Q2 2020 Evolving Systems Inc Earnings Call

Ladies and gentlemen, you should start.

Today's conference is scheduled to begin momentarily.

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Good good bleach simple and thank you for your patience again today's conference is scheduled to begin let me start really until that time your line smoking lease rentals.

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You may have seen our form 10 gig watts was off after market close today in our press release, let's just see huge.

Joining us for management, so they won't be matches that got evolving systems, Chief Executive Officer, and that's a good executive chairman and Mike Ciskowski give all the Keystone Senior Vice President Finance.

Today's call, Mike will provide an update on the water and MCU.

Update you on the business investment CPP currently under review.

Mark and not kill would be available joined skinny or shut off the call.

Before I turn the call other too much you like to remind everyone that the company will be making forward looking statements based on our expectations.

Estimates and projections are subject to risks.

Especially because all these statements about future revenue expenses gosh success and the company got started you on forward looking statements.

Listeners should not place undue reliance on the C and D. Speaking that's very many factors that's good glasscock water source to differ materially from our forward looking statements and even salary Q3 B R.

Let me follow documents, including our STC findings user leases and bedside for more information about the company.

Oh, the spine I would not like the third quarter two notches taker for some opening comments that's you.

Okay. Good afternoon, Thank you for joining us.

It's already turned out to be interested.

You know, we continue to find ourselves breathing and unusual times, the corona virus 'cause rip the path to crawl crawl, the telecom economic landscape and realistically in the short term shows no immediate signs of eating.

Even a quarter ago when I last updated yeah, we were making short to medium term plans to handle an urgency we thought.

Now we're planning for the most intrusive aspects of the current cars to be felt throughout the calendar year and for some of the market impact even be permanent.

That being the case.

Now probably six months into the change the picture of how the pandemic is affecting our performance is becoming increasingly flushed out.

We also know how about a year of numbers and enable us to itself more completely how we're doing.

Do you need to move into reality, there will be different.

For the last 20 years here and evolving.

The headline news today generally instead evolving is doing pretty well in this environment no. It's not business as usual, yes. The current a virus pandemic has had some effects on our business.

But as I noted a quarter ago, we were in many ways well placed to adapt to changing market conditions hallmarks quite tell the work new ways of corporate in human not working all against the background of restricted personal contact.

We continue to weather the storm in the headline numbers bear this out our second quarter revenue was 6.3 million in your to deep revenues or 12.6 million year to date 2020 in the company's generated positive cash flows from operations.

Second quarter operating profit was point Threemillion.

With a net loss of 1.1 million adjusted EBITDA for the second quarter was positive point 6 million.

So despite operating in turbulent times, we've been able to maintain even a positive performance. Our service revenues were slightly higher from the corresponding period, a year ago, I mean, you've generated positive cash for the year.

By leveraging the ability in experience I referred to above and implementing and providing support to our clients remotely effected the pandemic on our operations has been largely mitigate.

Having underline that the big picture in the first half of this year than positive in the context. The global situation. We also have to be realistic it's not in business as usual we have successfully avoided the trauma that many companies are facing the pandemic. Nevertheless slowed our growth and as a result of that we have looked and continue to look for me to container cost.

Something for the balance sheet shows we've done effectively in the first top 2020.

As I said before our initial plans for 2020 called for better top and bottom line performance and more importantly, the demonstration of significant growth in both parts of our business.

Overall, the effects of the global situation has been to the laid back rose to 2021 generally operators are postponing the process of onboarding the kinds of new projects that are at the foundations of our crew.

A key for US long term is that what we're seeing as postponement and not cancellation.

Talk about this a little bit more but we have every reason to believe that in 2021 movie servicing a backlog of demand at carriers have put new business initiatives on all through 2020.

Maybe crystal clear about what we're seeing.

Ongoing customer work is continuing new deals. However have literally had the door shot in many cases carrier policies dictate the no personnel physically come to their campuses new equipment in infrastructure changes are for Pitney Bowes came to our customers had been in the mode of club don't do anything that isn't a direct response to the emergency.

Generally gets means that new project discussions recall, regardless of the maturity has simply been suspended.

Fortunately however, our clients are coming to the moment, where their businesses can no longer stay in emergency activities only both macro demands on their businesses are forcing them to figure out how to make long term competitive strides and increase their efficiency. These activities can be tackle through the strict filter of only work on emergency activity.

Kicking and screaming in some cases, our customers are having to slowly emerge from their shelf and turned on the activities and drive new project and new initiatives as the market demand they do so.

For evolving internally, we've been able to take advantage of the pandemic to reposition and fine tune. Our go to market. So there were ready to meet that challenge. There is a very linear thread that runs things are passed 24 months of activity first we addressed or marketing requirements, perhaps in two most obvious manifestations of which had been our new web site, which is now attractive debt.

The number of visitors were staying longer engaging more.

Slowly through nurturing these visitors producing qualified the secondly, also notice that our media presence has expanded significantly articles published across leading trade magazines and newsletters with the with an evolving fine line wants totally apps that are now regular occurrence.

But spread the word and establish the presence and credibility part brand.

Next we are now close to the ended the period in which we've completely revitalized our product line up.

Our customer activation in network services division to be watts of appeared to be loosely sample group of of eating solution. These have been woven together, we're repositioning through the last year into the Easton lifecycle suite.

Solutions with this offering continues to emerge and reach the market. The newest these are assumed distribution module, which someone unsurprisingly helps our customers to plan and manage the process of distributing Sam.

Our simple data solutions would help work, which help our customers efficiently manage lower ARPU Sams and I haven't seen devices, which is a significant growth area for us.

Our customer value management loyalty business unit as you all know reinvent itself with the launch of evolution or CML platform. Today evolution has now been deployed at its first for customer sites and we hope to issue press releases drawing attention to this before the ended the year. The fact that the product is now in production and four places means.

Burden of investment its development that we born over the last 18 months has now been largely removed.

So the past 24 months it seemed that jigsaw puzzle of do much more competitive and better place to succeed evolving systems being put together that despite a once in a century economic disruption we remain profitable attest to the success of these efforts, we've become leaner and more self reliant we've sharpened our messaging focused and we have explicitly.

Respond to the market needs with new technology.

Relationships with existing clients continue to expand that they leverage more and more of our services offerings.

Addition of new logos and customers in the next step to evolving through the success and I'll talk more about what we're doing in regard to new sales after the break but for now let's start with an overview of the quarter after that I'll hand, it over to our CFO of ideally partner in running the business marketing Koski.

Thank you Matthew good evening and thank you for attending the call.

Let me begin with the revenue total revenue for the second quarter ended June Thirtyth 2020 was 6.3 million, which is less than a point 1 million dollar increase from three more years. Once a year ago change was primarily related to the increase in revenue from upgrades and new projects, partially offset by a lower onetime licensing fee.

Our total revenue for the six months June Thirtyth 2020 was 12.6 million a decrease of point threemillion over the same period, a year ago predominantly related to a large onetime licensing fee recognized in 2019.

Service revenues that are mostly recurring in nature were 12.3 million for the year to date and increase year over year point, threemillion or 2.7% versus the six month period, a year ago. This increase is mostly related to new projects and upgrades that are ongoing in 2020 [noise].

We reported gross profit margins, excluding depreciation and amortization of approximately 65% for both quarters ended June Thirtyth 2020, and 29 team for the six months ended June Thirtyth 2020, our gross profit margins were approximately 66% as compared to profit margins of approximately 68% for the.

Six months of last year. This decrease was primarily related to the license and service and mix last year inclusive of the aforementioned licensing revenue.

Our total operating expenses were 3.8 million for the quarter ended June Thirtyth 2020, the operating expenditure expenses and the corresponding quarter. In 2019 were 11.1 million. This did include a goodwill impairment of 6.7 million.

Excluding the goodwill impairment charge you operating expenses were poor 4.4 million. This decrease was primarily related to travel in marketing costs that were reduced by point 3 million due to travel restrictions imposed during the global pandemic.

There are there were also decreases in general and administrative costs, primarily related to lower legal and accounting fees than in the prior year period.

Total operating expenses were 8.2 million for the six months ended June Thirtyth 2020, total operating expenses were 16.5 billion from six months ended June Thirtyth 2019, excluding the goodwill impairment charge. The operating expenses were 9.8 million.

This was a decrease of approximately a 1.6 million. This is related to the reduction in product development hours. The delivery staff focused on customer projects not product development as they did in the prior year and the decrease in use third party contractors also there were the you mentioned decreases in travel in marketing cost and general administrative.

As mentioned before.

We were pleased to report an operating profit <unk> point Threemillion. The net loss was less than 1 million for three months ended June Thirtyth 2020, compared to an operating and net losses of 7.0 million for three months ended June Thirtyth 2019, and excluding the effect of the goodwill impairment charge in 2019 the.

Operating and net losses would have been point threemillion.

The operating profit for the six months ended June Thirtyth 2020 was a positive point 1 million an increase from the 1 million dollar operating loss, excluding the goodwill impairment charge over the same six months in 2019.

Adjusted earnings before interest taxes and depreciation.

Democratisation was point Sixmillion for the quarter ended June Thirtyth, 2020, and as compared to point 1 million for the same period a year ago.

Our cash and cash equivalents as of June Thirtyth 2020 was 4.3 million.

An increase of 39% compared to 3.1 million as of December 30, Onest 2019.

Contract receivables net of <unk> net of allowance for doubtful accounts were 4.1 million a decrease of 40% compared to the 6.7 million as of year end 2019, Unbilled work in progress was 2.9 million for the period ended June Thirtyth 2020, an increase over of 1.8 million compared to December.

2030, Onest 2019 [noise].

Our working capital as of June Thirtyth, 2020 increased to 4.3 million as compared to 3.8 million as of December 31st 2019.

It does include an A.M.T. tax refunds expense expected in this current year and it was previously recorded in our deferred tax assets at the end of last year.

We've agreed with east and West Bank to amending our terms and financial covenants for our credit facilities. This included a waiver for all prior noncompliance. The loan is now one scheduled to be retired by the end of 2020.

We've made every loan payment in full and as originally scheduled within our loan agreement, we anticipating making all future payments and we believe there's ample cash on hand and liquidity in our working capital to fund our business and continued strategic investments.

Thank you and I will turn it back over to Matthew.

Mark Thank you for that.

Okay.

It earlier I'd like spend a minute or to addressing what's behind my confidence in evolving systems future well I think well placed to succeed in the coming years I'll do that now perhaps a bit more detailed that I usually made on the calling this but I think it'll be worthwhile.

All of you worked out was familiar with even tired of hearing the free digital transformation.

Nevertheless, digital transformation is the primary driver of today's change within enterprise broadly and for wireless operator customers, specifically for our clients and prospective customers. The issue is how the transport themselves into effect digital company, it's quite literally the largest singular focus of their overall efforts.

Digital transformation, what does that mean, what does that involve and how does that impact.

You give indulge me in a minute or to expound on this I think it will help you grass by I think of volumes future is bright.

Part of the notion of digital transformation is a set of trends on the physical and logical network side, where we see a shift from discrete network elements to an independently managed to virtualize communications in cloud infrastructure the benefit to our customers here as a shift from expensive and hard to manage to screen network elements to it Virtualized network environment.

Right as far as you'll recall the first manifestations of this transition were driven by network function virtualization software defined networking.

He's never change and drive demand for our activation in numbering services as well as the consulting and integration serve as we do in our cans division evolving traditional platform. We have built a reputation in the industry as being that go to for multiple vendors and network elements collide, but as an integrator and with our software solutions.

Our Tertio platform. For example is often the glue that can solve complex digital integration and our people more importantly are often the on the ground folks within the telecom operators that can align people processes and technology within a complex operator.

Other aspects digital transformation as the notion of just doing business digitally. This mean telecom operators expanding their service portfolio to offer new suite of services and addressing new vertical markets.

That means that the wage operator interacts with the customer over its lifetime is driven by algorithm and digital interaction rather than by customer service reps store personnel and physical promotions.

For this to work 360 degree omni channel customer experiences must replace traditional more limited relationships user expectations increased in the digital world and to meet that seamless integrated experience must be supported if our customers aren't really accrue long term gains and increased customer satisfaction.

Evolving directly addresses the operator needs here with our CML tool, most notably the evolution platform.

Lucian is the conduit to rich operators design their customers digital journey is the platform that allows an operator shipments user behaviors scale through promotions.

Now an omni channel outreach all work stream digitally and scale.

Speaking, probably when you map the challenges and opportunities to digital transformation lays out against the new and expanding evolving systems product lineup. You can immediately see why im confident about our future capping using big data increasing customer value operational excellence partner management in service innovation. These are the benefits are proud.

Designed to deliver benefit that with digital transformation or front and center and our customers headwinds today.

For all digital transformation is enormous opportunity to reengage existing customers and acquire new ones, which remain preaching back. Some had discussed earlier. The next 12 months or so in our journey will be focused on achieving new sales success here, while we sell on both sides of the business tools to help our customers digital transformation.

Our customer acquisition process has historically been the most analog endeavor.

Generally our sales and marketing teams comprised seasoned executive who has years of experience working with our customers. They are the kind of folks to close the rise to replace the high level were charging any large carrier along with each executives handicapping go to cocktail that yield preference.

Historically, our steel did come from this team flying around the world and networking into deep deep relationships in a very personal away.

Obviously, but the current global situation all that has changed there are no more flights. There are no more business centers. There is just our product portfolio the clear economic benefits that it can drive and the challenges communicating these benefits to set of known prospects Thankfully wireless operators have a hard time Heidi.

Through the limited aperture as Intel will work and other electronic media.

So we're being forced to find new leases now but to me. The most interesting thing about that into the new steels prophecies. We're forging out of that demand are using the tools digital outreach for the first time and evolved history.

We instead of needing only a personal relationships, we have built significant new capabilities and our ability to drive demand digital analysis of our client being automated outreach and an ongoing stream of to be dialogues with our customers and prospects in doing so we're just beginning to use the same techniques and strategies that are platforms afford our cost.

Tumors in our own business, obviously, the scale is very different evolving selling to a few hundred operators is a different kind of problems that our operators selling mass market services to millions of end users, but the breadth of digital on our own selling as long overdue and long term I have great theme for this internal digital transformation will drive.

More predictable and scalable funnel for us it's still early days, but for US is an extremely exciting trend and give us a recent basis. The planned long term increased sales and top line performance.

Other than just hoping for better luck.

Finally on a larger scale evolving continues to fine tune our operations at the balance sheet demonstrate costs are tightly controlled thought leadership and brand recognition or increasing we now have the evolution platform and the repositioned and expanded lifecycle management suite as mature products to meet our efforts.

Second quarter, it's been encouraging for us in the face of historically challenging market conditions because of all the efforts you. So patiently heard about today.

Once full normality returns I'm confident that our performance will be hallmark by consistent top and bottom line growth as the world Reopens.

So I'd like to thank you for your support and for Indulging me in a bit of a deeper dive than usual and I look forward to updating you on our continued progress.

So with all that said at this point I'd like to open the call to question.

Operator.

At this time I'd like to remind everyone.

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Keith.

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Thanks, everyone for your continued support were available to talk with investors throughout the week. There was a form on our website. If you plan to schedule in person discussion with management you can fill that out more get in touch with you.

So feel free to contact us and we look forward the communicating further progress in developments with you.

Operator, we're now ready to end the call.

This concludes todays conference call you may now disconnect. Thank you.

Thank you.

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