Evolving Systems Reports Second Quarter 2012 Financial Results

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ENGLEWOOD, CO--(Marketwire -08/07/12)- Evolving Systems, Inc. (EVOL)

Total revenue of $6.7 million increases 50% year over year

Net income from continuing operations of $2.1 million vs. loss of $1.1 million in 2011

License and services bookings of $4.1 million increases 142% year over year

License and services backlog of $7.4 million increases 202% year over year

Company declares third quarter dividend of $0.05 per share to stockholders of record on September 7, 2012, payable October 12, 2012

Evolving Systems, Inc. (EVOL), a leading provider of software solutions and services to the wireless, wireline and IP carrier market, today reported improved results for its second quarter and six months ended June 30, 2012.

"With focus on our on-device activation and service enablement products, we continued to deliver solid results in the second quarter, including double-digit growth in revenue and net income backed by growing momentum in bookings and backlog," said Thad Dupper, Chairman and CEO. "That we are achieving these results against a backdrop of a rather sluggish global telecom economy is a testament to the market relevance of our product portfolio and our highly focused and dedicated team of employees.

"Second quarter revenue grew by 50% to $6.7 million, leading to net income of $2.1 million, or $0.19 per share. Year over year Dynamic SIM Allocation (DSA) and Tertio Service Activation (TSA) license and services bookings in the quarter increased 233% and 123%, respectively, resulting in our total license and services backlog tripling to $7.4 million from $2.5 million in the same quarter last year. It's also important to note that, despite the sharp increase in revenue, our operating expenses have remained relatively flat -- an indication that our business is scalable and capable of generating exceptional profitability as our market share grows."

Second Quarter Results
Second quarter revenue increased 50% to $6.7 million from $4.4 million in the same quarter last year. License fees and services revenue in the second quarter grew by 120% year over year to $4.5 million from $2.1 million and was partially offset by a 10% decrease in customer support revenue to $2.1 million from $2.4 million.

Total costs of revenue and operating expenses in the second quarter declined by 10% to $5.1 million from $5.6 million. This decline reflected a 16% drop in sales and marketing expense year over year -- to $1.2 million from $1.5 million -- and the impact of a $0.6 million restructuring charge in the second quarter of 2011. General and administrative costs were up slightly year over year at $1.0 million versus $0.9 million; and product development costs were up 40% to $0.8 million from $0.6 million.

As a result of increased revenue and a managed expense base, the Company achieved a $2.8 million positive swing in operating income -- to $1.6 million from an operating loss of $1.2 million in the year-ago second quarter.

Other income, consisting primarily of interest income and gain on sale of investments, increased to $1.1 million in the second quarter from less than $0.1 million in the same quarter last year. The interest income and gain on the sale of investments were associated with the marketable debt securities purchased during 2011.

Net income from continuing operations in the second quarter increased to $2.1 million, or $0.19 per basic and diluted share, from a net loss from continuing operations of $1.1 million, or $0.10 per basic and diluted share, in the second quarter last year. Adjusted EBITDA from continuing operations was $1.8 million versus an adjusted EBITDA loss of $0.2 million in the same quarter last year.

The Company reported net income of $2.1 million, or $0.19 per basic and diluted share, in the second quarter, compared with net income of $11.4 million, or $1.05 per basic and $1.02 per diluted share, in the same quarter last year; however, the year-ago second quarter included $12.5 million in income from discontinued operations.

Six Months Results
Revenue for the six months ended June 30, 2012, increased 28% to $12.6 million from $9.8 million in the same period a year ago. License fees and services revenue was $8.3 million, up 60% over $5.2 million in the comparable period of 2011. That increase was partially offset by an 8% decline in customer support revenue to $4.3 million from $4.6 million year over year.

Total costs of revenue and operating expenses through six months declined by 9% to $10.4 million from $11.5 million. This decline reflected a 23% drop in sales and marketing expense year over year -- to $2.6 million from $3.3 million -- and the impact of the $0.6 million restructuring charge in the second quarter of 2011. General and administrative costs were down slightly year over year at $1.9 million versus $2.0 million; and product development costs were up 22% to $1.5 million from $1.2 million.

The Company reported $2.1 million in operating income through six months versus an operating loss of $1.6 million in the first six months of 2011. Total other income increased to $1.4 million from $0.1 million year over year due primarily to interest income and the gain on sale of investments related to marketable debt securities.

Net income from continuing operations through six months increased to $2.9 million, or $0.26 per basic and $0.25 per diluted share, from a loss from continuing operations of $1.3 million, or $0.12 per basic and diluted share, in the same period last year.

Six-month net income was $2.9 million, or $0.26 per basic and $0.25 per diluted share, compared with net income of $12.4 million, or $1.14 per basic and $1.10 per diluted share, in the same period a year ago when the Company booked $13.6 million in income from discontinued operations.

Bookings and Backlog
Evolving Systems booked $5.8 million in new orders in the second quarter, up 59% over $3.6 million in the year-ago second quarter. License fees and services orders in the second quarter increased 142% year-over-year to $4.1 million from $1.7 million. It was the Company's fourth consecutive quarter of solid year-over-year increases in license and services bookings and represented the best second quarter in this category since 2009. DSA license and services bookings in the second quarter were up 233% year over year to $1.1 million from $0.3 million. License and services bookings for the Tertio™ Service Activation solution increased 123% to $3.0 million from $1.4 million. Customer support bookings in the second quarter declined by 15% to $1.6 million from $1.9 million.

For the six-month period, total bookings increased 30% to $11.4 million from $8.8 million in the same period a year ago. License and services orders grew by 66% to $7.9 million from $4.8 million. DSA license and services bookings increased 147% to $3.7 million from $1.5 million. Tertio license and services bookings increased 27% to $4.1 million from $3.2 million. Customer support bookings through six months declined by 13% to $3.5 million from $4.0 million. The Company defines bookings as new, non-cancelable orders expected to be recognized as revenue during the following 12 months.

The Company's total backlog at June 30, 2012, increased 66% to $11.4 million from $6.9 million at the same time last year. License and services backlog increased to $7.4 million, up 202% over the year-ago backlog of $2.5 million. The DSA license and services backlog increased 996% year over year to $4.7 million from $0.4 million. Customer support backlog was $4.0 million versus $4.4 million a year ago.

Balance Sheet Highlights
Cash and cash equivalents at June 30, 2012, were $10.0 million. In the first half of 2012 the Company returned approximately $41.4 million to stockholders in the form of special dividends, which accounts for the lower June 30, 2012, cash and marketable securities balance relative to the 2011 year end total of $50.7 million.

Third Quarter Dividend
The Company declared a third quarter dividend of $0.05 per share to stockholders of record September 7, 2012, payable October 12, 2012.

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 14228563. A telephone replay will be available through August 21, 2012, and can be accessed by calling 1-855-859-2056 or 1-404-537-3406, passcode 14228563. 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 21, 2012.

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. (EVOL) is a provider of software solutions and services to 50 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 connected devices. Founded in 1985, the Company has headquarters in Englewood, Colorado, with offices in the United Kingdom, India and Malaysia. Further information is available on the web at www.evolving.com

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 Company's growth and future profitability, scalability, market share, future business, revenue and expense projections, the Company's continued ability to post quarterly or year-to-date results that are similar to those described in this press release, the Company's ability to build and return value to stockholders, and the impact of new products and accounts on the Company's business 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 30, 2012, as well as other SEC filings, including Forms 10-Q, 10-Q/A, 8-K and press releases.

 
Consolidated Statements of Operations
(In thousands except per share data)

(Unaudited) Three months ended Six months ended
June 30, June 30,
2012 2011 2012 2011
--------- --------- --------- ---------
Revenue:
License fees and services $ 4,507 $ 2,053 $ 8,291 $ 5,195
Customer support 2,147 2,391 4,271 4,640
--------- --------- --------- ---------
Total revenue 6,654 4,444 12,562 9,835
--------- --------- --------- ---------
Costs of revenue and operating
expenses:
Costs of license fees and
services, excluding
depreciation and amortization 1,524 1,193 3,342 2,427
Costs of customer support
excluding depreciation and
amortization 387 733 747 1,419
Sales and marketing 1,223 1,458 2,564 3,309
General and administrative 994 858 1,907 1,960
Product development 778 555 1,507 1,234
Depreciation 79 87 152 175
Amortization 100 181 199 359
Restructuring - 569 - 569
--------- --------- --------- ---------
Total costs of revenue and
operating expenses 5,085 5,634 10,418 11,452
--------- --------- --------- ---------
Income (loss) from operations 1,569 (1,190) 2,144 (1,617)
--------- --------- --------- ---------
Other income (expense):
Interest income 29 6 50 14
Interest income, related party 100 - 532 -
Interest expense - (1) (1) (13)
Gain on sale of investments 891 - 891 -
Foreign currency exchange gain
(loss) 46 7 (50) 117
--------- --------- --------- ---------
Other income (expense), net 1,066 12 1,422 118
--------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes 2,635 (1,178) 3,566 (1,499)
Income tax expense (benefit) 504 (125) 678 (217)
--------- --------- --------- ---------
Income (loss) from continuing
operations 2,131 (1,053) 2,888 (1,282)
Income from discontinued
operations, net of tax - 12,470 - 13,632
--------- --------- --------- ---------
Net income $ 2,131 $ 11,417 $ 2,888 $ 12,350
========= ========= ========= =========
Basic income (loss) per common
share - continuing operations $ 0.19 $ (0.10) $ 0.26 $ (0.12)
========= ========= ========= =========
Diluted income (loss) per common
share - continuing operations $ 0.19 $ (0.10) $ 0.25 $ (0.12)
========= ========= ========= =========
Basic income per common share -
discontinued operations $ - $ 1.15 $ - $ 1.26
========= ========= ========= =========
Diluted income per common share -
discontinued operations $ - $ 1.11 $ - $ 1.22
========= ========= ========= =========
Basic income per common share -
net income $ 0.19 $ 1.05 $ 0.26 $ 1.14
========= ========= ========= =========
Diluted income per common share -
net income $ 0.19 $ 1.02 $ 0.25 $ 1.10
========= ========= ========= =========
Weighted average basic shares
outstanding 11,261 10,833 11,213 10,793
Weighted average diluted shares
outstanding 11,511 11,201 11,440 11,212


Consolidated Balance Sheets
(In thousands)
June 30, December 31,
ASSETS 2012 2011
------------- -------------
Current Assets:
Cash and cash equivalents $ 10,035 $ 34,290
Short-term restricted cash 52 50
Contract receivables, net 5,161 4,540
Unbilled work-in-progress 2,890 1,361
Prepaid and other current assets 1,114 1,259
Interest receivable, long-term investments,
related parties - 357
------------- -------------
Total current assets 19,252 41,857
Long-term investments, related party - 16,448
Property and equipment, net 280 369
Amortizable intangible assets, net 393 584
Goodwill 15,947 15,782
Long-term restricted cash - 2
------------- -------------
Total assets $ 35,872 $ 75,042
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 4 $ 8
Accounts payable and accrued liabilities 3,944 3,657
Income taxes payable 359 848
Dividends payable - 22,271
Unearned revenue 2,411 3,401
------------- -------------
Total current liabilities 6,718 30,185
Long-term liabilities:
Capital lease obligations, net 18 -
Deferred income taxes 387 145
------------- -------------
Total liabilities 7,123 30,330
Stockholders' equity:
Common stock 11 11
Additional paid-in capital 90,553 90,062
Treasury stock (1,253) (1,253)
Accumulated other comprehensive loss (4,148) (4,247)
Unrealized losses on investments, related
parties, net (284)
Accumulated deficit (56,414) (39,577)
------------- -------------
Total stockholders' equity 28,749 44,712
------------- -------------
Total liabilities and stockholders' equity $ 35,872 $ 75,042
============= =============


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,
2012 2011 2012 2011
--------- --------- --------- ---------
Non-GAAP net income and income
per share:
GAAP net income $ 2,131 $ 11,417 $ 2,888 $ 12,350
Amortization of intangible
assets 100 181 199 359
Stock-based compensation
expense** 69 153 139 341
Restructuring - 569 - 569
Income tax adjustment for non-
GAAP* (50) (301) (83) (372)
--------- --------- --------- ---------
Non-GAAP net income 2,250 12,019 3,143 13,247
Non-GAAP discontinued operations - (12,478) - (13,651)
--------- --------- --------- ---------
Non-GAAP net income from
continuing operations $ 2,250 $ (459) $ 3,143 $ (404)
========= ========= ========= =========

Diluted net income per share
GAAP $ 0.19 $ 1.02 $ 0.25 $ 1.10
Non-GAAP $ 0.20 $ 1.07 $ 0.27 $ 1.18
Non-GAAP continuing operations $ 0.20 $ (0.04) $ 0.27 $ (0.04)
Shares used to compute diluted
EPS 11,511 11,201 11,440 11,212

Three months ended Six months ended
June 30, June 30,
2012 2011 2012 2011
--------- --------- --------- ---------
Adjusted EBITDA:

Net income $ 2,131 $ 11,417 $ 2,888 $ 12,350
Depreciation** 79 150 152 279
Amortization of intangible
assets 100 181 199 359
Stock-based compensation
expense** 69 153 139 341
Restructuring - 569 - 569
Interest expense and other
(benefit), net (1,066) (12) (1,422) (118)
Income tax expense (benefit)** 504 (11,481) 678 (11,742)
--------- --------- --------- ---------
Adjusted EBITDA 1,817 977 2,634 2,038
Adjusted EBITDA discontinued
operations - (1,183) - (2,231)
--------- --------- --------- ---------
Adjusted EBITDA continuing
operations $ 1,817 $ 206 $ 2,634 $ (193)
========= ========= ========= =========

*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.

**These amounts may differ from the face of the Company's Consolidated Statements of Operations as part of these expenses (benefits) are included in the income from discontinued operations line item.

Contact:
Investor Relations
Jay Pfeiffer
Pfeiffer High Investor Relations, Inc.
303.393.7044
Email Contact
Press Relations
Sarah Hurp
Marketing Manager
Evolving Systems
+44 1225 478060
Email Contact

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