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Edited Transcript of EVOL earnings conference call or presentation 4-Apr-19 9:00pm GMT

Q4 2018 Evolving Systems Inc Earnings Call

Englewood Apr 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Evolving Systems Inc earnings conference call or presentation Thursday, April 4, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mark P. Szynkowski

Evolving Systems, Inc. - SVP of Finance

* Matthew Stecker

Evolving Systems, Inc. - President, CEO & Chairman

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Conference Call Participants

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* Lee Lignos

* Michael David Potter

Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO

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Presentation

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Operator [1]

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Thank you, and welcome to Evolving Systems' 2018 Fourth Quarter and Year-End Results Conference Call.

As you may have seen, our Form 10-K was filed after market closed today, and our press release was just issued. Joining us from management today will be Matthew Stecker, Evolving Systems' Chief Executive Officer and Executive Chairman; and Mark Szynkowski, Evolving Systems' Senior Vice President of Finance. On today's call, Mark will provide an update for the fourth quarter 2018 as well as cumulative year-end 2018 results, and Matthew will update you on the business investment activities currently underway. Both Mark and Matthew will be available during the Q&A portion of the call.

Before I turn the call over to Matthew, I'd like to remind everyone that the company will be making forward-looking statements based on current expectations, estimates and projections that are subject to risks. Specifically, statements about future revenue, expenses, cash, taxes and the company's growth strategy are forward-looking statements. Listeners should not place undue reliance on these statements. There are many factors that could cause actual results to differ materially from our forward-looking statements, and we encourage you to review our publicly filed documents, including our SEC filings, news releases and website, for more information about the company.

At this time, I would like to turn the call over to Matthew Stecker for some opening comments. Matthew?

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [2]

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Thank you, and thank you, everyone who's joined us today. We have a bunch of folks on the call, which is nice to see, and on the webcast. First off, I want to take the opportunity to apologize for the aborted release and earnings call on Monday. I know that many of you were on the call, but we unfortunately learned just at the last minute that we had some technical barriers to filing. As we disclosed in our press release rescheduling the call, our independent auditors had a last-minute request for some tax information. I would chalk it up to a miscommunication between us and a new partner that had been placed on our account by our independent auditors. All has been resolved. There were no material changes to our planned release, and we don't expect to have any future delays in the production of our financial information. So thank you for your understanding and again, I apologize that, that delay occurred.

So let me take the time today by clearly restating our core mission. Evolving Systems continues to be focused on generating and sustaining long-term growth and profitability. At this critical juncture of our development, our eyes are firmly focused on these goals and we are pleased with our progress towards them. As I said before, it remains the case that our team has been extremely busy executing on our previously announced plan to increase our investments in product, research and development, marketing, partner development and sales. What has changed notably over the past 12 months is the fruits of the strategy starting to clearly come into view in the fourth quarter of 2018.

To give a couple of examples, during that period, work was concluded on our new Evolution platform, a critical component of our future success, which we'll talk about in a little bit more detail later on. Evolution has now been launched in the market. We expect to reap the benefits over many years, but it's really starting this year.

Many of you will also have noticed our new website has been launched. As a result, Evolving Systems has a better window to the market. And honestly, if you haven't looked at it, I encourage you to do it. It's -- what we do is a little bit esoteric, and so it's very difficult to describe what we do and to speak to the many audiences who are looking at both customers trying to get reassurance as well as investors and other folks. But I encourage you to look at the site if you haven't already done so. It's definitely worth a look.

I will discuss these and other developments in greater detail later in this call. But first, let us start with an overview of the fourth quarter and then the overall year of 2018. The company did announce a loss for the year and the quarter. However, this was entirely related to a noncash charge for impairment of goodwill. I'm happy to say that both generated a positive EBITDA figure that excludes the effects of that charge.

At this point, I'll hand it over to Mark to talk through the numbers. Mark?

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Mark P. Szynkowski, Evolving Systems, Inc. - SVP of Finance [3]

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Thank you, Matthew. Good evening. Let me run through those numbers. As Matthew said, I'll start first with the fourth quarter and then I'll do the overall 2018.

Fourth quarter revenues were $6.9 million. Although this does represent a decrease from the strong Q4 '17 revenues of $9.2 million, it is in line with our expectations. Driving the year-over-year decrease were higher revenues associated with the company's acquisitions last year and deals from the previous year that included significant onetime licenses and open project work.

Gross profit margins, excluding depreciation and amortization, were steady at 67.3% -- 67.6% and 67.3% in their respective quarters. So the margins are holding in line, respectively.

Total operating expenses for the quarter were $22.2 million, which included that noncash charge for goodwill impairment of $17.8 million that I will also address shortly. Excluding that charge, operating expenses would have been $4.5 million, a decrease from $5.3 million from the fourth quarter a year ago. We benefited from the decrease in total operating expenses related to the reduction of professional fees and other general and administrative costs related mainly to the acquisitions as we gained synergies from the company's combinations. This was partially offset by our increased efforts in our product development.

The company reported an operating loss of $17.6 million and a net loss of $16.0 million for the fourth quarter ended December 31, 2018. The company would have had operating inflow -- income, excluding the goodwill impairment loss, of $0.2 million for the fourth quarter as compared to operating income of $0.9 million for the comparable year ago. The company would have had net income, excluding that goodwill impairment loss, of $1.8 million compared to a net loss of $0.3 million -- it would have been $1.8 million net income, sorry, against a net loss of $0.3 million last year. The main reason was this included a tax benefit we recognized as we updated our global transfer pricing policies to include the acquired companies and other changes, as well as U.K. R&D credits. Adjusted EBITDA for the fourth quarter was $0.6 million as compared to adjusted EBITDA of $1.6 million for the fourth quarter ended a year ago, December 31, '17.

Moving on to the year-end results. For 2018, our total revenue for the year was $30.6 million, a $1.8 million or 6.3% increase over the comparable year last year. Service revenue of $29.2 million that are mostly reoccurring in nature is an increase of $3.8 million or 15.1% over that figure last year.

The company reported gross profit margins, excluding depreciation and amortization, of 66.2% compared to gross profit margins of 69.9% for 2017. This decline was primarily related to the increased cost of revenues associated with our real-time digital engagement projects, including existing projects from the company's acquisitions in 2017, and our shift from high-margin license sales to managed service solutions that create a reoccurring revenue stream and ongoing client engagement.

In accordance with Accounting Standards Codification, ASC 350, Intangible Goodwill and Others, we are required to test our goodwill and our other indefinite-lived intangible assets for impairment. During the fourth quarter of the fiscal year of 2018, our market capitalization declined to a level that was less than our net book value of our stockholders' equity. Given the sustained decline in the market capitalization of our common stock, we performed an interim goodwill impairment test. Management considered that factor along with other possible factors, and the outcome resulted in a $17.8 million noncash charge for the impairment of goodwill. So that was booked to our financial statements for the year ended December 31, 2018.

Total operating expenses were $36.3 million for the year. Excluding that goodwill impairment, they would have been $18.5 million, which was an increase of $3.8 million or 25.9% as compared to $14.7 million in the corresponding year ago. The increase in total operating expenses was primarily related to the increased cost from the acquired companies being part of us for the first full year and, again, our increased focus on product development and growing our global business development team in tandem with additional marketing efforts. Further, there was approximately a $0.5 million onetime charge associated with the settlement of a legal matter related to one of our prior acquisitions.

The company reported an operating loss of $16 million and a net loss of $14.8 million inclusive of the goodwill impairment charge. When comparing 2018 to 2017 for the full year excluding the goodwill charge, there would have been net income of $3 million as compared to net income of $2.5 million. Again, this was partly resulted by the tax benefit recognized by the company. The company reported adjusted earnings before interest and taxes and depreciation and amortization, the EBITDA number, of $3.5 million compared to $7.6 million in the comparative years. We continue to strategically invest a portion of our business profits in continuing initiatives to foster long-term growth, new and enhanced product offerings and increased business development, along with marketing that will help us reach new clients and grow our current client portfolio.

With respect to the balance sheet, cash and cash equivalents at the end of the year 2018 were $6.7 million compared to $7.6 million for 2017. The company made an earnout payment of $0.8 million related to the BLS acquisition. Contract receivables, net of allowance for doubtful accounts, were $7.8 million, a decrease of $2.4 million or 23.6% compared to the prior period 2017. This was mainly due to strong collection efforts and our continuing focus on collecting cash. Working capital decreased $0.9 million or approximately 10.5% to $8.1 million as of December 31, 2018, compared to $9 million last year. The decrease in working capital is related to the decrease in receivables, the unbilled work, and prepaid and other assets and offset by the increase in our current term loan payable and partially also offset by accounts payable and the current liability charges.

We believe, based upon these results, we have ample liquidity and working capital to fund our business and support the level of investments we intend to make in the coming year while continuing to look for synergistic and accretive acquisitions and other strategic partnerships.

Moving on to our business report, I'll turn the call back over to Matthew.

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [4]

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All right. Thanks, Mark. With these results in mind, I'd now like to address the goodwill impairment talked about in a little bit more detail from my perspective. I recognize this write-down will take the headline due to its magnitude, but I want to underline that it has no impact on our business, its outlook or prospects. The fact is nothing has changed about how we operate the business today or see generating revenue in our future. The impairment involved writing off some value related to certain past acquisitions in order to rationalize the value of our assets with the current market cap. We still have full value booked for the 2 main acquisitions we closed last year, BLS and Lumata, and nothing has changed in our outlook about the health of the business. At the end of the day, it is simply untenable to maintain a book valuation of intangible assets significantly in excess of the company's market cap.

Moving on. As I noted in my introductory comments, we now have announced the release of Evolution, our new customer value and loyalty platform. Again, I cannot stress enough that this is a big milestone for us. Evolution is built using the latest technology and is designed from first principles to capture our clients' customer data from multiple sources to create a 360-degree profile of their customers and to integrate with their communication and provisioning channels to provide marketing retention and CVM teams with an intuitive user interface that will manage the sort of relationships that consumers are starting to demand now and will do so at an increasing pace in the future. Evolution means we're now positioned as leaders in key solution areas such as digital next-best offer presentation strategies, advanced customer journey through best-practice CVM, and gamified loyalty rewards and engagement programs.

With the release of Evolution, we have taken 3 solid market-proven platforms, those of the former BLS, Lumata and SSM, each used today by operators worldwide, and built a new platform that takes the best features of each, merged with faster, more modern technological underpinnings. While we continue to support all our platforms, Evolution was designed to be the migration path for all Evolving CVM customers. It also gives us a unique launchpad for future growth. This design and execution would have been a difficult lift for a company 10x our size, and I am thrilled we've been able to realize it successfully. It speaks to the confidence and professionalism of our development team in particular, something we should all feel confident about.

In practical terms, in addition to giving us a single growth platform, Evolution is built with technologies to give us the ability to handle processing volumes demanded by the world's largest operators. This was not the case with its ancestor product and thus has the potential to open the door to new customers for Evolving. Put simply, we're now capable of serving the world's largest Tier 1s, where a month ago, we were not.

In terms of sales, we continue working the channel with increasing effectiveness. You can expect more win announcements here shortly. Our new technologies and clear positioning in brand articulation enable us to penetrate the telecom markets with our respective products with great success.

As you will already know, Evolving and its acquisitions have, on a pro forma basis, been shrinking in revenue for years. Our belief and plan is that this year, we'll see that corner turn and that 2020 will be the same as, if not greater in revenues than 2019.

I'll conclude with a few more words about 2019 and the platform [or] progress in 2018 has given us. The majority of the company's critical work this year will be in customer-by-customer, prospect-by-prospect blocking and tackling. We have the platform, we know where our customers are and now we just need to execute. Our internal focus is solely on this execution. While we believe the public market significantly undervalues our story, we remain confident that the correct path is to focus at the moment almost single-mindedly on execution and improvement in the company's fundamentals. We believe that the headlines 12 months from now will spring from the 100 small sales and execution steps that we may take today.

I want to thank you for your support and look forward to updating you on our continued progress. At this point, I'd like to open the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from the line of Lee Lignos with Rubicon Capital Management.

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Lee Lignos, [2]

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I was curious. I guess I had 2 questions, the first of which is with regards to the revenue. You mentioned that given where the company is now, you think 2020 is going to be higher than 2019. Is that right?

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [3]

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That's -- look, if you're plotting this -- plotting our revenue on a -- quarter-by-quarter, the loss will flatten out and turn somewhere between flat and positive in mid-2019 or early 2020. It's probably a little bit early to say exactly which quarter that's going to happen, but that's our anticipation. I think we've seen the end of the decline essentially, and we're now at a place where I think the -- it's -- I think you're going to start to see the directionality tick up a little bit, right? I anticipate that 2020, net of any M&A or other strategic options we take, will be not hugely different than 2019, but I think just that tick-up in directionality will be...

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Lee Lignos, [4]

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I'm sorry. I didn't catch that.

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [5]

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That's okay. I heard some noise on the line. I just think that tick-up in directionality will be significant for us.

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Lee Lignos, [6]

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Right. Okay. And remind me, when are we actually lapping the changes in the business, which quarter?

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [7]

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I'm sorry, could you be more -- I didn't quite...

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Lee Lignos, [8]

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Yes. So when you decided to embark on the new strategy, when was that last year? I'm just trying to figure out when are we lapping the change of the business strategy.

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [9]

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Yes. I'll have to get back to you, Lee. I've been here about 6 months now and I would say that roughly coincided with my entrance, but I'll circle the wagons rather than say something off the top of my head that might be wrong. I'll get you an answer.

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Lee Lignos, [10]

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Okay. Fair enough. I guess the other question with regards to revenue is the majority of revenue now is recurring in nature. Can you give us a sense of the customer retention rate? And how much of that revenue is truly recurring versus how much you have to kind of fill in every year?

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [11]

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So I'm using this number as a rough estimate, kind of accurate to the closest 15%. But about 70% of our revenue -- if we did nothing, if we took our foot off the gas, in year x plus 1, we would do about 70%. In year x plus 2, we would do about 50% of any base year. And in year x plus 3, we would do about 35%. So we'll lose 20%, 30% of our revenue without doing anything, let me put it that way. And so our work has a couple of different facets. One is a huge chunk of that potential loss is simply averted because of upselling, reselling, selling extensions. And what we do see that leaves us probably 10% or so. It's the day-to-day scoreboard of the business as to whether we can sign up enough new clients to replace what we'll lose in any given period. And growing means we sign up more new clients than revenue we lose. And our sales team is probably about equally focused on both sides of that equation. Customers -- it's the very nature of our customers that the relationships are many years long. In today's telecom environment, no one likes to sign multiyear contracts. So very often, we'll be at the end of our contract, but it's almost -- if we do our job right, we will continue getting revenue. It's often a point for renegotiating and for us, we're trying to upsell and they're obviously trying to gain some cost efficiencies, but we usually navigate that pretty well.

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Lee Lignos, [12]

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Okay. Great. I guess to that point, I was hoping you could give us a little bit more detail, or I guess, just your thoughts on this new platform that you introduced in Q4. I guess for starters, the technology and how it -- you characterized that to be a game changer for your business. Can you kind of expound on that? And then I guess with regards to your customer base currently, are there opportunities to, I guess, replace current business with this? Or I'm just trying to figure out what -- if there's a land-and-expand strategy with this or an upsell opportunity with your current base of customers with the new platform.

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [13]

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So look, with our -- so let me -- a couple of questions. I'll take them in turn, Lee. The first is just about the technology, really what's different. So both -- Lumata, BLS and SSM all had either kind of, call it, circa early 2000 technology. Either -- BLS was a Windows platform. SSM and Lumata were Java Enterprise Edition applications and they were both -- they both scaled with hardware scaling, with traditional load balancers. And basically, if you think about what our platform does, it looks at how users behave and helps kick off marketing actions that help the carriers make more money. And we both -- and to -- as the carriers got larger, we found that there was a point where these platforms really didn't scale anymore. And for years, that limited us to working only for smaller operators around the world. And look, we've done some very big operators, right? But we had to do them in a very limited way or in a way that deployed 100 parallel servers in order to meet volume and it was not cost-effective.

So we use the Kafka trigger engine in our new stuff. It's built in a more distributed architecture that can handle transactions really fast. And most importantly, we separated out the part of the platform that kind of ingests the transactions and the business logic that designs the programs and executes them so that a couple of things have happened. So one, we have scale. Two, we have -- every carrier we work with has a team of people that does nothing but administer this platform. In many operators, it is the most significant business thing, and they'll admit this, that they do, is kind of work the promotions to maximize the value of their user base. And they -- it's not uncommon that a large operator working with us might have a room full of people using this software.

So we've also made some great strides in terms of how easy it is for someone to kind of design, test and launch those campaigns and also get -- we've jumped about 15 years in terms of the quality of the data analytics and the reporting dashboards. If you think about what these guys do, right, they spend all day designing campaigns. They'll try a campaign with a segment of their user base. They need to see -- they need to be able to do that graphically, which we can do now, and they need to be able to see the results and decide which campaigns to launch to which segments of their users. So that core cycle has gotten a lot better. It's gotten a lot more user-friendly so that in many cases, the carrier can use their own personnel and they can use personnel that are marketing people that don't have technology savvy, right? The last generation, people would have to create scripts and test those scripts. They would have to create configuration files. Now it's all graphical and drag-and-drop so that pure marketers can use the platform.

So in terms of the platform -- in terms of our strategy, it is both kind of a new hero for us to sell. It gives us a reason to talk to operators we haven't talked to in a long time. It provides an upgrade path for everyone who has the 3 [present-day] platforms. In some cases, it's a negotiation every time in terms of -- we obviously want to see people move on to the new platform. And depending on how much kit they had and which platform they're coming from, it may be kind of a side grade. They're buying an equivalent-priced product but they're just buying a newer product. But for many people who bought the former, the -- some of the smaller platforms, it's going to be a big upgrade that we have an opportunity to sell.

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Lee Lignos, [14]

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Great. And is this currently deployed with any of your customers? Or are you in the process of deploying it?

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [15]

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We announced general availability at Mobile World Congress about a month ago, and we are in the process of deploying it at 2 pilot customers. And it's actually kind of cute because they're racing to see who gets it out first.

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Lee Lignos, [16]

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Okay. And are these existing customers or new customers?

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [17]

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They're both existing customers, but we are knee-deep in new customer conversations right now.

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Lee Lignos, [18]

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Okay. Great. So this platform really just provides you with something to really open the conversation, whereas before, you really didn't have that ability given, I guess, the fact that the 3 products were separate and not in one centralized place.

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [19]

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I think that's partly true, right? We also had -- there are some lower-priced guys who kind of nipped at our heels that had to kind of jump to half a generation ahead of our old platforms, and we lost a couple of sales here and there because they had more bells and whistles even though we're the acknowledged leader in the market. We won't lose those anymore.

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Lee Lignos, [20]

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Okay. And you're pricing this truly as a SaaS product, so per seat per month. Or how are you pricing that?

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [21]

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This is a big enough bite for operators. I mean it tends to be a 6- or 7-figure purchase that people really don't buy off of a price sheet. We have some starting points that people can look at in terms of users per month. We'll have discussions with people about doing revenue share opportunities, where we share in the economic value that our platform creates. But essentially, it's custom pricing but it's based on a kind of a cloud platform strategy even though this is so sensitive to users that it's almost always deployed inside their firewall, not really in the cloud, although we run it as if it were a managed service.

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Lee Lignos, [22]

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Got you. Okay. And would it be fair to assume that, I guess, this platform will be a little stickier than your existing products? Or is that [too soon to tell]?

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [23]

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Yes. Look, I think that in this field, certainly on the CVM marketing side of our business, has always been pretty sticky. This is such a big thing that operators do that -- where there's a big switching cost. And a lot of what we all spend our time doing is trying to understand, "Hey, there's an operator in Bulgaria right now that's going to be at the end of their contract cycle." We need to make sure we're in front of them with a proposal, and we know that the incumbent is going to be easier for them, but we have to really create hero pricing to get in and show that we have a better platform. And we kind of monitor where every operator in the world is on those cycles so we know when they're kind of coming up against a new decision. And sometimes, external events trigger it, M&A activity within the carriers or a carrier will get fed up with and decides that it -- it has a new executive who's doing this and they're frustrated with their current platform, there'll be an opportunity. But often, it's time-based.

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Lee Lignos, [24]

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Right. Got you. Okay. And I'm sorry for all the questions. But one final question for you. Given where the stock is and if you look over the last 12 months even though the company is in transition, let's say you generated approximately $2 million of free cash flow on an unlevered company that has $13.5 million of enterprise value, I know that obviously spending money on products and considering smaller M&A probably does make a lot of sense. But have you thought about putting in some kind of buyback program for the shares? Because I guess I look at it this way: you could have bought close to 10% of your company just from the free cash that you generated without taking on any additional leverage.

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [25]

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Yes, yes. And what's interesting, Lee, is that we have a stated strategy that we want to try and invest in building up the company up to the free cash flow. But we're conservative folks and to not generate a loss at the end of every quarter, a lot of revenue -- decisions about what revenue you can book -- can get -- can book at any quarter happen just -- sometimes, 20% will happen the last few days. And so as you're heading to the last few days of a quarter, we have to keep enough reserves around that we won't have a loss in case things don't go well, and that meant that we haven't been able to even spend up to our budget. Our budget is essentially our free cash flow. And so we anticipate continuing to generate operating profit. When we did this goodwill exercise, we had an external company value the company using 4 or 5 different metrics. And everyone but the market cap comes out dramatically larger, let's put it that way. I think it is -- as a company that's doing $30 million of revenue, that's profitable, the enterprise value is -- it is frustrating. We know this. In terms of doing -- so our long-term view is that right now, our best strategy is to pay attention to getting this transformation done. And once we're on a positive growth strategy, any of the effort we spend in trying to support the stock will pay off manyfold rather than spending time and energy to do it now. So right now, management's focus is entirely on kind of the operation of the company. And the hope is later this year or early next year, we'll have some cycles to get up and start telling the story a little bit more broadly.

As for the idea of a buyback, I'll just -- I'll be frank that the challenge right now is that we are -- we took on debt to buy BLS and Lumata. That debt is essentially a short-term note -- a handful of short-term notes. We are in the hump of the repayment period over the next 12 to 18 months. We paid off a lot of the debt and we're in the hump for the rest. It will be difficult, and we've tried -- we've looked around a little bit for us to refinance that note at the same rate. And right now, the covenants we have for that note do not allow us to do a buyback and we've -- it remains something we could potentially do. But as you can imagine, banks want to see you hoard your cash while you owe the money. So practically speaking, for us to do a stock buyback, we would have to refinance our loan. And we are close enough to being through the hump of repayment that we've basically put off that decision until afterwards.

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Lee Lignos, [26]

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Okay. So I guess the thought is just to keep the $8.5 million on the books just for conservatism but eventually repay the debt? I mean why don't you just repay it all now? Are there prepayment penalties or anything associated with that?

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [27]

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You want to have some cash buffers. You want to have the ability to execute on some strategic M&A or some investments if you keep your powder dry. But it is something we certainly have looked at. And look, as you know, banks only want to loan you money when you can afford to pay it all back at once, and the banks' covenants want to see you stay that way. So that's -- it's an interesting thought and it's something we've discussed and I'd be happy to discuss it further.

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Operator [28]

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Our next question comes from the line of Michael Potter with Monarch Capital Group.

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Michael David Potter, Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO [29]

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I just want to get some clarity. You gave us some good clarity on the Evolution platform. But the $500,000 in legal settlement, was that paid in Q4?

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [30]

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Mark, I'll let you answer that.

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Mark P. Szynkowski, Evolving Systems, Inc. - SVP of Finance [31]

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The payment was actually made in Q3. It was related to the RateIntegration acquisition. The legal fees were actually paid throughout 2018. So most of that $0.5 million were legal fees which were paid throughout the first 6 months, and then there was $100,000 settlement payment.

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Michael David Potter, Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO [32]

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And there was $100,000 -- I'm sorry?

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Mark P. Szynkowski, Evolving Systems, Inc. - SVP of Finance [33]

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There was a $100,000 charge for us as the settlement payment. We then paid a full settlement of $300,000, but that was covered by a $200,000 liability to the previous sellers. So we had about $400,000 in legal fees and then about $300,000 in cash going out related to it, but we recouped a $200,000 liability.

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Michael David Potter, Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO [34]

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So net, we had about -- I mean what was the legal expense?

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Mark P. Szynkowski, Evolving Systems, Inc. - SVP of Finance [35]

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So the net was about the $500,000 extra expense that we incurred between the settlement...

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [36]

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About $400,000 in legal and $100,000 in settlement dollars.

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Michael David Potter, Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO [37]

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Got it, got it. And that's one -- that's behind us now?

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [38]

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Correct.

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Mark P. Szynkowski, Evolving Systems, Inc. - SVP of Finance [39]

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Yes, we were -- that case, that was settled. And yes, we have all the releases and it's behind us.

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Michael David Potter, Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO [40]

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Okay, okay. Got it. And is that in the -- that's not in your adjusted EBITDA calculation? That was not an add-back?

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Mark P. Szynkowski, Evolving Systems, Inc. - SVP of Finance [41]

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No, we did not -- well, the $100,000 settlement is actually in other expense. So that is added back. But the legal fees were not added back.

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Michael David Potter, Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO [42]

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Okay, okay. And the earnout was an $800,000 payment? I'm assuming that was without -- and that was accrued throughout the year.

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Mark P. Szynkowski, Evolving Systems, Inc. - SVP of Finance [43]

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Yes, we had $400,000 at the time of the acquisition last year, and then it was revalued early this year, I believe also in Q2, it was revalued to the $800,000 and then that was paid in Q4.

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [44]

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It's the only kind of unexpected payment we like to make.

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Michael David Potter, Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO [45]

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Sure, of course. And is there a continued earnout in 2019?

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Mark P. Szynkowski, Evolving Systems, Inc. - SVP of Finance [46]

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There is a possibility of it, but right now, we're not projecting that way. The BLS -- part of the really strong Q4 was related to some BLS clients and that really drove up their first year revenues. But their -- the prospective revenues look to fall below the contingent. So we do not have any other liability expected.

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Michael David Potter, Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO [47]

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Okay, okay. Matt, you mentioned that the -- I guess, the Board's strategy in regards to a share buyback at this point, which I don't fault you for at all until you get this company fully turned around and the debt behind us, but I don't see any insider purchases either and because -- I'm assuming there's nothing prohibiting from -- an insider purchasing stock at this point.

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [48]

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Insiders, you mean management or you mean existing shareholders?

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Michael David Potter, Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO [49]

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Management or Board members.

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [50]

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Yes. No, it's a good question, and look, I think that this year, we hope to secure a longer-term contract with me in the company. I'm continuing to operate on an interim basis essentially, financially, but I would certainly be interested in structuring a compensation package that weighted heavily towards equity. I often encourage my coworkers and my fellow directors. I think it is a good buying decision. If I had free cash to invest in anything, it would be in Evolving stock right now. At the moment, the majority of my investment is having 3 kids in private school and college simultaneously.

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Michael David Potter, Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO [51]

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It's not directed at you, Matt, but -- certainly not directed at you, but there are Board members that don't own any stock. And so I'd love to see, especially at these valuations, some of the insiders kind of to step up here, again only because they think it's a good investment.

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [52]

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Yes. No, look, I...

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Michael David Potter, Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO [53]

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If they don't think it's a good investment, then that's a different issue, time for them to get off the Board. But if they're on the Board and deeply involved at this level, I can't see any reason why they wouldn't want to own the stock and make this investment.

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [54]

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It's a fair point and something we'll continue to discuss, but I understand your challenge and I think it's fair.

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Michael David Potter, Monarch Capital Group, LLC - Chairman, CEO, CFO & CCO [55]

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Okay. All right. And in regards to communication, I know you've been keeping a very low profile and focusing on the operations of the company, but is there any plan to get out in front of these shareholders the first half of this year? I mean it's been a long time.

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Matthew Stecker, Evolving Systems, Inc. - President, CEO & Chairman [56]

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So 2 ways I'll answer that. One is that we certainly are welcome and -- to continue doing one-on-ones if you want to call the Investor Relations line. We're happy to reach out to investors and do those kind of private calls. In terms of a systematic effort to get out in front of the market or get potential new shoes into the stock, we're currently thinking that's an activity that's going to spool up in the later half of 2019. So right now, I would say it's the vision that we will do it later this year and we have kind of made our schedules. So that is something we will check into and plan to do. And if the business performs like we expect, I think it will be a good time to do it. But is it just for the next 3 months? I think no. But I think in the later half of this year, you'll see that volume go from 0 to a low but steady set of activities.

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Operator [57]

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(Operator Instructions) I'm not showing any further questions in queue at this time. So that will conclude today's question-and-answer session. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.