Evolving Systems, Inc. (NASDAQ: EVOL), a
leader in real-time digital engagement, today reported financial
results for its third quarter ended September 30, 2019.
2019 Financial Results Highlights:
- Third quarter revenue was $6.1 million
- Year-to-date 2019, the Company has generated positive cash flow
from operations
- Third quarter net loss was $0.2 million
- The Company reported for the third 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
“In the midst of a product revitalization, we’re
proud to have generated positive cash flow from operations in the
year and the quarter. While our 2019 third-quarter revenues
continue to be slightly lower than our expectations and prior
quarters, our overall trajectory is in line with our plans as we
continue to execute on our transformation. The third quarter
has traditionally been a low point for us seasonally as we head
into the fourth quarter where the closing of annual budget cycles
at our carrier customers historically drives an increased pace of
new deal flow. We are dedicated to building a stronger
company as we pass through this transition moment. All of us
at Evolving Systems remain focused on growing our business and
creating long-term value through the new and enhanced products
we’re deploying that grow existing client relationships, facilitate
penetration into new markets, and reach new customers,” said
Matthew Stecker, Chief Executive Officer and Chairman of Evolving
Systems.
2019 Results:Total revenue for
the third quarter ended September 30, 2019 was $6.1 million, a $1.3
million or approximately 17.6% decrease over the comparable
year-ago period. Total revenue for the nine months ended September
30, 2019 was $19.1 million or an approximately 19.6% decrease over
the same period last year. Services revenue, which includes
revenues from the company’s preference for Managed Services over
perpetual licensing, comprised approximately 97% and 94% of total
revenues for the three months ended and nine months ended September
30, 2019 respectively.
The Company reported gross profit margins,
excluding depreciation and amortization, of approximately 67.0% for
the nine months ended September 30, 2019 as compared to gross
profit margins of approximately 66.0% for the nine months ended
September 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.
Total operating expenses were $4.3 million in
the quarter ended September 30, 2019, a decrease of approximately
$0.2 million, as compared to $4.5 million in the corresponding
year-ago period. The decrease was primarily related to the
reduction of general administrative costs related to lower legal
fees as well as lower fees paid for outside contracted services
partially offset by continued increased costs into product
development and sales efforts. Total operating expenses were $20.8
million for the nine months ended September 30, 2019. Excluding the
goodwill impairment of $6.7 million recorded in the previous
quarter, the operating expenses were $14.1 million, no change as
compared to $14.1 million in the corresponding nine-month period in
the prior year.
The Company reported a third quarter operating
loss of $0.3 million as compared to $0.6 million operating income
for the three months ended September 30, 2019 and September 30,
2018, respectively. The loss was primarily related to the decrease
in revenues. The Company reported Adjusted earnings before
interest, taxes, depreciation and amortization (“EBITDA”) of $0.1
million for the quarter ended September 30, 2019 as compared to
$0.9 million for the same period a year ago.
Cash and cash equivalents as of September 30,
2019 were $4.3 million, a decrease of $2.4 million or 37% 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 $6.0 million, a decrease of
$1.8 million compared to December 31, 2018. Unbilled
work-in-progress, net of allowance for doubtful accounts was $2.7
million and $3.0 million for the periods ended September 30, 2019
and December 31, 2018, respectively. Working capital as of
September 30, 2019 decreased on a sequential basis to $4.9 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 $1.0 million combined prepayment amount due as part of
the amendments agreed to with East West Bank amending of our terms
and financial covenants for our credit facilities. 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: “We have continued to
re-invent ourselves and are confident that our work will begin to
bear fruit. We have weathered the challenges of this transformative
period for Evolving Systems. With a strong customer footprint and
decades of proven performance, we are now at a turning point where
our investments in product solutions and in our staff position us
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. 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
CallThe Company will be conducting a conference
call and webcast on Tuesday November 12, 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 1259808. A telephone replay will be available through November
26, 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 1259808. 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 ‘Q3
earnings call’ icon. A replay of the webcast will be accessible at
that website through January 1, 2020. The webcast is also available
by clicking the following link:
https://edge.media-server.com/mmc/p/oqjivrq3 .
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 80 customers in over
55 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) |
(unaudited) |
|
|
|
September
30, |
|
December
31, |
|
2019 |
|
2018 |
ASSETS |
|
|
|
|
|
Current
assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
4,251 |
|
|
$ |
6,732 |
|
Contract receivables |
|
5,963 |
|
|
|
7,757 |
|
Unbilled work-in-progress |
|
2,696 |
|
|
|
3,044 |
|
Prepaid and other current assets |
|
1,827 |
|
|
|
1,351 |
|
Income taxes receivable |
|
1,577 |
|
|
|
1,137 |
|
Total current assets |
|
16,314 |
|
|
|
20,021 |
|
Property and
equipment, net |
|
443 |
|
|
|
303 |
|
Amortizable
intangible assets, net |
|
3,794 |
|
|
|
4,550 |
|
Operating
leases |
|
1,295 |
|
|
|
— |
|
Goodwill |
|
— |
|
|
|
6,738 |
|
Deferred
income taxes |
|
1,186 |
|
|
|
1,140 |
|
Total assets |
$ |
23,032 |
|
|
$ |
32,752 |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
Term loan - current |
$ |
2,737 |
|
|
$ |
3,573 |
|
Accounts payable and accrued liabilities |
|
4,180 |
|
|
|
4,483 |
|
Unearned revenue |
|
4,451 |
|
|
|
3,911 |
|
Total current liabilities |
|
11,368 |
|
|
|
11,967 |
|
Long-term
liabilities: |
|
|
|
|
|
Term loan, net |
|
516 |
|
|
|
2,365 |
|
Lease obligations, net |
|
951 |
|
|
|
— |
|
Total liabilities |
|
12,835 |
|
|
|
14,332 |
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
Common stock |
|
12 |
|
|
|
12 |
|
Additional paid-in capital |
|
99,487 |
|
|
|
99,224 |
|
Treasury stock |
|
(1,253 |
) |
|
|
(1,253 |
) |
Accumulated other comprehensive loss |
|
(10,285 |
) |
|
|
(10,115 |
) |
Accumulated deficit |
|
(77,764 |
) |
|
|
(69,448 |
) |
Total stockholders' equity |
|
10,197 |
|
|
|
18,420 |
|
Total liabilities and stockholders' equity |
$ |
23,032 |
|
|
$ |
32,752 |
|
|
|
|
|
|
|
EVOLVING
SYSTEMS, INC. |
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS |
(in
thousands) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Nine Months
Ended |
|
September
30, |
|
September
30, |
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
License fees |
$ |
185 |
|
|
$ |
255 |
|
|
$ |
1,152 |
|
|
$ |
839 |
|
Services |
|
5,928 |
|
|
|
7,165 |
|
|
|
17,914 |
|
|
|
22,876 |
|
Total
revenue |
|
6,113 |
|
|
|
7,420 |
|
|
|
19,066 |
|
|
|
23,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS OF REVENUE AND OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
Costs of revenue, excluding depreciation and amortization |
|
2,144 |
|
|
|
2,357 |
|
|
|
6,249 |
|
|
|
8,105 |
|
Sales and marketing |
|
1,815 |
|
|
|
1,663 |
|
|
|
5,574 |
|
|
|
4,899 |
|
General and administrative |
|
979 |
|
|
|
1,511 |
|
|
|
3,985 |
|
|
|
5,439 |
|
Product development |
|
1,183 |
|
|
|
1,074 |
|
|
|
3,676 |
|
|
|
2,882 |
|
Depreciation |
|
61 |
|
|
|
20 |
|
|
|
150 |
|
|
|
101 |
|
Amortization |
|
232 |
|
|
|
240 |
|
|
|
704 |
|
|
|
733 |
|
Goodwill impairment loss |
|
— |
|
|
|
— |
|
|
|
6,687 |
|
|
|
— |
|
Total costs
of revenue and operating expenses |
|
6,414 |
|
|
|
6,865 |
|
|
|
27,025 |
|
|
|
22,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from operations |
|
(301 |
) |
|
|
555 |
|
|
|
(7,959 |
) |
|
|
1,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
1 |
|
|
|
23 |
|
|
|
10 |
|
|
|
53 |
|
Interest expense |
|
(71 |
) |
|
|
(120 |
) |
|
|
(255 |
) |
|
|
(369 |
) |
Other income, net |
|
13 |
|
|
|
71 |
|
|
|
1 |
|
|
|
58 |
|
Foreign currency exchange gain |
|
250 |
|
|
|
362 |
|
|
|
183 |
|
|
|
498 |
|
Other income
(expense), net |
|
193 |
|
|
|
336 |
|
|
|
(61 |
) |
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from operations before income taxes |
|
(108 |
) |
|
|
891 |
|
|
|
(8,020 |
) |
|
|
1,796 |
|
Income tax expense |
|
109 |
|
|
|
342 |
|
|
|
296 |
|
|
|
604 |
|
Net (loss)
income |
$ |
(217 |
) |
|
$ |
549 |
|
|
$ |
(8,316 |
) |
|
$ |
1,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss)
income per common share - net (loss) income |
$ |
(0.02 |
) |
|
$ |
0.05 |
|
|
$ |
(0.68 |
) |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
(loss) income per common share - net (loss) income |
$ |
(0.02 |
) |
|
$ |
0.05 |
|
|
$ |
(0.68 |
) |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic shares outstanding |
|
12,163 |
|
|
|
12,117 |
|
|
|
12,154 |
|
|
|
12,103 |
|
Weighted
average diluted shares outstanding |
|
12,163 |
|
|
|
12,124 |
|
|
|
12,154 |
|
|
|
12,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
EVOLVING
SYSTEMS, INC. |
Reconciliation of GAAP to Non-GAAP Measures |
(in
thousands) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Nine Months
Ended |
|
September
30, |
|
September
30, |
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
income |
$ |
(217 |
) |
|
$ |
549 |
|
|
$ |
(8,316 |
) |
|
$ |
1,192 |
|
Depreciation |
|
61 |
|
|
|
20 |
|
|
|
150 |
|
|
|
101 |
|
Amortization of intangible assets |
|
232 |
|
|
|
240 |
|
|
|
704 |
|
|
|
733 |
|
Stock-based compensation expense |
|
70 |
|
|
|
97 |
|
|
|
263 |
|
|
|
588 |
|
Goodwill impairment loss |
|
— |
|
|
|
— |
|
|
|
6,687 |
|
|
|
— |
|
Interest expense and other (benefit), net |
|
(193 |
) |
|
|
(336 |
) |
|
|
61 |
|
|
|
(240 |
) |
Income tax expense |
|
109 |
|
|
|
342 |
|
|
|
296 |
|
|
|
604 |
|
Adjusted EBITDA |
$ |
62 |
|
|
$ |
912 |
|
|
$ |
(155 |
) |
|
$ |
2,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
GAAP net
(loss) income |
$ |
(217 |
) |
|
$ |
549 |
|
|
$ |
(8,316 |
) |
|
$ |
1,192 |
|
Amortization
of intangible assets |
|
232 |
|
|
|
240 |
|
|
|
704 |
|
|
|
733 |
|
Stock-based
compensation expense |
|
70 |
|
|
|
97 |
|
|
|
263 |
|
|
|
588 |
|
Goodwill
impairment loss |
|
— |
|
|
|
— |
|
|
|
6,687 |
|
|
|
— |
|
Income tax
adjustment for non-GAAP* |
|
(53 |
) |
|
|
(59 |
) |
|
|
(169 |
) |
|
|
(290 |
) |
Non-GAAP net (loss) income |
$ |
32 |
|
|
$ |
827 |
|
|
$ |
(831 |
) |
|
$ |
2,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share |
|
|
|
|
|
|
|
|
|
|
|
GAAP |
$ |
(0.02 |
) |
|
$ |
0.05 |
|
|
$ |
(0.68 |
) |
|
$ |
0.10 |
|
Non-GAAP |
$ |
0.00 |
|
|
$ |
0.07 |
|
|
$ |
(0.07 |
) |
|
$ |
0.18 |
|
Shares used
to compute diluted net (loss) income per share |
|
12,163 |
|
|
|
12,124 |
|
|
|
12,154 |
|
|
|
12,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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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