MTS (MTSL) Announces Third Quarter 2012 Financial Results

Year over Year Quarterly Revenues Increased 12% and Operating Income Increased 180%; Generated $1.3 Million of Free Cash Flow During the First Nine Months of 2012; The Company Recorded a Non-Recurring Charge of $0.45 Million Due to a Tax Ruling

RA’ANANA, Israel, November 8, 2012 /PRNewswire/ —

MTS – Mer Telemanagement Solutions Ltd. (Nasdaq Capital Market: MTSL), a global provider of MVNE services and telecommunications expense management (TEM) services and solutions, today announced its financial results for the third quarter of 2012.

Revenues for the third quarter of 2012 were $3.4 million, compared with $3.0 million in revenues during the same quarter last year and revenues of $3.3 million in the second quarter of 2012. The Company’s operating profit was $692,000 in the third quarter of 2012 compared to an operating profit of $244,000 for the third quarter of 2011 and $517,000 in the second quarter of 2012. On a non-GAAP basis, excluding the non-recurring tax charge related to a court ruling, net income for the third quarter of 2012 was $691,000 or  $0.15 per diluted share, compared with net income of $226,000 or $0.05 per diluted share in the third quarter of 2011 and $460,000 or $0.10 per diluted share in the second quarter of 2012. Net income for the third quarter, after a $446,000 non-recurring tax charge, was $245,000  or $0.05 per diluted share, compared with net income of $226,000 or $0.05 per diluted share in the third quarter of 2011 and $460,000 or $0.10 per diluted share in the second quarter of 2012.

Revenues for the nine months period ended September 30, 2012 were $9.6 million, compared with $8.8 million for the comparable period in 2011. The Company’s operating profit was $1.5 million for the nine months period ended September 30, 2012 compared to an operating profit of $439,000 for the same period last year. On a non-GAAP basis, excluding the non-recurring tax charge related to the court ruling, net income for the nine months ended September 30, 2012 was $1.5 million or  $0.32 per diluted share, compared with net income of $588,000 or $0.13 per diluted share in the comparable period of 2011. Net income for the nine months ended September 30, 2012 was $1.0 million or $0.22 per diluted share, compared with net income of $588,000 or $0.13 per diluted share in the comparable period in 2011.

Net income for the third quarter and for the nine months period ending September 30, 2012 was negatively affected by a non-recurring tax charge of approximately $446,000, as a result of a court ruling relating to the Company’s appeal of a tax ruling of the Israeli tax authorities that was issued with respect to the 1997 to 1999 period. The Company has not as yet received an assessment from the tax authorities.

As of September 30, 2012, we had cash and marketable securities of $4.6 million as compared to $3.4 million as at December 31, 2011. During the nine month period ended September 30, 2012 we had positive operating cash flow of $1.3 million, as compared to positive operating cash flow of $800,000 during the nine month period ended September 30, 2011.

“Our third quarter results represent continued improvements in our financial results and indicators as a result of our efforts to develop our Mobile Virtual Network Enabler (MVNE) activity and the Telecom Expense Management opportunities through partners, new customer acquisitions and expanding our existing customer base” said Eytan Bar, CEO of MTS.

“As we previously announced, we extended our largest existing MVNO services contract, with minimum revenues of $3.6 million during 2013. In addition, following last quarter’s announcement that we signed a new managed service agreement, we recently were able to successfully launch our MVNE service with this new MVNO in the US. The Company sees other opportunities in this market and we are working diligently to turn them into new contracts. We are looking forward to improving both our top and bottom line performance,” concluded Mr. Bar.

Non-GAAP Financial Measures

This release includes non-GAAP net income and diluted earnings per share financial measures. These non-GAAP measures exclude a non-recurring tax charge.

The Company’s management believes that the presentation of non-GAAP measures provides useful information to investors and management regarding financial and business trends relating to the Company’s financial condition and results of operations.

These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. Please refer to the reconciliation of GAAP to Non-GAAP table below.

About MTS

Mer Telemanagement Solutions Ltd. (MTS) is a worldwide provider of innovative products and services for comprehensive telecom expense management (TEM) and enterprise mobility management (EMM) solutions used by enterprises, telecom billing solutions used by telecommunication service providers, and mobile virtual network operators and enablers (MVNO/MVNE) solutions used by mobile service providers.

Headquartered in Israel, MTS markets its solutions through wholly owned subsidiaries in the United States, Hong Kong and The Netherlands as well as through OEM partnerships with Siemens, Phillips, NEC and other vendors.  MTS shares are traded on the NASDAQ Capital Market (symbol MTSL).  For more information please visit the MTS web site: http://www.mtsint.com.

Certain matters discussed in this news release are forward-looking statements that involve a number of risks and uncertainties including, but not limited to, risks in product development plans and schedules, rapid technological change, changes and delays in product approval and introduction, customer acceptance of new products, the impact of competitive products and pricing, market acceptance, the lengthy sales cycle, proprietary rights of the Company and its competitors, risk of operations in Israel, government regulations, dependence on third parties to manufacture products, general economic conditions and other risk factors detailed in the Company’s filings with the United States Securities and Exchange Commission.

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

                                                         September    December
                                                               30,         31,
                                                              2012        2011
    ASSETS

    CURRENT ASSETS:
    Cash and cash equivalents                              $ 4,516     $ 3,269
    Restricted cash                                            146          45
    Restricted marketable securities                           123         127
    Trade receivables, net                                     751         854
    Prepaid expenses and other assets                          152          93

    Total current assets                                     5,688       4,388

    LONG-TERM ASSETS:
    Severance pay fund                                         696         619
    Other long term assets                                      35          37

    Total long-term assets                                     731         656

    PROPERTY AND EQUIPMENT, NET                                201         161

    OTHER ASSETS:
    Goodwill                                                 3,479       3,479
    Other intangible assets, net                               809       1,050

    Total other assets                                       4,288       4,529

    Total assets                                          $ 10,908     $ 9,734

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

                                                   September 30,   December 31,
                                                            2012          2011
    LIABILITIES AND SHAREHOLDERS' EQUITY

    CURRENT LIABILITIES:
    Trade payables                                         $ 255        $ 326
    Accrued expenses and other liabilities                 2,694        2,354
    Deferred revenues                                      1,690        2,025
    Liabilities of discontinued operations                   435          435

    Total current liabilities                              5,074        5,140

    LONG-TERM LIABILITIES -
    Accrued severance pay                                    835          762

    COMMITMENTS AND CONTINGENT LIABILITIES

    SHAREHOLDERS' EQUITY:
    Share capital                                             13           13
    Additional paid-in capital                            19,903       19,773
    Treasury shares                                          (29)         (29)
    Accumulated other comprehensive income                     3          (19)
    Accumulated deficit                                  (14,891)     (15,906)

    Total shareholders' equity                             4,999        3,832

    Total liabilities and shareholders'
    equity                                              $ 10,908      $ 9,734

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands (except share and per share data)

                                   Nine months ended        Three months ended
                                    September 30,             September 30,
                                2012          2011         2012         2011
    Revenues:
    Product sales            $ 2,622       $ 2,933       $ 870         $ 926
    Services                   7,026         5,911       2,515         2,083

    Total revenues             9,648         8,844       3,385         3,009

    Cost of revenues:
    Product sales                887           836         269           255
    Services                   2,458         1,982         846           662

    Total cost of
    revenues                   3,345         2,818       1,115           917

    Gross profit               6,303         6,026       2,270         2,092

    Operating expenses:
    Research and
    development, net of
    grants from the OCS       1,003         1,445         299           500
    Selling and marketing     1,600         1,465         557           439
    General and
    administrative            2,206         2,267         717           909

    Total operating
    expenses                  4,809         5,587       1,573         1,848

    Operating profit          1,494           439         697           244
    Financial income
    (expenses), net            (20)           79           1           (11)
    Capital gain on sale
    of investment                -            78           -             -

    Income before taxes
    on income                 1,474           596         698           233
    Tax on income
    (benefit), net              459             8         453             7

    Net income              $ 1,015         $ 588       $ 245         $ 226

    Net Income per share:

    Basic net income per
    Ordinary share           $ 0.23        $ 0.13      $ 0.05        $ 0.05
    Diluted net income
    per Ordinary share       $ 0.22          0.13      $ 0.05        $ 0.05
    Weighted average
    number of Ordinary
    shares used in
    computing basic net
    income per share       4,462,807     4,459,057   4,470,306     4,459,057
    Weighted average
    number of Ordinary
    shares used in

    computing diluted net
    income per share       4,525,694     4,459,057   4,533,193     4,459,057

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

U.S. dollars in thousands (except share and per share data)

                                   Nine months ended        Three months ended
                                      September 30,             September 30,
                                 2012        2011        2012          2011
    GAAP Net Income             1,015         588         245           226
    Tax charge related to
    court ruling                  446           -         446             -

    Non-GAAP Net income       $ 1,461       $ 588       $ 691         $ 226

    Net Income per share:

    GAAP diluted net
    income per Ordinary
    share                      $ 0.22      $ 0.13      $ 0.05        $ 0.05
    Non-GAAP diluted net
    income per Ordinary
    share                      $ 0.32      $ 0.13      $ 0.15        $ 0.05
    Weighted average
    number of Ordinary
    shares used in

    computing GAAP
    diluted net income
    per share               4,525,694   4,459,057   4,533,193     4,459,057
    Weighted average
    number of Ordinary
    shares used in
    computing Non-GAAP
    diluted net income
    per share               4,525,694   4,459,057   4,533,193     4,459,057

Company Contact:

Alon Mualem
CFO
Tel: +972-9-7777-540
Email: Alon.Mualem@mtsint.com