Evolving Systems, Inc.
(NASDAQ: EVOL)
(the “Company”), a leader in
real-time digital engagement, today reported financial results for
its third quarter ended September 30, 2020.
2020 Third Quarter Highlights:
- Third quarter revenue of $6.8 million, an increase of $0.5
million from the previous quarter results
- Year to date revenue of $19.4 million
- The Company has generated positive cash flow from operations in
2020
- Third quarter operating profit was $0.4 million, net income of
$0.1 million
- Adjusted earnings before interest, taxes, depreciation, and
amortization (“adjusted EBITDA”) for the third quarter was $0.8
million
“As we continue to navigate through these
historic times around the globe, we are proud to say we have been
able to continue to generate positive operational performance, as
our service revenue has increased from the corresponding period a
year ago and we have generated positive cash flow for the year.
Throughout our years of global service, we have developed a culture
of successfully managing our business through telework. We continue
to leverage our ability to implement and provide support remotely
and have noted a relatively limited effect on our operations during
this pandemic. We are working with existing and new clients,
helping them to explore new ways of using our products and services
to enhance their businesses during these unusual times. We have
seen continued impact on our ability to interact with our clients
in the traditional modes of sales and business development;
although this has slowed our expected growth, we were excited to
make the gains that we have,” said Matthew Stecker, Chief Executive
Officer and Executive Chairman of the Company.
Third Quarter and Year-to-Date 2020 ResultsTotal
revenue for the third quarter ended September 30, 2020 was $6.8
million, a $0.7 million increase from the three months ended
September 30, 2019. The change was primarily related to increased
revenue from upgrades and new projects partially offset by project
completion or reduction in orders from existing clients in the
corresponding period in 2019. Total revenue for the nine months
ended September 30, 2020 was $19.4 million, or approximately a 1.7%
increase from $19.1 million in the same period a year ago,
predominantly related to increased revenue from upgrades and new
projects recognized this year, partially offset by one-time
licensing fees recognized in the prior year period. Services
revenue, which is mostly recurring in nature, was $19.0 million
year-to-date, an increase year-over-year of $1.1 million, or 6.1%
from $17.9 million during the comparable year-ago period. Services
revenue, which includes revenues from the Company’s preference for
managed services over perpetual licensing, comprised approximately
98% of total revenues for the nine months ended September 30,
2020.
The Company reported gross profit margins,
excluding depreciation and amortization, of approximately 68.5% for
the quarter ended September 30, 2020, as compared to gross profit
margins of approximately 64.9% during the comparable year-ago
period. This increase in gross margin was primarily related to the
increased revenue recognized on new projects and upgrades. For the
nine months ended September 30, 2020, the Company reported gross
profit margins, excluding depreciation and amortization, of
approximately 66.7%, as compared to gross profit margins of
approximately 67.2% for the nine months ended September 30, 2019.
This decrease in gross margin was primarily related to the product
and service mix inclusive of the higher licensing revenue in the
prior year period.
Total operating expenses were $4.3 million in
each of the quarters ended September 30, 2020 and 2019. Expenses
related to travel and marketing costs were lower due to the travel
reductions during the global pandemic and were primarily offset by
increases in general and administrative costs related to local
accounting fees. Total operating expenses were $12.4 million for
the nine months ended September 30, 2020. Total operating expenses
were $20.8 million for the nine months ended September 30, 2019; or
$14.1 million after excluding the $6.7 million goodwill impairment
charge in 2019. The decrease of approximately $1.7 million was
related to the mix of hours as delivery staff focused on customers’
projects, not product development as in the prior year, and a
decrease in overall resourcing costs. There were also reductions in
the Company’s accounting fees, incentive compensation expense, and
the aforementioned decreases in travel and marketing costs, mainly
due to the travel restrictions.
The Company reported operating profit of $0.4
million and net income of $0.1 million for the three months ended
September 30, 2020, as compared to operating loss of $0.3 million
and a net loss of $0.2 million for the three months ended September
30, 2019. The Company reported adjusted EBITDA of $0.8 million for
the quarter ended September 30, 2020 compared to $0.1 million for
the same period a year ago. Adjusted EBITDA for the nine months
ended September 30, 2020 was $1.5 million compared to an adjusted
EBITDA loss of $0.2 million for the first nine months in 2019.
Cash and cash equivalents as of September 30,
2020 were $3.5 million, an increase of 13.3% compared to $3.1
million as of December 31, 2019. At September 30, 2020, contract
receivables, net of allowance for doubtful accounts, were $3.4
million, a decrease of $3.3 million compared to $6.7 million as of
December 31, 2019. Unbilled work-in-progress was $3.4 million at
September 30, 2020, an increase of $2.3 million compared to
December 31, 2019. Working capital as of September 30, 2020
increased to $4.8 million as compared to $3.8 million as of
December 31, 2019. This is primarily related to paydown of our loan
with East West Bank, which is scheduled to be retired at the end of
the year. The change also includes an alternative minimum tax
refund expected in the current year which was previously recorded
in our deferred tax assets. The Company believes it has sufficient
cash on hand and working capital liquidity to fund its business and
continued strategic investments for at least the next twelve
months.
Matthew Stecker concluded: “As the year draws to
a close, we continue to take the necessary actions to service our
clients to our fullest ability through the on-going global
pandemic. We must focus on continual business transformation,
increasing innovation, and product enhancements while identifying
opportunities to meet our customers’ changing needs. Our strong
customer footprint and decades of proven performance gives us a
significant head-start to maintain our business trend during these
uncertain times. We selectively seek new opportunities whether
through potential accretive acquisitions, joint ventures, or
strategic partnerships to drive both top- and bottom-line
performance to bring our shareholders long-term value.”
Conference CallThe Company will
be conducting a conference call and webcast on Wednesday, November
11, 2020 at 5:00 p.m. Eastern Time and 3:00 p.m. Mountain Time. To
access a live video webcast of the call, please click the
‘Investors’ tab on the Company’s website at
https://www.evolving.com/investors and then click the ‘Q3 earnings
call’ icon on the left. A replay of the webcast will be accessible
at that website through February 11, 2021.
Non-GAAP Financial MeasuresThe
Company 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
telecom, retail and financial services companies. Founded in 1985,
the Company has its headquarters in Englewood, Colorado, with
offices in Asia, Europe, Africa, 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, its ability to successfully
integrate its solutions with existing customer network systems, the
Company’s ability to timely make all future payments under its debt
facility, the Company’s business strategy and the Company’s cash
runway are forward-looking statements. These statements are based
on the Company’s expectations and are naturally subject to
uncertainty and changes in circumstances. Readers should not place
undue reliance on these forward-looking statements. Actual results
could vary materially from these expectations. For a more extensive
discussion of Evolving Systems’ business, and important risk
factors that could cause actual results to differ materially from
those contained in the forward-looking statements, please refer to
the Company’s filings and reports filed with the United States
Securities and Exchange Commission. All forward-looking statements
contained in this press release speak only as of the date on which
they were made. The Company undertakes no obligation to update such
statements to reflect events that occur or circumstances that exist
after the date on which they were made.
Investor Relations
Contact:Alice AhernInvestor RelationsEvolving SystemsTel:
1-844-732-5898Email: investors@evolving.com
|
|
EVOLVING SYSTEMS, INC. |
CONDENSED CONSOLIDATED BALANCE
SHEETS |
(in thousands, except per share data) |
(unaudited) |
|
|
|
September 30, |
|
December 31, |
|
2020 |
|
2019 |
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
3,486 |
|
|
$ |
3,076 |
|
Contract receivables, net of allowance for doubtful accounts |
|
3,409 |
|
|
|
6,732 |
|
Unbilled work-in-progress |
|
3,356 |
|
|
|
1,105 |
|
Prepaid and other current assets |
|
1,849 |
|
|
|
1,594 |
|
Income taxes receivable |
|
819 |
|
|
|
953 |
|
Total current assets |
|
12,919 |
|
|
|
13,460 |
|
Property and equipment,
net |
|
531 |
|
|
|
482 |
|
Amortizable intangible assets,
net |
|
2,918 |
|
|
|
3,665 |
|
Operating leases -
right-of-use assets |
|
979 |
|
|
|
1,205 |
|
Deferred income taxes,
net |
|
631 |
|
|
|
1,000 |
|
Total assets |
$ |
17,978 |
|
|
$ |
19,812 |
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Term loan - current |
$ |
428 |
|
|
$ |
1,577 |
|
Accounts payable and accrued liabilities |
|
4,042 |
|
|
|
3,827 |
|
Lease obligations — operating leases |
|
291 |
|
|
|
321 |
|
Unearned revenue |
|
3,321 |
|
|
|
3,971 |
|
Total current liabilities |
|
8,082 |
|
|
|
9,696 |
|
Long-term liabilities: |
|
|
|
|
|
Term loan, net |
|
319 |
|
|
|
122 |
|
Lease obligations, net |
|
680 |
|
|
|
876 |
|
Total liabilities |
|
9,081 |
|
|
|
10,694 |
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
Common stock |
|
12 |
|
|
|
12 |
|
Additional paid-in capital |
|
99,714 |
|
|
|
99,555 |
|
Treasury stock |
|
(1,253 |
) |
|
|
(1,253 |
) |
Accumulated other comprehensive loss |
|
(10,489 |
) |
|
|
(10,053 |
) |
Accumulated deficit |
|
(79,087 |
) |
|
|
(79,143 |
) |
Total stockholders' equity |
|
8,897 |
|
|
|
9,118 |
|
Total liabilities and stockholders' equity |
$ |
17,978 |
|
|
$ |
19,812 |
|
|
|
|
|
|
|
|
|
EVOLVING
SYSTEMS, INC. |
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS |
(in
thousands, except per share data) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Nine Months
Ended |
|
September
30, |
|
September
30, |
|
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
License fees |
$ |
83 |
|
|
$ |
185 |
|
|
$ |
387 |
|
|
$ |
1,152 |
|
Services |
|
6,691 |
|
|
|
5,928 |
|
|
|
19,001 |
|
|
|
17,914 |
|
Total
revenue |
|
6,774 |
|
|
|
6,113 |
|
|
|
19,388 |
|
|
|
19,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS OF REVENUE AND OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
Costs of revenue, excluding depreciation and amortization |
|
2,132 |
|
|
|
2,144 |
|
|
|
6,456 |
|
|
|
6,249 |
|
Sales and marketing |
|
1,511 |
|
|
|
1,815 |
|
|
|
4,516 |
|
|
|
5,574 |
|
General and administrative |
|
1,352 |
|
|
|
979 |
|
|
|
3,875 |
|
|
|
3,985 |
|
Product development |
|
1,094 |
|
|
|
1,183 |
|
|
|
3,168 |
|
|
|
3,676 |
|
Depreciation |
|
58 |
|
|
|
61 |
|
|
|
158 |
|
|
|
150 |
|
Amortization |
|
236 |
|
|
|
232 |
|
|
|
704 |
|
|
|
704 |
|
Goodwill impairment loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,687 |
|
Total costs
of revenue and operating expenses |
|
6,383 |
|
|
|
6,414 |
|
|
|
18,877 |
|
|
|
27,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations |
|
391 |
|
|
|
(301 |
) |
|
|
511 |
|
|
|
(7,959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
1 |
|
|
|
1 |
|
|
|
4 |
|
|
|
10 |
|
Interest expense |
|
0 |
|
|
|
(71 |
) |
|
|
(65 |
) |
|
|
(255 |
) |
Other (loss) income, net |
|
(1 |
) |
|
|
13 |
|
|
|
18 |
|
|
|
1 |
|
Foreign currency exchange gain (loss) income |
|
(107 |
) |
|
|
250 |
|
|
|
240 |
|
|
|
183 |
|
Other
(expense) income, net |
|
(107 |
) |
|
|
193 |
|
|
|
197 |
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations before income taxes |
|
284 |
|
|
|
(108 |
) |
|
|
708 |
|
|
|
(8,020 |
) |
Income tax expense |
|
148 |
|
|
|
109 |
|
|
|
652 |
|
|
|
296 |
|
Net income
(loss) |
$ |
136 |
|
|
$ |
(217 |
) |
|
$ |
56 |
|
|
$ |
(8,316 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share - net income (loss) |
$ |
0.01 |
|
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
$ |
(0.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per common share - net income (loss) |
$ |
0.01 |
|
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
$ |
(0.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic shares outstanding |
|
12,195 |
|
|
|
12,163 |
|
|
|
12,185 |
|
|
|
12,154 |
|
Weighted
average diluted shares outstanding |
|
12,258 |
|
|
|
12,163 |
|
|
|
12,275 |
|
|
|
12,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EVOLVING
SYSTEMS, INC. |
Reconciliation of GAAP to Non-GAAP Measures |
(in
thousands, except per share data) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Nine Months
Ended |
|
September
30, |
|
September
30, |
|
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
$ |
136 |
|
|
$ |
(217 |
) |
|
$ |
56 |
|
|
$ |
(8,316 |
) |
Depreciation |
|
58 |
|
|
|
61 |
|
|
|
158 |
|
|
|
150 |
|
Amortization of intangible assets |
|
236 |
|
|
|
232 |
|
|
|
704 |
|
|
|
704 |
|
Stock-based compensation expense |
|
92 |
|
|
|
70 |
|
|
|
159 |
|
|
|
263 |
|
Goodwill impairment loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,687 |
|
Interest expense and other (benefit), net |
|
107 |
|
|
|
(193 |
) |
|
|
(197 |
) |
|
|
61 |
|
Income tax expense |
|
148 |
|
|
|
109 |
|
|
|
652 |
|
|
|
296 |
|
Adjusted EBITDA |
$ |
777 |
|
|
$ |
62 |
|
|
$ |
1,532 |
|
|
$ |
(155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
GAAP net
income (loss) |
$ |
136 |
|
|
$ |
(217 |
) |
|
$ |
56 |
|
|
$ |
(8,316 |
) |
Amortization
of intangible assets |
|
236 |
|
|
|
232 |
|
|
|
704 |
|
|
|
704 |
|
Stock-based
compensation expense |
|
92 |
|
|
|
70 |
|
|
|
159 |
|
|
|
263 |
|
Goodwill
impairment loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,687 |
|
Income tax
adjustment for non-GAAP* |
|
(57 |
) |
|
|
(53 |
) |
|
|
(147 |
) |
|
|
(169 |
) |
Non-GAAP net income (loss) |
$ |
407 |
|
|
$ |
32 |
|
|
$ |
772 |
|
|
$ |
(831 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
GAAP |
$ |
0.01 |
|
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
$ |
(0.68 |
) |
Non-GAAP |
$ |
0.03 |
|
|
$ |
0.00 |
|
|
$ |
0.06 |
|
|
$ |
(0.07 |
) |
Shares used
to compute diluted net income (loss) per share |
|
12,258 |
|
|
|
12,163 |
|
|
|
12,275 |
|
|
|
12,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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. |
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