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services revenue decreased $15.0 million, or 10% for 2013 compared to 2012, reflecting 7% lower professional services and managed
satellite services volume as well as the effect of the draw-down of Afghanistan field support personnel. Our cyber security revenue
decreased 3% due to timing of funding for training services. Government services revenue increased $16.9 million, or 13% in 2012
over 2011 as a result of new and expanded-scope contracts for field support and maintenance, in-building wireless and other
professional services and satellite airtime services using our teleport facility.
Direct cost of government services revenue consists of compensation, benefits and travel incurred in delivering these services,
as well as satellite space segment purchased for resale. These costs have varied over the three years presented as a direct result of
changes in volume.
Gross profit from government services increased $0.6 million, or 2% for 2013 over 2012 due largely to the effects of some one-
time changes to compensation arrangements as personnel transitioned from one contract to a successor. In 2012, gross profit from
government services decreased $1.0 million, or 3% from 2011 as a result of lower average pricing on the renewal of several contracts
offsetting the benefit of higher volume.
Government Systems Revenue, Cost of Revenue, and Gross Profit:
We generate government systems revenue from selling secure wireless communication systems and components, primarily
deployable satellite-based and line-of-sight deployable systems, integration of these systems into customer networks. These are largely
variations on our lightweight, secure, deployable communication kits, sold mainly to units of the U.S. Departments of Defense and
other federal agencies. Our government systems revenue also includes electronic components, sold mainly to domestic and foreign
space programs. Government systems sales decreased $97.5 million, or 61% in 2013 compared to 2012 due to significant 2012 non-
recurring “pass through” (low-margin, low-value-add) sales, and funding delays for our highly reliable electronic components and
deployable communication systems, and competitor protests of awarded contracts. Government systems sales increased $53.6 million,
or 51% in 2012 compared to 2011 due mainly to approximately $50 million of unusual, low margin “pass-through” shipments. Also,
increased sales of our SwiftLink and deployable communication systems and sales of our highly reliable electronic parts and materials
contributed to the 2012 increase in government systems revenues.
The cost of our government systems revenue consists of purchased system components, compensation and benefits, the costs of
third-party contractors, and travel. These costs have varied over the three years presented as a direct result of changes in mix and
volume. These equipment and third-party costs are variable for our various types of products, and margins fluctuate between periods
based on pricing and product mix.
Government systems gross profit decreased $14.2 million, or 57% for 2013 compared to 2012 due mainly to the lower sales
volume. Government systems gross profit increased $9.8 million in 2012, or 65% compared to 2011, due to higher sales volume.
Commercial Segment:
2013 vs. 2012
2012 vs. 2011
($ in millions)
2013
2012
$
%
2011
$
%
Services revenue ......................................................... $ 150.3 $ 159.0 $ (8.7) (5%) $ 174.7 $ (15.7) (9%)
Systems revenue..........................................................
19.8 23.7
(3.9) (16%) 16.5
7.2 44%
Total Commercial Segment revenue ................. 170.1 182.7 (12.6) (7%) 191.2
(8.5) (4%)
Direct cost of services .................................................
64.0 70.4
(6.4) (9%) 81.0 (10.6) (13%)
Direct cost of systems .................................................
16.6 15.2
1.4
9% 13.3
1.9 14%
Total Commercial Segment cost of revenue......
80.6 85.6
(5.0) (6%) 94.3
(8.7) (9%)
Services gross profit....................................................
86.3 88.6
(2.3) (3%) 93.7
(5.1) (5%)
Systems gross profit ....................................................
3.2
8.5
(5.3) (62%)
3.2
5.3 166%
Total Commercial Segment gross profit............ $ 89.5 $ 97.1 $ (7.6) (8%) $ 96.9 $ 0.2 NM
Segment gross profit as a percent of revenue ....
53%
53%
51%
(NM = Not meaningful)
