2018 Financial Results Highlights:
Evolving Systems, Inc. (NASDAQ: EVOL), a
leader in real-time digital engagement, today reported financial
results for its third quarter ended September 30, 2018.
“Our 2018 results thus far were in line with
expectations as revenue grew approximately 21% year-over-year, we
were profitable on an operating and net income basis, and the cash
balance on our balance sheet remained strong. Cash flow has
increased by over $0.9 million year to date and our cash balance
improved by 13% since December 2017, while we increased investments
in product development, marketing and sales-related initiatives,”
said Matthew Stecker, Chief Executive Officer and Executive
Chairman of Evolving Systems.
Stecker continued, “This is an important year
for Evolving Systems as we work to leverage last year’s
acquisitions to expand our markets and products and make
investments in our product development to strengthen our
offerings. We are focused on expanding our business with both
our installed client base and new accounts by growing our recurring
revenue with managed service solutions and moving away from
one-time sales opportunities.”
Concluding, Stecker noted, “During the fourth
quarter, our growing sales force and account management team will
target several of our larger customers to upsell additional
products and services as well as expand our capabilities to bring
on new clients. All of us at Evolving Systems remain focused
on enhancing our business and creating long-term and sustainable
shareholder value.”
2018 ResultsTotal revenue for
the third quarter ended September 30, 2018 was $7.4 million, a $0.1
million or approximately 2% decrease over the comparable year-ago
period. Total revenue for the nine months ended September 30, 2018
was $23.7 million or approximately a 21% increase over the same
period a year ago. Services revenue, which includes revenues
from the Company’s preference for Managed Services over perpetual
licensing, comprised approximately 96% of total revenue and
increased $5.4 million or 31% when comparing the year to date
revenues for fiscal 2018 and fiscal 2017 nine-month periods.
The Company reported gross profit margins,
excluding depreciation and amortization, of approximately 68.2% for
the three months ended September 30, 2018, as compared to gross
profit margins of approximately 66.0% for the three months ended
September 30, 2017. This increase in gross margin was primarily
related to delivering on service client projects more efficiently,
allowing the Company to allocate technical staff to product
development. The Company’s gross profit margins, excluding
depreciation and amortization, for the nine months ended September
30, 2018 of approximately 65.9% declined primarily due to the
Company’s product and service mix following the acquisitions of BLS
and Lumata as compared to gross profit margins of approximately
71.1% for the nine months ended September 30, 2017.
Total operating expenses of $4.5 million in the
quarter ended September 30, 2018 increased by approximately $0.7
million, as compared to $3.8 million in the corresponding year-ago
period. Total operating expenses of $14.1 million for the nine
months ended September 30, 2018 increased by approximately $4.7
million, as compared to $9.4 million in the corresponding
nine-month period in the prior year. The increase in total
operating expenses was directly related to added expenses
associated with the BLS and Lumata operations, which accounted for
approximately $1.4 and $2.1 million respectively of the
year-over-year increases. During the second quarter, the
Company had non-recurring legal expenses of $0.4 million relating
to settlement of a dispute arising from the SSM acquisition in
September of 2015 and the write-off of uncollectible fees of $0.3
million related to projects that were terminated prior to
completion. Other additional operating expenses were primarily
related to the Company’s planned investments in sales and
marketing, staffing and product development.
The Company reported operating income of $1.6
million for the nine months ended September 30, 2018 as compared to
$4.5 million for the nine months ended September 30, 2017. The
Company reported Adjusted earnings before interest, taxes,
depreciation and amortization (“EBITDA”) of $3.0 million for the
first nine months of 2018, as compared to $5.8 million for the
first nine months of 2017. Factoring that the non-recurring
expenses noted above were unanticipated, the Company had expected
an Adjusted “EBITDA” of $3.7 million for the first nine months of
2018.
Cash and cash equivalents as of September 30,
2018 were $8.5 million, an increase of $0.9 million or 13% compared
to $7.6 million as of December 31, 2017. Contract receivables, net
of allowance for doubtful accounts, were $7.6 million, a decrease
of $2.5 million compared to December 31, 2017. Unbilled
work-in-progress, net of allowance for doubtful accounts, was $3.9
million and $5.8 million for the periods ended September 30, 2018
and December 31, 2017, respectively. Working capital as of
September 30, 2018 decreased to $7.8 million from $9.0 million as
of December 31, 2017. The Company continued to generate
positive cash flows from operations.
Conference
CallThe Company will be conducting a conference
call and webcast on Tuesday, November 13, 2018 at 4:30 p.m. Eastern
Time and 2:30 p.m. Mountain Time. The call-in numbers for the
conference call are: (877) 303-6316 for domestic toll free and
+1(650) 521-5176 for international callers. The audience passcode
is 2086421. A telephone replay will be available for a period of
two weeks following the Company’s results and can be accessed by
calling (855) 859-2056 for domestic toll free or +1(404) 537-3406
for international callers. The audience passcode is also 2086421.
To access a live webcast of the call, please click the ‘Investors’
tab on the Company’s website at www.evolving.com and then click the
‘Q3 earnings call’ icon at right. A replay of the webcast will be
accessible through November 26, 2018. The webcast is also available
by clicking the following
https://edge.media-server.com/m6/p/s8uwtrti.
Non-GAAP Financial
MeasuresEvolving Systems reports its financial results in
accordance with accounting principles generally accepted in the
U.S. (GAAP). In addition, the Company is providing in this news
release financial information in the form of non-GAAP net income
and diluted net income per share and adjusted EBITDA (earnings
before interest, taxes, depreciation, amortization, impairment,
stock compensation, restructuring and gain/loss on foreign exchange
transactions). Management believes these non‑GAAP financial
measures are useful to investors and lenders in evaluating the
overall financial health of the Company in that they allow for
greater transparency of additional financial data routinely used by
management to evaluate performance. Investors and financial
analysts who follow the Company use non‑GAAP net income and
non‑GAAP diluted income per share to compare the Company against
other companies. Adjusted EBITDA can be useful for lenders as an
indicator of earnings available to service debt. Non‑GAAP financial
measures should not be considered in isolation from or as an
alternative to the financial information prepared in accordance
with GAAP.
About Evolving Systems®Evolving
Systems, Inc. (NASDAQ: EVOL) is a provider of real-time digital
engagement solutions and services to more than 100 customers in
over 60 countries worldwide. The Company’s portfolio includes
market-leading solutions and services for real-time analytics,
customer acquisition, customer value management and loyalty for
communication service providers (CSPs). Founded in 1985, the
Company has its headquarters in Englewood, Colorado, with offices
in Asia, Europe, Africa, South America and North America. For more
information, please visit www.evolving.com or follow us on Twitter
at http://twitter.com/EvolvingSystems.
CAUTIONARY STATEMENTThis news
release contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, based on
current expectations, estimates and projections that are subject to
risk. Specifically, statements about the market for, and
performance of, the Company’s products and its ability to enhance
its products and expand its capabilities with existing and new
customers are forward-looking statements. These statements are
based on our expectations and are naturally subject to uncertainty
and changes in circumstances. Readers should not place undue
reliance on these forward-looking statements, and the Company may
not undertake to update these statements. Actual results could vary
materially from these expectations. For a more extensive discussion
of Evolving Systems’ business, and important factors that could
cause actual results to differ materially from those contained in
the forward-looking statements, please refer to the Company’s Forms
10‑K, 10‑Q, 10‑Q/A, 8‑K and 8‑K/A filed with the SEC and its press
releases and the Company’s website.
EVOLVING SYSTEMS, INC. |
CONDENSED CONSOLIDATED BALANCE
SHEETS |
(in thousands, except share data) |
(unaudited) |
|
|
|
September 30, |
|
December 31, |
|
2018 |
|
2017 |
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and
cash equivalents |
$ |
8,522 |
|
|
$ |
7,562 |
|
Contract
receivables |
|
7,689 |
|
|
|
10,151 |
|
Unbilled
work-in-progress |
|
3,880 |
|
|
|
5,823 |
|
Prepaid
and other current assets |
|
1,509 |
|
|
|
2,053 |
|
Total
current assets |
|
21,600 |
|
|
|
25,589 |
|
Property and equipment,
net |
|
187 |
|
|
|
258 |
|
Amortizable intangible
assets, net |
|
4,829 |
|
|
|
5,613 |
|
Goodwill |
|
24,857 |
|
|
|
25,216 |
|
Deferred income taxes,
net |
|
440 |
|
|
|
274 |
|
Total
assets |
$ |
51,913 |
|
|
$ |
56,950 |
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
Term loan
- current |
$ |
3,577 |
|
|
$ |
2,805 |
|
Accounts
payable and accrued liabilities |
|
4,299 |
|
|
|
6,890 |
|
Contingent earnout |
|
824 |
|
|
|
396 |
|
Income
taxes payable |
|
415 |
|
|
|
1,107 |
|
Unearned
revenue |
|
4,720 |
|
|
|
5,397 |
|
Total
current liabilities |
|
13,835 |
|
|
|
16,595 |
|
Long-term
liabilities: |
|
|
|
|
|
Term
loan, net |
|
3,393 |
|
|
|
5,942 |
|
Total
liabilities |
|
17,228 |
|
|
|
22,537 |
|
|
|
|
|
|
|
Stockholders'
equity: |
|
|
|
|
|
Common
stock |
|
12 |
|
|
|
12 |
|
Additional paid-in capital |
|
99,107 |
|
|
|
98,517 |
|
Treasury
stock |
|
(1,253 |
) |
|
|
(1,253 |
) |
Accumulated other comprehensive loss |
|
(9,712 |
) |
|
|
(8,202 |
) |
Accumulated deficit |
|
(53,469 |
) |
|
|
(54,661 |
) |
Total
stockholders' equity |
|
34,685 |
|
|
|
34,413 |
|
Total
liabilities and stockholders' equity |
$ |
51,913 |
|
|
$ |
56,950 |
|
|
|
|
|
|
|
|
|
EVOLVING SYSTEMS, INC. |
CONSOLIDATED STATEMENTS OF
INCOME |
(in thousands, except share
data) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
License
fees |
$ |
255 |
|
|
$ |
1,068 |
|
|
$ |
839 |
|
|
$ |
2,131 |
|
Services |
|
7,165 |
|
|
|
6,479 |
|
|
|
22,876 |
|
|
|
17,513 |
|
Total revenue |
|
7,420 |
|
|
|
7,547 |
|
|
|
23,715 |
|
|
|
19,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS OF
REVENUE AND OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
Costs of
revenue, excluding depreciation and amortization |
|
2,357 |
|
|
|
2,569 |
|
|
|
8,105 |
|
|
|
5,678 |
|
Sales and
marketing |
|
1,663 |
|
|
|
1,439 |
|
|
|
4,899 |
|
|
|
3,485 |
|
General
and administrative |
|
1,511 |
|
|
|
1,562 |
|
|
|
5,439 |
|
|
|
3,555 |
|
Product
development |
|
1,074 |
|
|
|
356 |
|
|
|
2,882 |
|
|
|
1,499 |
|
Depreciation |
|
20 |
|
|
|
55 |
|
|
|
101 |
|
|
|
156 |
|
Amortization |
|
240 |
|
|
|
226 |
|
|
|
733 |
|
|
|
618 |
|
Restructuring |
|
- |
|
|
|
131 |
|
|
|
- |
|
|
|
131 |
|
Total costs of revenue
and operating expenses |
|
6,865 |
|
|
|
6,338 |
|
|
|
22,159 |
|
|
|
15,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
operations |
|
555 |
|
|
|
1,209 |
|
|
|
1,556 |
|
|
|
4,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
23 |
|
|
|
1 |
|
|
|
53 |
|
|
|
2 |
|
Interest
expense |
|
(120 |
) |
|
|
(91 |
) |
|
|
(369 |
) |
|
|
(234 |
) |
Other
expense |
|
71 |
|
|
|
- |
|
|
|
58 |
|
|
|
- |
|
Foreign
currency exchange loss |
|
362 |
|
|
|
(176 |
) |
|
|
498 |
|
|
|
(568 |
) |
Other income (expense),
net |
|
336 |
|
|
|
(266 |
) |
|
|
240 |
|
|
|
(800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
before income taxes |
|
891 |
|
|
|
943 |
|
|
|
1,796 |
|
|
|
3,722 |
|
Income
tax expense |
|
342 |
|
|
|
184 |
|
|
|
604 |
|
|
|
888 |
|
Net income |
$ |
549 |
|
|
$ |
759 |
|
|
$ |
1,192 |
|
|
$ |
2,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common
share - net income |
$ |
0.05 |
|
|
$ |
0.06 |
|
|
$ |
0.10 |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per
common share - net income |
$ |
0.05 |
|
|
$ |
0.06 |
|
|
$ |
0.10 |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic
shares outstanding |
|
12,117 |
|
|
|
11,940 |
|
|
|
12,103 |
|
|
|
11,932 |
|
Weighted average
diluted shares outstanding |
|
12,124 |
|
|
|
11,992 |
|
|
|
12,124 |
|
|
|
11,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EVOLVING SYSTEMS, INC. |
Reconciliation of GAAP to Non-GAAP
Measures |
(in thousands, except share
data) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Adjusted
EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
549 |
|
|
$ |
759 |
|
|
$ |
1,192 |
|
|
$ |
2,834 |
|
Depreciation |
|
20 |
|
|
|
55 |
|
|
|
101 |
|
|
|
156 |
|
Amortization of intangible assets |
|
240 |
|
|
|
226 |
|
|
|
733 |
|
|
|
618 |
|
Stock-based compensation expense |
|
96 |
|
|
|
222 |
|
|
|
588 |
|
|
|
486 |
|
Interest
expense and other (benefit), net |
|
(336 |
) |
|
|
266 |
|
|
|
(240 |
) |
|
|
800 |
|
Income
tax expense (benefit) |
|
342 |
|
|
|
184 |
|
|
|
604 |
|
|
|
888 |
|
Adjusted
EBITDA |
$ |
911 |
|
|
$ |
1,712 |
|
|
$ |
2,978 |
|
|
$ |
5,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net
income: |
|
|
|
|
|
|
|
|
|
|
|
GAAP net income |
$ |
549 |
|
|
$ |
759 |
|
|
$ |
1,192 |
|
|
$ |
2,834 |
|
Amortization of
intangible assets |
|
240 |
|
|
|
226 |
|
|
|
733 |
|
|
|
618 |
|
Stock-based
compensation expense |
|
96 |
|
|
|
222 |
|
|
|
588 |
|
|
|
486 |
|
Income tax adjustment
for non-GAAP* |
|
(59 |
) |
|
|
(187 |
) |
|
|
(290 |
) |
|
|
(430 |
) |
Non-GAAP net
income |
$ |
826 |
|
|
$ |
1,020 |
|
|
$ |
2,223 |
|
|
$ |
3,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net
income per share |
|
|
|
|
|
|
|
|
|
|
|
GAAP |
$ |
0.05 |
|
|
$ |
0.06 |
|
|
$ |
0.10 |
|
|
$ |
0.24 |
|
Non-GAAP |
$ |
0.07 |
|
|
$ |
0.09 |
|
|
$ |
0.18 |
|
|
$ |
0.29 |
|
Shares used to compute
diluted net income per share |
|
12,124 |
|
|
|
11,992 |
|
|
|
12,124 |
|
|
|
11,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* The estimated income tax for non-GAAP net income is adjusted
by the amount of additional expense that we would accrue if we
used non-GAAP results instead of GAAP results in the
calculation of our tax liability, taking into account which tax
jurisdiction each of the above adjustments would be made and
the tax rate in that jurisdiction.
Investor Relations Contacts:
Alice Ahern
Investor Relations
Evolving Systems
Tel: 1-844-732-5898
Email: investors@evolving.com
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