SOURCE: EVOLVING SYSTEMS

Evolving Systems

August 04, 2015 16:00 ET

Evolving Systems Reports Second Quarter 2015 Financial Results

ENGLEWOOD, CO--(Marketwired - Aug 4, 2015) -

  • Continued strong profit metrics in Q2 with 75% gross margins, 15% operating margins, 18% adjusted-EBITDA margins

  • Two new Dynamic SIM Allocation™ (DSA) orders in second quarter

  • Company positioning DSA to support impending industry transition to embedded SIMs

  • Third quarter dividend of $0.11 per share, payable August 28, 2015, to stockholders of record on August 21, 2015

Evolving Systems, Inc. (NASDAQ: EVOL), a leader in activation, enablement and management of services for connected mobile devices worldwide, today reported financial results for its second quarter and six-month period ended June 30, 2015.

"We fell short of expectations in the second quarter as revenue and bookings came in below our estimates," said Thad Dupper, Chairman and CEO. "During the quarter we observed carriers' budgets tightening and becoming less predictable as they dealt with competition from aggressive price plans and flattening of subscriber net adds, all of which made closing contracts and forecasting more of a challenge than in past quarters. Over the years our quarterly results have fluctuated, but we are pleased that despite lower revenue this quarter, our profitability metrics and our balance sheet remain strong.

"Our long-term outlook for growth is positive, especially in the developing markets where subscriber growth is six times greater than the developed markets of North America and Europe," Dupper added. "We have made our biggest investments in the emerging markets and, as a result, we believe we are well positioned to achieve long-term growth. We are increasing our investment in partner management and business development to accelerate the pace at which our DSA partnerships start generating revenue."

Second Quarter Results Recap 

  • Revenue decreased 24% to $6.1 million from $7.9 million in the same quarter last year. License and services revenue was $3.6 million versus $5.2 million last year. Customer support revenue was $2.5 million versus $2.8 million last year.

  • Operating income declined to $0.9 million from $2.6 million in the second quarter last year.

  • Net income was $0.8 million, down from $1.7 million in the same quarter last year. Diluted EPS was $0.07 versus $0.14 year over year.

  • Adjusted EBITDA decreased to $1.1 million from $2.8 million in the second quarter last year.

  • Balance Sheet: Cash and cash equivalents at June 30, 2015, increased to $10.3 million from $9.8 million at 2014 year-end.

  • Dividend Update: The Company declared a third quarter dividend of $0.11 per share, payable on August 28, 2015, to stockholders of record on August 21, 2015.

Six-Month Results Recap 

  • Revenue through the first six months decreased 12% to $12.7 million from $14.5 million in the same period last year. License and services revenue was $7.9 million versus $9.5 million last year. Customer support revenue was $4.8 million versus $5.0 million last year.

  • Operating income declined to $2.4 million from $3.6 million in the same period last year.

  • Net income was $1.6 million, down from $2.3 million in the first six months last year. Diluted EPS was $0.14 versus $0.20 year over year.

  • Adjusted EBITDA decreased to $2.8 million from $4.2 million in the same period last year.

Bookings and Backlog Recap

  • Second quarter bookings totaled $5.9 million compared to $7.2 million in the same quarter last year. License and services bookings were $2.8 million versus $3.7 million last year. DSA license and services bookings were $1.1 million compared to $1.9 million in the second quarter of 2014. Tertio® Service Activation (TSA) license and services bookings were $1.7 million versus $1.8 million in the year-ago second quarter. Customer support bookings in the second quarter totaled $3.1 million versus $3.6 million in the same quarter last year. Bookings are defined as sales orders expected to be recognized as revenue during the following 12 months.

  • Six-month bookings totaled $12.4 million compared to $14.7 million a year ago. License and services bookings were $7.1 million versus $8.8 million year over year. DSA license and services bookings were $2.9 million versus $5.4 million. TSA license and services bookings increased to $4.2 million from $3.4 million. Customer support bookings were $5.3 million versus $5.9 million last year.

  • Total backlog at June 30, 2015, was $10.3 million compared to $12.5 million at the same time last year. License and services backlog was $4.7 million versus $6.3 million year over year. License and services backlog included $3.1 million in DSA and $1.7 million in TSA. Customer support backlog was $5.6 million, down from $6.2 million year over year.

Conference Call
The Company will conduct a conference call and webcast today at 2:30 p.m. Mountain Time. The call-in numbers for the conference call are 1-877-303-6316 for domestic toll free and 650-521-5176 for international callers. The conference ID is 84785747. A telephone replay will be available through August 18, 2015, and can be accessed by calling 1-855-859-2056 or 1-404-537-3406. Conference ID 84785747. To access a live webcast of the call, please visit Evolving Systems' website at www.evolving.com. A replay of the Webcast will be accessible at that website through August 18, 2015. The webcast is also available by clicking the following link: http://edge.media-server.com/m/p/i9qejiqd

Non-GAAP Financial Measures
Evolving 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 non-GAAP financial information in the form of net income, diluted net income per share and adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, impairment, stock compensation 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 software and services to 60 network operators in over 40 countries worldwide. The Company's product portfolio includes market-leading activation products that address subscriber service activation, SIM card activation, mobile broadband activation as well as the activation of services for connected devices. Founded in 1985, the Company has headquarters in Englewood, CO, with offices in the United Kingdom, India and Malaysia. For more information please visit www.evolving.com or follow us on Twitter: http://twitter.com/EvolvingSystems

CAUTIONARY STATEMENT
This 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 the Company's products, prospects for new customer wins, positive outlook, EBITDA, cash flow and growth, and the Company's continued ability to pay dividends or post quarterly or year to date results that are similar to those described in this press release 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 filed with the SEC on March 17, 2015; Forms 10-Q, 10-Q/A, and 8-K; press releases and the Company's website.

   
   
Consolidated Statements of Operations  
(In thousands except per share data)  
   
(Unaudited) Three months ended     Six months ended  
  June 30,     June 30,  
  2015     2014     2015     2014  
Revenue:                              
License fees and services $ 3,610     $ 5,182     $ 7,949     $ 9,549  
  Customer support   2,461       2,757       4,782       4,972  
  Total revenue   6,071       7,939       12,731       14,521  
Costs of revenue and operating expenses:                              
  Costs of license fees and services, excluding depreciation and amortization   1,190       1,513       2,415       2,991  
  Costs of customer support excluding depreciation and amortization   332       488       720       908  
  Sales and marketing   1,515       1,321       3,099       2,981  
  General and administrative   1,026       943       1,933       1,777  
  Product development   960       955       1,974       1,838  
  Depreciation   84       52       180       98  
  Amortization   23       24       47       47  
  Restructuring   -       26       -       237  
Total costs of revenue and operating expenses   5,130       5,322       10,368       10,877  
  Income from operations   941       2,617       2,363       3,644  
Other income (expense):                              
  Interest income   4       4       9       7  
  Interest expense   (3 )     (4 )     (6 )     (9 )
  Other loss   -       (27 )     -       (27 )
  Foreign currency exchange gain (loss)   151       (76 )     26       (172 )
Other income (expense), net   152       (103 )     29       (201 )
Income from operations before income taxes   1,093       2,514       2,392       3,443  
    Income tax expense   313       838       752       1,116  
Net income $ 780     $ 1,676     $ 1,640     $ 2,327  
Basic income per common share $ 0.07     $ 0.14     $ 0.14     $ 0.20  
Diluted income per common share $ 0.07     $ 0.14     $ 0.14     $ 0.20  
Weighted average basic shares outstanding   11,675       11,635       11,672       11,628  
Weighted average diluted shares outstanding   11,948       11,907       11,943       11,912  
                               
                               
                               
Consolidated Balance Sheets  
(In thousands)  
(Unaudited)   June 30,     December 31,  
ASSETS   2015     2014  
Current Assets:                
  Cash and cash equivalents   $ 10,254     $ 9,781  
  Contract receivables, net     6,460       9,182  
  Unbilled work-in-progress, net     4,775       4,995  
  Deferred income taxes     95       80  
  Prepaid and other current assets     1,524       1,331  
    Total current assets     23,108       25,369  
Property and equipment, net     640       659  
Amortizable intangible assets, net     560       608  
Goodwill     17,157       17,010  
Long-term deferred income taxes     601       586  
    Total assets   $ 42,066     $ 44,232  
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Current portion of capital lease obligations   $ 5     $ 5  
  Accounts payable and accrued liabilities     4,046       4,460  
  Income taxes payable     552       1,227  
  Unearned revenue     3,695       3,883  
    Total current liabilities     8,298       9,575  
Long-term liabilities:                
  Capital lease obligations, net     4       7  
  Contingent earn-out obligation     178       178  
  Long-term unearned revenue     120       420  
    Total liabilities     8,600       10,180  
Stockholders' equity:                
  Common stock     12       12  
  Additional paid-in capital     96,272       96,005  
  Treasury stock     (1,253 )     (1,253 )
  Accumulated other comprehensive loss     (4,468 )     (4,534 )
  Accumulated deficit     (57,097 )     (56,178 )
    Total stockholders' equity     33,466       34,052  
  Total liabilities and stockholders' equity   $ 42,066     $ 44,232  
                 
                 
                 
Reconciliation of GAAP to Non-GAAP Financial Measures  
(In thousands except per share data)  
(Unaudited)  
  Three months ended     Six months ended  
  June 30,     June 30,  
  2015     2014     2015     2014  
Non-GAAP net income and income per share:                              
GAAP net income $ 780     $ 1,676     $ 1,640     $ 2,327  
Amortization of intangible assets   23       24       47       47  
Stock-based compensation expense   71       113       160       201  
Restructuring   -       26       -       237  
Income tax adjustment for non-GAAP*   (31 )     (52 )     (70 )     (168 )
Non-GAAP net income $ 843     $ 1,787     $ 1,777     $ 2,644  
                               
Diluted net income per share                              
  GAAP $ 0.07     $ 0.14     $ 0.14     $ 0.20  
  Non-GAAP $ 0.07     $ 0.15     $ 0.15     $ 0.22  
  Shares used to compute diluted EPS   11,948       11,907       11,943       11,912  
                               
  Three months ended     Six months ended  
  June 30,     June 30,  
  2015     2014     2015     2014  
Adjusted EBITDA:                              
                               
Net income $ 780     $ 1,676     $ 1,640     $ 2,327  
  Depreciation   84       52       180       98  
  Amortization of intangible assets   23       24       47       47  
  Stock-based compensation expense   71       113       160       201  
  Restructuring   -       26       -       237  
  Interest expense and other (benefit), net   (152 )     103       (29 )     201  
  Income tax expense   313       838       752       1,116  
Adjusted EBITDA $ 1,119     $ 2,832     $ 2,750     $ 4,227  
                               

*The estimated income tax for non-GAAP net income is adjusted by the amount of additional expense that the Company would accrue if it used non-GAAP results instead of GAAP results in the calculation of its tax liability, taking into account in which tax jurisdiction each of the above adjustments would be made and the tax rate in that jurisdiction.

 
 
 
Supplementary Data
(In thousands) (Unaudited)
  Three months ended   Six months ended
  June 30,   June 30,
Revenue 2015   2014   2015   2014
License fees and services                      
  DSA $ 1,570   $ 3,373   $ 3,937   $ 5,573
  TSA   2,040     1,809     4,012     3,976
    Total license fees and services   3,610     5,182     7,949     9,549
Customer support                      
  DSA   797     927     1,575     1,505
  TSA   1,664     1,830     3,207     3,467
    Total customer support   2,461     2,757     4,782     4,972
Total revenue $ 6,071   $ 7,939   $ 12,731   $ 14,521
                       
  Three months ended   Six months ended
  June 30,   June 30,
Bookings 2015   2014   2015   2014
License fees and services                      
  DSA $ 1,134   $ 1,894   $ 2,851   $ 5,354
  TSA   1,701     1,793     4,241     3,398
    Total license fees and services   2,835     3,687     7,092     8,752
Customer support                      
  DSA   1,357     1,687     1,912     2,089
  TSA   1,743     1,865     3,404     3,837
    Total customer support   3,100     3,552     5,316     5,926
Total bookings $ 5,935   $ 7,239   $ 12,408   $ 14,678
                       
  Three months ended        
  June 30,        
Backlog** 2015   2014        
License fees and services                      
  DSA $ 3,061   $ 3,797            
  TSA   1,668     2,493            
    Total license fees and services   4,729     6,290            
Customer support                      
  DSA   2,046     2,219            
  TSA   3,546     3,949            
    Total customer support   5,592     6,168            
Total backlog $ 10,321   $ 12,458            
                       

**The change in backlog during the periods presented may not equal the difference between revenue recognized and bookings due to changes in foreign exchange rates.

Contact Information

  • Investor Relations
    Jay Pfeiffer
    Pfeiffer High Investor Relations, Inc.
    303.393.7044
    Email Contact

    Press Relations
    Sarah Hurp
    Evolving Systems
    +44 (0) 1225 478060
    Email Contact