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Evolving Systems Reports Fourth Quarter and Full Year 2012 Financial Results

ENGLEWOOD, CO--(Marketwire - Mar 12, 2013) -  Evolving Systems, Inc. ( NASDAQ : EVOL )

Full year revenue up 38% to $26.2 million

Full year Dynamic SIM Allocation™ (DSA) revenue up 94% to $10.0 million

Net income from continuing operations of $5.6 million vs. loss of $1.0 million in 2011

Adjusted EBITDA from continuing operations of $6.5 million vs. loss of $0.2 million in 2011

Company declares first quarter dividend of $0.08 per share to stockholders of record on March 22, 2013, payable April 12, 2013

Evolving Systems, Inc. ( NASDAQ : EVOL ), a leading provider of strategic solutions to telecom operators worldwide, today reported strong revenue and profit growth for its fourth quarter and full year ended December 31, 2012.

"Evolving Systems closed 2012 with a strong fourth quarter performance that led to a 38% increase in full year revenue with adjusted EBITDA from continuing operations of $6.5 million," said Thad Dupper, Chairman and CEO. "Last year was a transformational year for Evolving Systems. It was our first full year since the sale of our numbering business in 2011 -- an event that allowed us to focus on our 'activation pure play' strategy, which revolves around our flagship DSA and Tertio® Service Activation (TSA) products. Solid execution of our strategy produced 94% growth in DSA revenue, which at $10.0 million was our highest DSA revenue since its introduction. We also achieved a 17% increase in TSA revenue as carriers upgraded to LTE and 4G technologies. In addition, we returned $4.00 per share to stockholders through a series of dividends during the year. We believe carriers faced with increasingly complex SIM card inventory management and activation issues driven by consumer adoption of smart phones, tablets and connected devices will see the value of our DSA solution. As a result, we are raising this quarter's dividend from $0.05 to $0.08 per share and we remain optimistic about Evolving Systems' future."

Fourth Quarter Highlights

  • Revenue increased 39% to $6.9 million from $4.9 million in the fourth quarter last year. License and services revenue grew 73% to $4.6 million from $2.7 million. Customer support revenue was $2.3 million.

  • Operating income increased to $1.8 million -- a $2.4 million positive swing over an operating loss of $0.6 million in the same quarter last year.

  • Net income from continuing operations increased to $1.4 million, up 225% from $0.4 million last year. Diluted net income per share from continuing operations was $0.12, up from $0.04 in the fourth quarter last year. 

  • Adjusted EBITDA from continuing operations was $2.0 million, up from $0.2 million in the fourth quarter last year.

  • Balance Sheet: Cash and cash equivalents at December 31, 2012, were $8.8 million. In 2012 the Company returned approximately $44.8 million to stockholders in dividends, which accounts for the lower December 31, 2012, cash and marketable securities balance relative to the 2011 year-end total of $50.7 million.

  • Dividend Update: The Company declared a first quarter dividend of $0.08 per share to stockholders of record on March 22, 2013, payable April 12, 2013.

Full-Year Highlights

  • Revenue increased 38% to $26.2 million compared to $19.0 million in 2011. License and services revenue was up 80% to $17.6 million from $9.8 million in 2011. Customer support revenue was down 7% to $8.6 million from $9.3 million in 2011.

  • Operating income increased to $5.6 million, an improvement of $8.4 million over an operating loss of $2.8 million in 2011.

  • Net income from continuing operations increased to $5.6 million, a positive swing of $6.6 million over the year ago net loss from continuing operations of $1.0 million. Diluted net income per share from continuing operations was $0.48 versus a loss of $0.09 last year.

  • Adjusted EBITDA from continuing operations was $6.5 million versus an adjusted EBITDA loss of $0.2 million in 2011.

Bookings and Backlog Highlights

  • Q4 bookings totaled $6.2 million versus $7.4 million in the same quarter last year. The 2012 fourth quarter bookings included $3.6 million in license and services and $2.6 million in customer support. DSA license and services bookings in the fourth quarter were $0.9 million while TSA license and services bookings were $2.7 million. Bookings are defined as new, non-cancelable orders expected to be recognized as revenue during the following 12 months.

  • Full year bookings totaled $24.6 million versus $24.0 million in 2011. License and services bookings grew to $16.5 million from $14.8 million. DSA license and services bookings totaled $6.9 million while TSA license and services bookings were $9.6 million.

  • Total backlog at December 31, 2012, was $11.1 million. License and services backlog totaled $6.7 million and was comprised of $3.7 million in DSA and $3.0 million in TSA. Customer support backlog was $4.4 million.

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 18808504. A telephone replay will be available through March 26, 2013, and can be accessed by calling 1-855-859-2056 or 1-404-537-3406. Conference ID 18808504. 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 March 26, 2013.

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 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 revenue and bookings growth, the market for the Company's DSA and TSA products, and the Company's continued ability to pay dividends or post quarterly or annual 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 12, 2013, 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     Twelve months ended  
    December 31,     December 31,  
    2012     2011     2012     2011  
Revenue:                                
  License fees and services   $ 4,590     $ 2,656     $ 17,622     $ 9,772  
  Customer support     2,261       2,261       8,625       9,251  
Total revenue     6,851       4,917       26,247       19,023  
Costs of revenue and operating expenses:                                
  Costs of license fees and services, excluding depreciation and amortization     1,685       1,670       6,734       5,187  
  Costs of customer support excluding depreciation and amortization     364       393       1,502       2,232  
  Sales and marketing     1,236       1,325       5,070       6,238  
  General and administrative     769       834       3,613       3,650  
  Product development     887       621       3,069       2,484  
  Depreciation     44       80       268       342  
  Amortization     101       99       400       560  
  Restructuring     -       531       -       1,100  
Total costs of revenue and operating expenses     5,086       5,553       20,656       21,793  
  Income (loss) from operations     1,765       (636 )     5,591       (2,770 )
Other income (expense):                                
  Interest income     4       -       60       192  
  Interest income, related party     -       526       532       619  
  Interest expense     (3 )     -       (3 )     (14 )
  Other income     -       62               62  
  Gain on sale of investments     -       221       891       221  
  Foreign currency exchange gain (loss)     60       108       (106 )     330  
Other income (expense), net     61       917       1,374       1,410  
Income (loss) from continuing operations before income taxes     1,826       281       6,965       (1,360 )
  Income tax expense (benefit)     389       (162 )     1,401       (405 )
Income (loss) from continuing operations     1,437       443       5,564       (955 )
  Income from discontinued operations, net of tax     -       1,312       -       33,264  
Net income   $ 1,437     $ 1,755     $ 5,564     $ 32,309  
Basic income (loss) per common share - continuing operations   $ 0.13     $ 0.04     $ 0.49     $ (0.09 )
Diluted income (loss) per common share - continuing operations   $ 0.12     $ 0.04     $ 0.48     $ (0.09 )
Basic income per common share - discontinued operations   $ -     $ 0.12     $ -     $ 3.06  
Diluted income per common share - discontinued operations   $ -     $ 0.12     $ -     $ 2.97  
Basic income per common share - net income   $ 0.13     $ 0.16     $ 0.49     $ 2.97  
Diluted income per common share - net income   $ 0.12     $ 0.16     $ 0.48     $ 2.88  
Weighted average basic shares outstanding     11,368       11,020       11,278       10,871  
Weighted average diluted shares outstanding     11,645       11,235       11,529       11,202  
                                 
                                 
                                 
Consolidated Balance Sheets  
   
(In thousands)   December 31,     December 31,  
ASSETS   2012     2011  
Current Assets:                
  Cash and cash equivalents   $ 8,844     $ 34,290  
  Short-term restricted cash     53       50  
  Contract receivables, net     4,803       4,540  
  Unbilled work-in-progress, net     4,802       1,361  
  Prepaid and other current assets     1,133       1,259  
  Interest receivable, long-term investments, related parties     -       357  
    Total current assets     19,635       41,857  
Long-term investments, related party     -       16,448  
Property and equipment, net     211       369  
Amortizable intangible assets, net     204       584  
Goodwill     16,510       15,782  
Long-term restricted cash     -       2  
Long-term deferred income taxes     27       -  
Other long-term assets     6       -  
    Total assets   $ 36,593     $ 75,042  
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Current portion of capital lease obligations   $ 4     $ 8  
  Accounts payable and accrued liabilities     3,833       3,657  
  Income taxes payable     308       848  
  Dividends payable     -       22,271  
  Unearned revenue     1,596       3,401  
    Total current liabilities     5,741       30,185  
Long-term liabilities:                
  Capital lease obligations, net     16       -  
  Deferred income taxes     -       145  
    Total liabilities     5,757       30,330  
Stockholders' equity:                
  Common stock     11       11  
  Additional paid-in capital     91,957       90,062  
  Treasury stock     (1,253 )     (1,253 )
  Accumulated other comprehensive loss     (3,297 )     (4,247 )
  Unrealized losses on investments, related parties, net     -       (284 )
  Accumulated deficit     (56,582 )     (39,577 )
    Total stockholders' equity     30,836       44,712  
  Total liabilities and stockholders' equity   $ 36,593     $ 75,042  
                   
                   
                   
Reconciliation of GAAP to Non-GAAP Financial Measures  
(In thousands except per share data)  
(Unaudited)  
   
    Three months ended     Twelve months ended  
    December 31,     December 31,  
    2012     2011     2012     2011  
Non-GAAP net income and income per share:                                
GAAP net income   $ 1,437     $ 1,755     $ 5,564     $ 32,309  
Amortization of intangible assets     101       99       400       560  
Stock-based compensation expense**     59       109       264       592  
Restructuring     -       531       -       1,100  
Income tax adjustment for non-GAAP*     (31 )     (233 )     (127 )     (675 )
Non-GAAP net income     1,566       2,261       6,101       33,886  
Non-GAAP discontinued operations     -       (1,312 )     -       (33,283 )
Non-GAAP net income from continuing operations   $ 1,566     $ 949     $ 6,101     $ 603  
                                 
Diluted net income per share                                
  GAAP   $ 0.12     $ 0.16     $ 0.48     $ 2.88  
  Non-GAAP   $ 0.13     $ 0.20     $ 0.53     $ 3.02  
  Non-GAAP continuing operations   $ 0.13     $ 0.08     $ 0.53     $ 0.05  
  Shares used to compute diluted EPS     11,645       11,235       11,529       11,202  
                                 
    Three months ended     Twelve months ended  
    December 31,     December 31,  
    2012     2011     2012     2011  
Adjusted EBITDA:                                
                                 
Net income   $ 1,437     $ 1,755     $ 5,564     $ 32,309  
  Depreciation**     44       80       268       446  
  Amortization of intangible assets     101       99       400       560  
  Stock-based compensation expense**     59       109       264       592  
  Restructuring     -       531       -       1,100  
  Interest expense and other (benefit), net     (61 )     (917 )     (1,374 )     (1,410 )
  Gain on sale of numbering, net**     -       -       -       (30,496 )
  Income tax expense (benefit)**     389       (162 )     1,401       (385 )
Adjusted EBITDA     1,969       1,495       6,523       2,716  
Adjusted EBITDA discontinued operations     -       (1,312 )     -       (2,911 )
Adjusted EBITDA continuing operations   $ 1,969     $ 183     $ 6,523     $ (195 )
                                 

*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.