SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 8-K

 

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported)
November 12, 2019

 

Evolving Systems, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

001-34261

 

84-1010843

(State or other jurisdiction of

 

(Commission File Number)

 

(I.R.S. Employer

incorporation)

 

 

 

Identification No.)

 

9800 Pyramid Court, Suite 400, Englewood, Colorado 80112

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (303) 802-1000

 

Not applicable

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

EVOL

 

Nasdaq Capital Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company                                              o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o

 

 

 


 

ITEM 2.02                                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

 

On November 12, 2019, Evolving Systems, Inc. (“Evolving Systems”) issued a press release announcing its financial results for the third quarter ended September 30, 2019. The full text of Evolving Systems’ press release, together with the related unaudited financial and operating highlights, is furnished herewith as Exhibit 99.1.

 

ITEM 9.01                                  FINANCIAL STATEMENTS AND EXHIBITS

 

d)                                     Exhibits. The following exhibit is furnished with this report.

 

Exhibit No.

 

Description

99.1

 

Press Release issued by Evolving Systems, Inc. announcing its financial results for the third quarter ended September 30, 2019.

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated:  November 12, 2019

 

 

Evolving Systems, Inc.

 

 

 

 

 

 

By:

/s/ MARK P. SZYNKOWSKI

 

 

Mark P. Szynkowski

 

 

Senior Vice President of Finance

 

2


EXHIBIT 99.1

 

 

Evolving Systems Reports Third Quarter 2019 Financial Results

 

ENGLEWOOD, Colorado — November 12, 2019 — 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 Call

 

The 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 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 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 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, 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 Ahern

Investor Relations

Evolving Systems

Tel: 1-844-732-5898

Email: 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.