions
Disconnectinpayforperformance
Poorcorporategovernance

OURPLAN

Embracefiscaldiscipline
Repaydebt
Restorecorporategovernance
Linkpaytoperformance
Explorestrategicalternatives
Monetizepatentportfolio

CANNELLCAPITALLLC

CannellCapitalLLCrepresentsover5%ownershipofTSYS

OurBackgroundwithTSYS
CannellCapitalisalongtermshareholder
CannellCapitalboughtitsfirstTeleCommunicationSystems,Inc. (TSYS)Class AcommonstockinApril
2011at$4.49pershare.Sincethattime,wehavepatientlywaitedinvainformanagementtocreate
some,any valueforshareholders.
PriordiscussionswithTSYSmanagement
OnJune20,2012,CannellCapitalmetwithTSYSCFO&SVPThomasM.Brandttodiscussits
concerns.CannellsuggestedseveralstrategicchangesincludingarecommendationthatTSYSexplorea
saleormergerinaSeptember2012letter.Noactionwastaken.Thesharepriceclosedat$1.41on
June20,2012.
Managementhasfailedtorespondinanywaytorecentshareholderrequests
InJanuary2014,CannellCapitaldeliveredasecondlettertoMr.Brandtrequestingameetingwith
TSYS.Therewasnoresponse.
Managementagainofferednoresponse.
TSYSCEOMauriceB.TosehascontinuedtorefuseMr.Cannellsdirectrequestforameeting.
Management/Boardhavefailed,quarterafterquarter,toproduceanyshareholdervalue.
3

1.Pooroperatingperformance
2.Destructionofshareholdervalue

Seven
Reasonsto
Challengethe
StatusQuo

3.Poorrelativeperformance&valuation
4.Weakbalancesheet
5.Historyofdilutiveacquisitions
6.Disconnectinpayforperformance
7.Poorcorporategovernance

PoorOperatingPerformance
Assaleshaveincreased,profitshavedisappeared

TSYSBeganLosingMoneytheYearRevenuePeaked
Fiscalyearendsin
December31

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

$58.1
TotalRevenue($millions)
RevenueGrowth

69.6

92.0

92.1

96.9 102.2 125.0 144.2 220.2 300.1 388.8 425.4 487.4 362.3 359.8

20%

32%

0%

5%

5%

22%

15%

53%

36%

30%

9%

15%

26%

1%

Grossprofit($millions)

$18.4

24.5

30.3

31.8

44.8

45.3

54.6

54.1

81.3

113.9 138.0 151.2 160.2 139.0 147.6

GrossMargin

32%

35%

33%

35%

46%

44%

44%

38%

37%

38%

35%

36%

38%

41%

$8.9

90.8

17.3

13.9

4.8

3.0

5.2

3.5

25.2

49.0

32.4

20.9 105.7 29.9

15.4

EBITMargin

15%

130%

19%

15%

5%

3%

4%

2%

11%

16%

8%

5%

22%

8%

4%

Netincome($millions)

$6.5

89.5

17.8

13.5

18.5 11.5 21.7

1.3

57.6

28.3

15.9

7.0

98.0 58.6

1.7

NetincomeMargin

11%

129%

19%

15%

19% 11% 17%

1%

26%

9%

4%

2%

20% 16% 97%

EPS Basic

$0.39

3.16

0.61

0.45

0.56 0.30 0.55 0.03

1.34

0.59

0.30

0.12

1.69 1.00 0.03

EPS Diluted

$0.39

3.16

0.61

0.45

0.56 0.30 0.55 0.03

1.23

0.53

0.28

0.12

1.69 1.00 0.03

EBIT($millions)

AllGAAPdataabovesourcedfromcompanysfilingsusingBloomberg.

33%

DestructionofShareholderValue

StockPriceUnderperformance
TSYSSharepricehasdeclined65%from$9.38on1/15/10to$3.19on06/01/15.
TSYSShareshaveunderperformedvs.NASDAQindexandindexofindustrypeers.

TSYS

Source:Companysfilings
NewPeerGroup:BlackBerryLimited;CACIInternationalInc.;ComtechTelecommunicationsCorp.;GarminLtd.;GeneralDynamicsCorp.;Harris
Corp.;TheKEYWHoldingCorporation;KratosDefense &SecuritySolutions,Inc.;NCIInc.;NeuStar,Inc.;RockwellCollins,Inc.; LMEricsson
TelephoneCompany;Telenav,Inc.;andViaSat,Inc
OldPeerGroup:CACIInternationalInc.;ComtechTelecommunicationsCorp.;GeneralDynamicsCorp.;HarrisCorp.;KratosDefense &Security
Solutions,Inc.;NCIInc.;NeuStar,Inc.;RockwellCollins,Inc.;LMEricssonTelephoneCompany;Telenav,Inc.;ViaSat,Inc,ComverseTechnology,Inc.
8
andGlobecommSystems,Inc

SignificantDropinRevenueinRecentYears
Revenuehasdeclinedconsistentlysince2012.

Revenue

160.0
140.0
120.0

In$million

100.0
80.0
60.0
40.0
20.0
0.0
Q1

Q2
2012

2013

Q3

Q4

2014

PoorProfitability
Netincomemarginremainsdramaticallybelow2008levels.SG&Aasapercentageofrevenuegrew
duringthesameperiod.
30%

20%

10%

0%
2008

2009

2010

2011

2012

2013

2014

10%

20%

30%
NetIncomeMargin(in%)

SG&Aasa%ofRevenue

10

PoorProfitability
ReturnonEquity(ROE),ReturnonInvestedCapital(ROIC),ReturnonAssets(ROA)andEarningsPer
Sharehavesignificantlydecreasedoverthelastsixyears.

ROE

ROIC

60%

60%

40%

40%

20%
20%

0%
20%

FY08

FY09

FY10

FY11

FY12

FY13

FY14

0%
FY08

40%
60%
80%

FY10

FY11

FY12

FY13

FY14

40%

ROA

EarningsPerShare

40%

1.5

30%

20%

0.5

10%

0%

0.5

10%

FY09

20%

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY08

FY09

FY10

FY11

FY12

FY13

FY14

20%

1.5

30%

11

SignificantDilutionofEquity
Overthelastdecade,sharesoutstandinghaveincreasedfrom33.3milliononDecember31,2004to
59.5milliononDecember31,2014.

HugeShareDilution
70

Numberofshares(Millions)

60
50
40
30
20
10
0
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

12

IncreasingAccumulatedDeficit
AccumulateddeficithasincreaseddrasticallyduetotheBoardsfailure.

AccumulatedDeficit
$250

InMillionsUSD$

$200

$150

$100

$50

$
FY11

FY12

FY13

FY14

13

DeclineinShareholdersEquity
Bookvaluepersharehasdeclineddramaticallysince2011.

BookValuePerShare
5.00
4.50

$4.37

4.00

$PerShare

3.50
3.00

$2.76

2.50
2.00

$1.86

$1.87

FY13

FY14

1.50
1.00
0.50
0.00
FY11

FY12

14

ManagementsFailuretoForecast
ManagementsfailuretoaccuratelyforecastrevenueandadjustedEBITDA.
TSYShasregularlymissedrevenueandadjustedEBITDAforecast,oftenbyalargemargin
EBITDAisadjustedtoexcludemanagementpayments
($Millions)
FY14Guidance(Q42013 EarningsCall1/30/14): FY13Guidance(Q42012 EarningsCall1/31/13):
Revenue
AdjustedEBITDA

Q114

Actual

$365to$375

$360.00

Revenue

$34to$38

$36.40

AdjustedEBITDA

FY11Guidance(Q42010 EarningsCall2/3/11):
Revenue
AdjustedEBITDA

Q113

Actual

$450to$475

$362.3

$46to$50

$36

FY10Guidance(Q42009 EarningsCall2/4/10):

Q111

Actual

$450to$475

$425.4

Revenue

$65to$70

$59.0

AdjustedEBITDA

Q110

Actual

$430to$450

$388.8

$80to$85

$66.3

15

ManagementsFailuretoForecast
FailedtoMeetCovenants.

OnJune15,2012managementannouncedthatanoncashchargeforgoodwillandother
intangiblesimpairmentwasnotexpected toimpactfuturecashflow,liquidity,orcompliancewith
debtcovenants.

ButonaJuly26,2012conferencecall,managementstatedthat TSYSborrowingcovenantswere
affectedbythisnoncashcharge.

Duringthequarter,webooked$126millionpretaximpairmentchargeor$112millionafterincome
taxaccounting,writingdownthelonglivedandintangibleassetsassociatedwithour2009acquisition
ofNetworksInMotion.Now,theCompany'sborrowingcovenantswereaffectedbythisnoncash
charge. ThomasBrandt,SVP&CFO

16

PoorRelativePerformance&Valuation

17

TSYSTradesataSignificant
DiscounttoCompetitors
TSYStradesatalowEV/RevenuecomparedtocompetitorscitedintheTSYSAnnualReport.

EV/Revenue
3

2.5

1.5

0.5

0
COL

WSTC

GRMN

TMOAF

KEYW

GD

TNAV

ERIC

CACI

TSYS

CSC

18

MarginsLowerThanPeers
OperatingMargin FY'14

EBITDAMargin% FY'14

TNAV

KEYW

TSYS

10%

CACI

0%
ERIC

0%
GD

10%
CSC

10%
WSTC

20%

COL

20%

TMOAF

30%

GRMN

30%

10%

20%

20%

30%

30%

NetIncomeMargin% FY'14
15%
10%
5%
0%
COL

GRMN

GD

WSTC

ERIC

CSC

CACI TMOAF TSYS

TNAV KEYW

5%
10%

19

PatentMonetizationProgramFailedto
Deliver
PatentMonetizationProgramhasfailedtodeliver:

TSYSclaimsitstartedaPatentMonetizationProgramin2008andthattheprogramhas
generatedover$40millionofgrossproceeds.

CEOpromisedinflowofpaymentswouldincreaseasthenumberofmonetizationprograms
increases.Thenumberofmonetizationprogramsatvariousstagesofexecution increased
from25in2013to37inQ214,butithasnotledtoanysubstantialincreaseinpayments.

DuringtheQ114conferencecall,whilerespondingtoaquestionaboutgrossproceedsfrom
patentmonetization,managementcommentedthatunlessthereisamajoroutlier,theywill
notgivedetails.TSYShasnotdisclosedanyseriousrecentprogress.

Yes,wehavemadeapointofnotbreakingthatout.It'sgoingtobeherkyjerkyquarterto
quarter.Andifsomethingisamajoroutlier,wewilllikelyexplaininourMD&Asthatthatis
thecase.Butotherwise,it'snotsomethingwe'llbreakout. ThomasBrandt,SVP&CFO,
May01,2014.

20

PatentMonetizationProgram
ColossalFailure
OurcollaborationwithOceanTomo hasconfirmedourbeliefthatTeleCommunication
Systems,throughitssteadyinvestmentoverthepastdecade,hasaccumulatedarareand
valuablebodyofprotectedintellectualpropertyinareasofimminentlargemarketgrowth
MauriceTose,CEO,February23,2006.z
Andagain,welookatoureffortsin'12asabeginningpointofwherewecanmovetowards
amorepredictivemonetizationstrategygoingforward.Butthelikelihoodofthatbeing'11
I'msorry,beingin'12isit's,again,it'sthebeginning.It'sthebeginningandtechnologyand
thespeedatwhichtechnologyisprogressing.Alotoftechnologyisreadingitonour
intellectualpropertyportfolio. MauriceTose,CEO,February02,2012.
Wenow,again,aregettingtoapointofwherein2013,weexpecttobeabletogivealittle
moreclarityinthatpartofthebusinessonanongoingbasistoturnitreallyintoaprofit
centeraswe'veenvisionedforsometime MauriceTose,CEO,October25,2012.
Andaswecontinuetogetmoreandmorepatentfamiliesunderlicenseorprosecution,we
believethat,unlikewherewearenow,withitbeingmodestandbeinglumpy,astime
progresses,wehopetogetthistoaplacewherewecanbemoreforthcomingwith
predictable withsomedegreeofpredictability. MauriceTose,CEO,May02,2013.
21

WeakBalanceSheet

22

TSYSRaisedTooMuchHighCostDebt
Companysacquisitionsfueledbydebt:
TSYSfundeditsacquisitionspreebyissuingdebt.
Capitalleasesandlongtermdebtincreasedmorethan11timesfrom$11.8millioninFY08to
$147millioninFY13.
Netincomedeclineddrasticallyfrom$57.6millioninFY08to$(58.6)millioninFY13.The
Companysinterestexpenseincreasedfrom$0.9millioninFY08to$8.2millioninFY13.
Highcostdebt.
InMay2013,TSYSretired$50millionof4.5%convertibleseniornotesduein2014for$50million
ofnew7.75%convertibleseniornotes.

EBITtoInterestExpense
30.00
25.00
20.00
15.00
10.00
5.00
0.00
(5.00)

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

(10.00)
(15.00)
(20.00)

23

2009
2010
2011
2012
2013
Totalstockholdersequity(FY'14)

Others

Netincome(excludingImpairment)

Totalstockholdersequity(FY'13)

Others

Netincome(excludingImpairment)

Impairmentofgoodwillandlonglived
assets

Totalstockholdersequity(FY'12)

Others

Netincome(excludingImpairment)

Impairmentofgoodwillandlonglived
assets

Totalstockholdersequity(FY'11)

Others

Netincome(excludingImpairment)

Totalstockholdersequity(FY'10)

Others

Netincome(excludingImpairment)

Totalstockholdersequity(FY'09)

($millions)

ShareholdersEquityHalved

TotalShareholdersEquitydeclinedsignificantlyfrom$251millioninFY11to$113millioninFY14.
300

250

200

150

100

50

2014

24

HistoryofDilutiveAcquisitions
Investorsarecasualtiesintheacquisitionspree

25

HundredsofMillionsLostfromAcquisitions
OnMarch31,2009,theEnterpriseValue(EV)ofTSYSwasapproximately$400million.Subsequently,
fromMarch2009toSeptember2014,thecompanyacquiredsixcompaniesfor$305million.
TheEVofTSYSinMarch2009PLUSthetotalamountpaidforacquisitionswas$705million.
ThecurrentEVis$278million lessthan35%ofthetotalcombinedvalue.
InFY12andFY13,TSYSrecorded$125.7and$32millionrespectivelyofimpairmentchargedfor
excesscarryingvalueofgoodwillfromacquisitions. TotalimpairmentvalueofTSYSis80%ofcurrent
marketcapitalization.
ImpairmentofGoodwill AKAWeoverpaidfortheacquisitionbyatleastthisamount.
Total Value (EV)
($ million)

Goodwill
($ million)

Date

Target Company

May 19, 2009

LocationLogic

November 3, 2009

Solvern Innovations

November 16, 2009

Sidereal Solutions

December 15, 2009

Networks In Motion

171

108.4

2.46

July 6, 2012

microDATA, GIS

35

22.0

1.77

January 31, 2011

Trident Space & Defense

29.5

17.6

0.73

25
45.6

EV/Revenue
1.38

48.9

NA
NA

HundredsofMillionsLostfromAcquisitions
Between2009and2014,marketcapitalizationdroppedfrom$420millionto$186million.

27

microDATAAcquisition:TooEarlyfortheMarket
microDATAstextto911technologystillhasalongwaytogo.
OnJuly2012,theCompanyacquiredmicroDATAfor$35million.TSYSboughtittoenhanceits
NextGeneration 911systems,allowingfortextingandsendingvideosanddatato911servicesin
anemergency.
Presentsituationoftextto911.
Aug2014:Eventhoughmanycarriershaveaddedtextto911functionality,lessthan2percentof
thenations6,800emergencydispatchcentersarereadytoreceivetexts.
Thebottomlineisthatfortheforeseeablefuture,onlyafewAmericanswillbeabletotextthe
policevia911.Ifyouhaveanemergency,skiptextingandjustcall. CBSNews,Aug11,2014.
InFY13,microDATAcontributed$5.2millioninsalescomparedto$8.7millioninFY12.
Okay.Andanythingyoucanshareintermsofwhatyouthinkthegrowthrateofthat
businessmightbeoverthenext12months? MarkJordan,NobleFinancialCapitalAnalyst
Well,we'rereallyrefiningthat.WeexpecteditbasedonwhattheFCChasindicatedtobea
healthydoubledigitgrowthrate.Andweactuallyexpecttoparticipatebeyondtheaverageinthe
market,becauseofthestrengthofthetechnologythat'sresonantinourCompanynow.Sothe
bestproxyIwouldofferforthatwouldbetheFCCdatathatherewe'vegotintheIRdeck.
MauriceTose,CEO,October25,2012.
28

NIMAcquisition:MissedMarketSignals
OnOctober2009,GoogleintroducedGoogleMapsNavigation aFREE serviceonAndroiddevices.
December 1,2009,TSYSannounceditwouldpurchaseNetworksinMotion(NIM),aproviderof
wirelessnavigationforGPSenabledmobilephonesfor$171millionor4.7Xof2008NIMrevenue.*
TSYSclosedthedealwithNIMonDecember15,2009.
InMarch2012,theCompanyreceivedanoticefromanavigationapplicationcustomerthatit
intendedtoadjustpricingforTSYSservices.Subsequently,inJune2012, TSYSimpaired$86million
ofgoodwillpaidfortheNIMacquisition.
Managementfailedtoseethe800poundgorillaentertheroom.

Weare,ofcourse,mindfulthatweare
makingthisinvestmentas Google is
launching Google Mapsnavigatorona
singledeviceasabetarelease
MauriceTose,CEO,December16,
2009.

Firstandforemost,theaccumulationoftheassets,
bothfromLocationLogic andfromNetworksin
Motion,hasputtheCompanyinatotallydifferent
posturewithinthecarrierworldonaglobalbasis,in
conjunctionwithourplatformbusiness Maurice
Tose,CEO,November04,2010.

Webelievenavigationislessthan15%oftotalrevenueandislikelyclosetobreakeven.We
believeTeleCommunication Systemsshouldlooktooffloadthisandfocusoncorelocation
infrastructure
Wedbush Securities,June2012.
*Source:http://architectpartners.com/

29

TridentAcquisition:FailedManagement
OnJanuary 31,2011 TSYSacquiredprivatelyheldTridentSpace &Defense,LLCfor$29million.
Tridentexpected2011revenuetobemorethan$40million. Theacquired Tridentbusiness
operationsareincludedintheTSYSGovernmentSegment.
Fortheyear2011,Tridentgenerated$27millionorabout$29.5millionannualized.
Managementfailedatmanagingthisoncevaluableasset.

Gotit.Andabsolutelythelast,here.Trident the(inaudible)wastracking,Ithink,itcould
havebeen$40millionfor2011.What'sthehistoricalgrowthrateinthatbusiness? Suhail
Chandy,Analyst,Wedbush Securities.
Youcouldsayit'sa5%or10%growthrate.Ithasn'tbeenlinearandthereisagrowth
elementthathasbeenmaturingwherewe'rebullishthatwe'regoingtoseeamore
significantcontributionthanwastherehistorically TomBrandt,SVP &CFO,Feb03,2011.

30

DisconnectinPayforPerformance
Inverserelationshipexistsbetweenpayandcompanyperformance

31

ExecutiveBaseSalaryvs.TSYSSharePrice
Sharepricedeclinedconsistentlyoverthelastfiveyears;thebasesalariesofallfivekey
executivesincreasedeveryyearduringthisperiod.
CEOsbasesalaryincreasedby$1.8Klastyearand35%fromFY08toFY14.
Duringthesameperiod,thebasesalaryforthreeexecutiveofficers(COO,CFOandCTO),
increasedby20%eachandfortheCMO,thebasesalaryincreasedby21%.
12

ExecutiveBasesalaryVsTSYSSharePrice
CEO

Salary($thousands)

600

10

500

COO
CFO

400
300

CTO

CMO

200
100

TSYSStockPrice

2
0

2008

CEOBaseSalary

2009

COOBaseSalary

2010

CFOBaseSalary

2011

2012

CTOBaseSalary

2013

CMOBaseSalary

2014

TSYSSharePrice

CEO ChiefExecutiveOfficer;CFO ChiefFinancialOfficer;COO ChiefOperatingOfficer;CTO ChiefTechnologyOfficer;CMO

32
ChiefMarketingOfficer

StockPrice($)

700

EgregiousCompensationStructure
HugeCompensation:
Inthelastfiveyears,MauriceTose(CEOandChairman)receivedtotalcompensationof$12.43
million
MauriceTose CompensationDetails:
2009

2010

2011

2012

2013

2014

Salary

$497,530

$519,919

$595,235

$624,038

$638,822

$640,625

OptionAwards

$900,722

$900,621

$324,121

$82,858

$59,237

$30,590

$919,064

$979,800

$734,700

$497,250

$2,264,195

$209,093

$720,000

$812,500

$256,250

$832,813

$80,072

$83,848

$98,429

$102,031

$29,812

$23,676

Year

StockAwards
NonEquityIncentiveComp. Plan
AllOther
CEOCompensation
ProceedstoCEOfromSaleofTSYS
Shares

$3,742,519

$1,713,481 $2,656,849 $2,601,227

$1,718,821 $2,024,954

$71,240

$2,498,556

$511,185

$230,589

TSYSNetincome($million)

$28.3

$15.9

$7

$(98.0)

$(58.6)

$(1.7)

CEOCompensation%ofNetIncome

13%

11%

38%

NA

NA

NA
33

BonusesforDestroyingShareholdersWealth
Executiveswererichlycompensatedforacquiringcompaniestoaddsales:
InFY09,totalcompensationforthetopfiveexecutiveswas$10.14million
Managementachieveditsstatedgoalsthroughmultipleacquisitions.Thefiveexecutives
receivedcashbonuses(nonequityincentivecompensation)of$5.55million.
Insubsequentyears,theseacquisitionsperformedpoorlyandmuchofthegoodwillwas
impaired.
Pooracquisitionscoupledwithhugecompensationunderlinetheimportanceofchangingthe
BoardofDirectors.
350

NonEquityIncentiveComp
($millions)

FY09

CEO

$2.26

COO

$1.04

CFO

$0.82

CTO

$0.74

CMO

$0.68

Total

$5.55

FY09

300

($millions)

250
200
150
100
50
0
Revenue

Adj.EBITDA
2009Goal

Adj.NetIncome

Cashatendof
year

2009Actual

34

FlawedNonEquityIncentiveCompensation
Inthelastfouryears(FY10 FY13),managementhasfailedtodeliveroncriticalrevenue,
EBITDAandnetincometargets.
Cashbonuseswerepaidtotheexecutiveteamduringthisperiodeventhoughtheyfailedto
meetthesetargets.
CashBonusesPaidtoTSYSExecutives:
FY10

FY11

FY12

FY13

FY14

CEO

$209,093

$720,000

$812,500

$256,250

$960,938

COO

82,855

189,370

221,831

78,660

$399,446

CFO

45,868

141,733

151,199

49,878

CTO

40,519

63,044

59,809

17,516

$157,640

CMO

117,235

89,446

95,200

56,660

$118,041

TOTAL

$495,570

$1,203,593

$1,340,539

$458,964

$1,849,829

$213,764

35

FlawedNonEquityIncentiveCompensation
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$

FY12

$500
$400
$300
$200
$100
$

Revenue

Adj.EBITDA

2011Goal
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$

Revenue

Adj.NetIncome

Adj.EBITDA
2012Goal

2011Actual
$400

FY13

Adj.NetIncome

2012Actual

FY14

$350
$300
($millions)

($millions)

$600

FY11
($millions)

($millions)

TSYSdidnotachieveitscriticalmetricsforrewardingcashbonuses.

$250
$200
$150
$100
$50
$

Revenue
2013Goal

Adj.EBITDA
2013Actual

Adj.NetIncome

Revenue

Adj.EBITDA
2014Goal

Adj.NetIncome

2014Actual

36

FlawedNonEquityIncentiveCompensation
TSYSgives10%weighttotheyearendcashbalancewhenawardingnonequityincentive
compensationtotheCEOandCFO.Managementcanraisedebtorissuestockinsteadof
generatingcashandstillberewarded.

CashatEndofYear

90
80
70

($millions)

60
50
40
30
20
10
0
2009

2010

2011
Goal

2012

2013

2014

Actual

37

FlawedNonEquityIncentiveCompensation
Boardassessesmanagementperformancewithtroublingqualitativecriteria.
AccordingtotheBoard,theCEOmet100%ofthequalitativecriteriafor2008 2013ineach
year.Thiscarried10%weightforthecomputationofhisnonequityincentivecompensation.
TheCFOandCTOreceivedasimilarassessmentfromtheBoard.
AccordingtotheBoard,theCMOmet100%ofhisqualitativegoalsin2008and2009.Heonly
met85%ofhisqualitativegoalsin2012and2013.

38

PoorCorporateGovernance

39

PoorCorporateGovernance
TSYSmaintainscorporategovernancepracticeswhichareunfriendlytoshareholders.
Specialmeetingsofstockholderscanonlybecalledbywrittenrequestofstockholdersentitledto
castatleastamajority(50.1%)ofallthevotesentitledtobecastatthemeeting.
TSYSrequiresasupermajorityvote(80%)toapproveamendmentstothecharterorbylaws.
Outsideofaspecialorannualmeeting,shareholderscanonlyactbyunanimouswrittenconsent.
TherolesofChairmanandCEOhavenotbeenseparated.
TSYShastwoclassesofcommonstock:Class AcommonstockandClassBcommonstock.Class A
stockhasonevotepersharewhileholdersofClassBstockhavethreevotespershare.Insidershold
100%ofClassBstock.
TheChairmanoftheBoardisnotindependentandTSYShasnotidentifiedaleadindependent
director.
TSYSsISSGovernanceQuickScore
AsofMay1,2015,InstitutionalShareholderServices(ISS)QuickscoreratingofTSYSwas10,
indicatinghighgovernancerisk.ISSQuickScoreof1indicateslowergovernancerisk,whilea10
indicateshighergovernancerisk.

40

PoorInternalMorale(Pt.1)
AccordingtoreviewsonGlassdoor.com,employeesofTSYSstronglydisapproveofmanagement.
CEOMauriceB.Tose hastheapprovalofonly14%ofemployees.
Only17%ofTSYSemployeesconsidertheCompanysbusinessoutlooktobepositive.

Source:Glassdoor.com

41

PoorInternalMorale(Pt.2)
OnGlassdoor,employeesexpressdisapprovalofmanagement
Sampleemployeecommentsinclude:
Lackofleadership,visionandstability.
Nomanagementknowledgeofwhatwedo
Managementdoesnottrytomakeworkenvironmentbetter.
Employeesareabusedbymanagementwhohaveanextrememicromanagementmentality.
Lackoftotaldirectionandstructurefromuppermanagement(in10reviews)
Executiveschippingawayatbenefitspackage

Source:Glassdoor.com

42

DirectorsAreNotIndependent&LackPublic
CompanyExperience
WeareconcernedthatCEO&ChairmanMauriceTose hashandpickedhisfriendsandacquaintances
toserveasboardmembers.Thereislittletorecommendthem.
Outofeightdirectors(includingtheCEO&Chairman),fivedirectorsservedintheUSArmed
Forcesduringthe1980s.Mr.Tose wasactivedutyintheUSNavyforeightyears.
Threeoftheeightdirectors,includingCEO&ChairmanTose,graduatedfromtheU.S.Naval
Academyandarebetween56and59yearsold.ThissuggeststhatMr.Bethmann andMr.Kutler
areMr.Toses friendsorclassmates.
FiveoutofeightdirectorsDONOThaveanyotherpubliccompanyexperience.
WeldonH.LathamhasservedasDirectorofTSYSforthepast16years(sinceDecember1999).We
believelongtenurecorrelateswithentrenchment.Helacksafreshperspectiveonthebusiness.

43

RelatedPartyTransactions
Relatedpartytransactions.
InFebruary2003,TSYSenteredintoaleasewithAnnapolisPartners,LLCtoexploretheopportunityof
relocatingtheCompanys officestoanewplannedrealestatedevelopment.MauriceToseownsa
controllingvotingandeconomicinterestinAnnapolisPartners,LLC.Thetermsoftheagreementhave
notyetbeenestablishedormadepublic.

44

NoOpenMarketStockPurchases
ThefollowingexecutiveshaveneverboughtTSYSstockthroughopenmarketpurchasesduringtheir
tenure:
MauriceTose,Founder,Chairman,PresidentandCEOsince1987.
DrewA.Morin,Sr.VicePresidentandChiefTechnologyOfficer.HejoinedTSYSin1988.
TimothyJ.Lorello,Sr.VicePresidentandChiefMarketingOfficer.HejoinedTSYSin1995.
ThefollowingdirectorshaveneverboughtTSYSstockthroughopenmarketpurchasesduringtheir
tenure:
JamesM.Bethmann,DirectorsinceApril2006.

45

StockTransactions
MauriceTose,Founder,Chairman,PresidentandCEOsince1987hassold715,014TSYSshares
overthelastfiveyearsthathasgeneratedover$2.25milliondollarsofproceeds.
Date

Shares

Price

5/18/2015

100,000

SaleClassA@3.25

3/9/2015

43,305

SaleClassA@3.17

5/27/2014

48,986

SaleClassA@3.43

5/28/2015

47,210

SaleClassA@3.32

3/4/2014

11,777

SaleClassA@2.18

3/5/2014

83,120

SaleClassA@2.18

5/24/2013

5,517

SaleClassA@2.33

5/28/2013

30,000

SaleClassA@2.33

5/29/2013

33,689

SaleClassA@2.30

5/30/2013

30,794

SaleClassA@2.28

3/6/2012

9,400

SaleClassA@2.51

3/7/2012

58,200

SaleClassA@2.50

3/8/2012

32,400

SaleClassA@2.63

8/29/2015

43,063

SaleClassA@3.86

8/30/2011

36,596

SaleClassA@3.79

8/31/2011

20,368

SaleClassA@3.82

5/25/2011

6,604

SaleClassA@4.80

5/26/2011

73,985

SaleClassA@4.83

Total

715,014

2,250,442

46

Our
Plan

47

ExploreStrategicAlternatives
TSYShasignoredouradviceandisunwillingtoseriously explorestrategic alternatives.Wewouldurge
theCompanytohireareputableinvestmentbankto explore alternatives.Thismaybethebest
pathwayforrestoringlostshareholdervalue.
Monetizepatentportfolio:
TSYSclaimstoownvaluablemobilelocationandmessagingpatents.WefearthatTSYShas
enteredintopoorlyconstructedlicensingdealswithintellectualpropertymonetizationfirms.Wewill
aggressivelyexploreallmonetizationalternativesincludingthesaleand/orlicenseofthesepatents.
Exitnoncoreassets.
ExploresplittingtheCompanyintoCommercialandGovernmentunitsandsellingthemseparately.

48

EmbraceFiscalDiscipline&RepayDebt
TheCompanysrecentfinancialresultssuggestamarkeddriftawayfromprudentfiscal
management.Wewouldurgethefollowingactionbetakingtoimprovefinancialperformance:
EmbracefiscaldisciplineacrosstheentireCompanythroughtargetedcostcuttingandbyputting
acquisitionsonhold;
Repayhighcostdebtusingthehigherfreecashflowresultingfromprudentcostcutting;and
IncreasemarketconfidenceinTSYSbyimprovingprofitabilityandincreasingthestrengthofthe
balancesheet.

49

ImproveCorporateGovernance
Wewantshareholdersvoicestobeheardintheboardroom.Wewouldseektoinstallshareholder
friendlybylawsthroughthefollowingactions:
Improving governance and compensation disclosures;
Removing staggered board;
Separating CEO and Chairman roles;
Creating an independent Chairman;
Removing the poison pill; and
Removing the supermajority (80%) requirement to amend the charter or bylaws.

50

LinkPaytoPerformance
ThereisaworryingdisconnectbetweentheCompanysperformanceandthecompensationofthe
Companysexecutives.Wewouldurgethatthefollowingstepsbetaken:
Executivebasesalariesshouldbecut;
Executivestockoptionsshouldbeawardedonlywhenmeaningfulperformancegoalsaremet
including:
Salesgrowth.
Operatingcashflow.
Operatingmargins.
EBITDA.
Debt/Equityratio;and
Cashbonusesshouldbetakenoffthetable.

51

Appendix
LetterstoManagement:
LetterfromMr.J.CarloCannell toTeleCommunication Systems,Inc.(September12,2012)
http://cannellcapital.com/uploads/09.12.12_TSYS_13D_Letter.pdf

52

Sources
TeleCommunication SystemsAgreestoAcquireNetworksinMotion(Slide29):
http://architectpartners.com/ma_alert/telecommunicationsystemsagreestoacquire
networksinmotion/
FCCrequirestextto911fromcarriers,apps(slide28):
http://www.pcworld.com/article/2463280/fccrequiresemergencytextingservicesfrom
carrierstextingapps.html
911textmessagingservicecomingin2014(slide28):
http://edition.cnn.com/2012/12/07/tech/mobile/fcccarriersannouncetextto911/
Timesarechangingintheworldof911(slide28):
http://archive.burlingtonfreepress.com/article/20120801/BUSINESS08/308010015/St
JohnsburyVermontcompanyattheforefrontofemerging911technologysellsfor37million
Needtocall911?Textingprobablywon'twork(slide28):
http://www.cbsnews.com/news/needtocall911textingprobablywontwork/
Textto911DeploymentsasofMay16,2014(Slide28):http://transition.fcc.gov/cgb/textto
911deployments.pdf
Lookingforprofitability,Aether sellsdivisiontoTCS:
http://www.bizjournals.com/baltimore/stories/2003/12/15/daily42.html?page=all
TWSTinterview(ThomasBrandtJr):https://www.twst.com/interview/8747
TeleCommunication Systems,CompanyFilings,Bloombergprofile

53