Evolving Systems, Inc. (NASDAQ: EVOL), a
leader in real-time digital engagement, today reported financial
results for its second quarter ended June 30, 2019.
2019 Financial Results Highlights:
- Second quarter revenue was $6.3 million
- Year-to-date 2019, the Company has generated positive cash flow
from operations
- During the second quarter, the Company incurred a non-cash
charge related to the impairment of goodwill of $6.7 million
associated with our past acquisitions and triggered by the recent
decline in the market capitalization of the Company
- Second quarter operating and net loss was $7.0 million and,
excluding the goodwill impairment, operating loss and net loss
would have been $0.3 million
- The Company reported for the second quarter positive Adjusted
EBITDA of $0.1 million
- Continued strategic investments to enhance R&D activities,
sales and marketing initiatives, and global business development to
drive long-term growth in revenues
“Our 2019 second-quarter results, although
slightly lower than our expectations and prior quarters, were not
surprising as we continue to execute on our transformation towards
a brighter future. Although revenue growth has been slower to
develop than we would have liked, we are dedicated to building a
stronger company through further investment in research and
development as well as in marketing and sales-related initiatives
to service our existing clients better and reach new ones. All of
us at Evolving Systems remain focused on enhancing our business and
creating long-term value,” said Matthew Stecker, Chief Executive
Officer and Chairman of Evolving Systems.
2019 Results:
Total revenue for the second quarter ended June
30, 2019 was $6.3 million, a $1.9 million or approximately 23.1%
decrease over the comparable year-ago period. Total revenue for the
six months ended June 30, 2019 was $13.0 million or approximately a
20.5% decrease 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% and
93% of total revenues for the three months ended and six months
ended June 30, 2019 respectively.
The Company reported gross profit margins, excluding
depreciation and amortization, of approximately 68.0% for the six
months ended June 30, 2019 as compared to gross profit margins of
approximately 65.0% for the six months ended June 30, 2018. The
increase in gross margins is primarily due to the decreased hours
worked on client projects, as staff was used to support internal
efforts, including product development and a reduction in
expenses.
In accordance with Accounting Standards
Codification (ASC) 350 "Intangibles Goodwill and Other" we are
required to test our goodwill and other indefinite-lived intangible
assets for impairment at interim reporting periods when a
triggering event is identified. During the second quarter of our
fiscal year of 2019, our market capitalization declined to a level
that was less than the net book value of our stockholders' equity.
In 2018, the company adopted guidance provided by ASU 2017-04,
Intangibles – Goodwill and Other (Topic 350), Simplifying the Test
for Goodwill Impairment, which simplifies the subsequent
measurement of goodwill by eliminating the second step from the
quantitative goodwill impairment test, and allows for annual or
interim goodwill impairment testing to be performed by comparing
the fair value of a reporting unit with its carrying amount. An
impairment charge will then be recognized for the amount by which
the carrying amount exceeds the reporting unit’s fair value, not to
exceed the carrying value of goodwill. Given the sustained decline
in the market capitalization of our common stock during the second
quarter of 2019, a triggering event was identified and we performed
an interim goodwill impairment test. Management considered that,
along with other possible factors affecting the assessment of the
Company’s reporting unit for the purposes of performing a goodwill
impairment assessment, including management assumptions about
expected future revenue forecasts and discount rates, changes in
the overall economy, trends in the stock price, estimated control
premium, other operating conditions, and the effect of changes in
estimates and assumptions could materially affect the determination
of fair value and goodwill. As a result of the significant decline
in the current market capitalization and, despite any of the other
positive factors contemplated and the absence of any changes in our
business operations, the outcome of this goodwill impairment test
resulted in a non-cash charge for the impairment of goodwill for
the remaining carrying value of $6.7 million in the unaudited
condensed consolidated financial statements.
Total operating expenses were $11.1 million in
the quarter ended June 30, 2019. Excluding the goodwill impairment,
the Company’s operating expenses were $4.4 million, a decrease of
approximately $0.6 million, as compared to $5.0 million in the
corresponding year-ago period. The decrease was primarily related
to the reduction in professional fees, with lower legal and
accounting fees as well as lower incentive compensation expense
compared to the prior period a year ago. Total operating expenses
were $16.5 million for the six months ended June 30, 2019.
Excluding the goodwill impairment, the operating expenses were $9.8
million, an increase of approximately $0.3 million, as compared to
$9.5 million in the corresponding six-month period in the prior
year. The increase was related to our increased focus on product
development and growing our global business development team,
offset by a decrease in our general and administrative costs.
Further, there were non-recurring charges of approximately $0.2
million recorded earlier in 2019, associated with complexities in
the completion of our year end audit and other accounting services
related to updating our global transfer pricing policies to include
the acquired companies and fees for the submission of R&D tax
credits refunded to our United Kingdom subsidiary.
The Company reported a second quarter operating
loss of $7.0 million. Excluding the effect of the goodwill
impairment, the operating loss would have been $0.3 million as
compared to $0.2 million operating income for the three months
ended June 30, 2019 and June 30, 2018, respectively. The loss was
primarily related to the non-cash charge for the impairment of
goodwill of $6.7 million. The Company reported Adjusted earnings
before interest, taxes, depreciation and amortization (“EBITDA”) of
$0.1 million for the quarter ended June 30, 2019 as compared to
$0.6 million for the same period a year ago.
Cash and cash equivalents as of June 30, 2019
was $5.3 million, a decrease of $1.4 million or 21% compared to
$6.7 million as of December 31, 2018. The decrease was primarily
related to debt repayments as the Company generated positive cash
flows from operations in 2019. Contract receivables, net of
allowance for doubtful accounts were $8.5 million, an increase of
$0.7 million compared to December 31, 2018. Unbilled
work-in-progress, net of allowance for doubtful accounts was $2.6
million and $3.0 million for the periods ended June 30, 2019 and
December 31, 2018, respectively. Working capital as of June 30,
2019 decreased on a sequential basis to $4.4 million from $8.1
million as of December 31, 2018, due to the decrease in our cash
and cash equivalents accounts from the payments of our outstanding
debt and interest. Working capital also was decreased by the
recording of a current liability of $0.4 million related to the
adoption of Accounting Standards Update “ASU” 2016-2 on Topic 842
for the accounting of operating leases. In addition, we have
recorded the full amount of our debt as short term due to the
Company’s noncompliance with bank covenants while we are
negotiating the restructuring of our terms. The Company has made
every loan repayment in full, as originally scheduled within our
loan agreement, and anticipates making all future payments. We
believe there is ample cash on hand and liquidity in the working
capital to fund our business and continued strategic
investments.
Matthew Stecker concluded: “The first half of
the year was focused on the transformation of Evolving Systems.
Through investment in our product solutions and in our staff, we
are in position to better support our global customers. We
have been very clear that the key to future revenues lies in
driving innovation and finding new opportunities within our
existing customer base while, in parallel, winning new engagements.
With a strong customer footprint and decades of proven performance
we are now at a turning point and in the second half of this year
we expect to begin capitalizing on our advantages. We have
weathered the challenges of re-inventing ourselves and are
confident that work will begin to bear fruit. At the same time, we
continue to selectively seek new opportunities whether through
potential accretive acquisitions, joint ventures or strategic
partnerships to drive both top- and bottom-line performance and
over the long-term to bring our shareholders long term value.”
Conference
Call
The Company will be conducting a conference call
and webcast on Monday, August 19, 2019 at 5:00 p.m. Eastern Time
and 3:00 p.m. Mountain Time. The call-in numbers for the conference
call are: (877) 303-6316 for domestic toll free and (650) 521-5176
for international callers. The conference ID number is 1583199. A
telephone replay will be available through September 2, 2019 and
can be accessed by calling (855) 859-2056 for domestic toll free or
(404) 537-3406 for international callers. The conference replay ID
number is also 1583199. To access a live webcast of the call,
please visit Evolving Systems’ website at www.evolving.com, click
the ‘Investors’ tab and then click the ‘Q2 earnings call’ icon. A
replay of the webcast will be accessible at that website through
November 1, 2019. The webcast is also available by clicking the
following link: https://edge.media-server.com/mmc/p/a9guxmwc.
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 65 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, 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, its ability to successfully
integrate its solutions with existing customer network systems, and
expectations regarding the Company’s outstanding debt 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 Form
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.
Investor Relations Contact:
Alice AhernInvestor RelationsEvolving
SystemsTel: 1-844-732-5898Email: investors@evolving.com
EVOLVING SYSTEMS,
INC. |
CONDENSED CONSOLIDATED BALANCE
SHEETS |
(in thousands, except share
data) |
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
June
30, |
|
December
31, |
|
2019 |
|
2018 |
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
5,310 |
|
|
$ |
6,732 |
|
Contract receivables |
|
8,469 |
|
|
|
7,757 |
|
Unbilled work-in-progress |
|
2,575 |
|
|
|
3,044 |
|
Prepaid and other current assets |
|
1,838 |
|
|
|
1,351 |
|
Income taxes receivable |
|
1,357 |
|
|
|
1,137 |
|
Total current assets |
|
19,549 |
|
|
|
20,021 |
|
Property and equipment,
net |
|
489 |
|
|
|
303 |
|
Amortizable intangible assets,
net |
|
4,075 |
|
|
|
4,550 |
|
Operating leases |
|
1,416 |
|
|
|
— |
|
Goodwill |
|
— |
|
|
|
6,738 |
|
Deferred income taxes |
|
1,161 |
|
|
|
1,140 |
|
Total assets |
$ |
26,690 |
|
|
$ |
32,752 |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Term loan - current |
$ |
4,267 |
|
|
$ |
3,573 |
|
Accounts payable and accrued liabilities |
|
5,225 |
|
|
|
4,483 |
|
Unearned revenue |
|
5,642 |
|
|
|
3,911 |
|
Total current liabilities |
|
15,134 |
|
|
|
11,967 |
|
Long-term liabilities: |
|
|
|
|
|
Term loan, net |
|
— |
|
|
|
2,365 |
|
Lease obligations, net |
|
1,056 |
|
|
|
— |
|
Total liabilities |
|
16,190 |
|
|
|
14,332 |
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
Common stock |
|
12 |
|
|
|
12 |
|
Additional paid-in capital |
|
99,417 |
|
|
|
99,224 |
|
Treasury stock |
|
(1,253 |
) |
|
|
(1,253 |
) |
Accumulated other comprehensive loss |
|
(10,129 |
) |
|
|
(10,115 |
) |
Accumulated deficit |
|
(77,547 |
) |
|
|
(69,448 |
) |
Total stockholders' equity |
|
10,500 |
|
|
|
18,420 |
|
Total liabilities and stockholders' equity |
$ |
26,690 |
|
|
$ |
32,752 |
|
|
|
|
|
|
|
EVOLVING SYSTEMS,
INC. |
CONSOLIDATED STATEMENTS OF
OPERATIONS |
(in thousands, except share
data) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Six Months
Ended |
|
June
30, |
|
June
30, |
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
License fees |
$ |
253 |
|
|
$ |
249 |
|
|
$ |
967 |
|
|
$ |
584 |
|
Services |
|
6,003 |
|
|
|
7,888 |
|
|
|
11,986 |
|
|
|
15,711 |
|
Total revenue |
|
6,256 |
|
|
|
8,137 |
|
|
|
12,953 |
|
|
|
16,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS OF REVENUE AND
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
Costs of revenue, excluding depreciation |
|
|
|
|
|
|
|
|
|
|
|
and amortization |
|
2,160 |
|
|
|
2,891 |
|
|
|
4,105 |
|
|
|
5,748 |
|
Sales and marketing |
|
1,693 |
|
|
|
1,599 |
|
|
|
3,759 |
|
|
|
3,236 |
|
General and administrative |
|
1,206 |
|
|
|
2,188 |
|
|
|
3,006 |
|
|
|
3,928 |
|
Product development |
|
1,204 |
|
|
|
955 |
|
|
|
2,493 |
|
|
|
1,808 |
|
Depreciation |
|
64 |
|
|
|
48 |
|
|
|
89 |
|
|
|
81 |
|
Amortization |
|
235 |
|
|
|
251 |
|
|
|
472 |
|
|
|
493 |
|
Goodwill impairment loss |
|
6,687 |
|
|
|
— |
|
|
|
6,687 |
|
|
|
— |
|
Total costs of revenue and
operating expenses |
|
13,249 |
|
|
|
7,932 |
|
|
|
20,611 |
|
|
|
15,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from
operations |
|
(6,993 |
) |
|
|
205 |
|
|
|
(7,658 |
) |
|
|
1,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
4 |
|
|
|
2 |
|
|
|
9 |
|
|
|
30 |
|
Interest expense |
|
(91 |
) |
|
|
(123 |
) |
|
|
(184 |
) |
|
|
(249 |
) |
Other expense |
|
— |
|
|
|
18 |
|
|
|
(12 |
) |
|
|
(13 |
) |
Foreign currency exchange gain (loss) |
|
194 |
|
|
|
224 |
|
|
|
(67 |
) |
|
|
136 |
|
Other income (expense),
net |
|
107 |
|
|
|
121 |
|
|
|
(254 |
) |
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
before income taxes |
|
(6,886 |
) |
|
|
326 |
|
|
|
(7,912 |
) |
|
|
905 |
|
Income tax expense |
|
96 |
|
|
|
167 |
|
|
|
187 |
|
|
|
262 |
|
Net (loss) income |
$ |
(6,982 |
) |
|
$ |
159 |
|
|
$ |
(8,099 |
) |
|
$ |
643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per common
share - net income |
$ |
(0.57 |
) |
|
$ |
0.01 |
|
|
$ |
(0.67 |
) |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per
common share - net income |
$ |
(0.57 |
) |
|
$ |
0.01 |
|
|
$ |
(0.67 |
) |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares
outstanding |
|
12,162 |
|
|
|
12,112 |
|
|
|
12,150 |
|
|
|
12,094 |
|
Weighted average diluted
shares outstanding |
|
12,162 |
|
|
|
12,124 |
|
|
|
12,150 |
|
|
|
12,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EVOLVING SYSTEMS,
INC. |
Reconciliation of GAAP to Non-GAAP
Measures |
(in thousands, except share
data) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Six Months
Ended |
|
June
30, |
|
June
30, |
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Adjusted
EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(6,982 |
) |
|
$ |
159 |
|
|
$ |
(8,099 |
) |
|
$ |
643 |
|
Depreciation |
|
64 |
|
|
|
48 |
|
|
|
89 |
|
|
|
81 |
|
Amortization of intangible assets |
|
235 |
|
|
|
251 |
|
|
|
472 |
|
|
|
493 |
|
Stock-based compensation expense |
|
63 |
|
|
|
127 |
|
|
|
193 |
|
|
|
493 |
|
Goodwill impairment loss |
|
6,687 |
|
|
|
— |
|
|
|
6,687 |
|
|
|
— |
|
Interest expense and
other (benefit), net |
|
(107 |
) |
|
|
(121 |
) |
|
|
254 |
|
|
|
96 |
|
Income tax (benefit)
expense |
|
96 |
|
|
|
167 |
|
|
|
187 |
|
|
|
262 |
|
Adjusted
EBITDA |
$ |
56 |
|
|
$ |
631 |
|
|
$ |
(217 |
) |
|
$ |
2,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net
income: |
|
|
|
|
|
|
|
|
|
|
|
GAAP net income |
$ |
(6,982 |
) |
|
$ |
159 |
|
|
$ |
(8,099 |
) |
|
$ |
643 |
|
Amortization of intangible
assets |
|
235 |
|
|
|
251 |
|
|
|
472 |
|
|
|
493 |
|
Stock-based compensation
expense |
|
63 |
|
|
|
127 |
|
|
|
193 |
|
|
|
493 |
|
Goodwill impairment loss |
|
6,687 |
|
|
|
— |
|
|
|
6,687 |
|
|
|
— |
|
Income tax adjustment for
non-GAAP* |
|
(51 |
) |
|
|
(68 |
) |
|
|
(116 |
) |
|
|
(231 |
) |
Non-GAAP (loss) net
income |
$ |
(48 |
) |
|
$ |
469 |
|
|
$ |
(863 |
) |
|
$ |
1,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) net
income per share |
|
|
|
|
|
|
|
|
|
|
|
GAAP |
$ |
(0.57 |
) |
|
$ |
0.01 |
|
|
$ |
(0.67 |
) |
|
$ |
0.05 |
|
Non-GAAP |
$ |
(0.00 |
) |
|
$ |
0.04 |
|
|
$ |
(0.07 |
) |
|
$ |
0.12 |
|
Shares used to compute diluted
net income per share |
|
12,162 |
|
|
|
12,124 |
|
|
|
12,150 |
|
|
|
12,145 |
|
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* 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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Evolving Systems (NASDAQ:EVOL)
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