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.

Investor Relations
Jay Pfeiffer
Pfeiffer High Investor Relations, Inc.
303.393.7044
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Press Relations
Sarah Hurp
Evolving Systems
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