Q4 2020 Evolving Systems Inc Earnings Call
Rapidly increasing interest from both customers and prospects in our solutions in that area and.
In the mobile market gamification is critical yet often poorly understood self care applications to the at the heart of most digital customer engagement strategies and provide highly effective channels to actively engage and manage the lifetime value of the customer.
<unk> get the global average of downloads of such apps is low it is clear of the telcos must focus on improving downward of engagement. They want to move the dial on ARPA of retention kpis from their digital channels, but how gamification provides an increasingly proven answer.
Evolving systems over the past 12 months has been.
The digital leader in delivering gamification programs, we believe that the principal of the transactional loyalty and engagement program is to introduce one or more of mechanics between the customer and usage and spend transactions and the earning of reward the mechanics required of similar if not identical to those of you find in general context schemes that makes them so addictive.
The game is like the product and core customer experience, but it's the mechanics around at the provide the sense of achievement and incentive to engage our secret to success is combining everything together into a seamless game of find customer experience layer around our operators products services and programs embedding this within the self care App in order to stimulate the.
The desire of customer behaviors, it's worth adding that the CEO of one of our customers sell card presented a case study on his work in this area of with evolving to seminar run by leading industry trade body of the Telemanagement for them in November last year, if you're interested in seeing of video of this session. Please let us know.
We've also managed to provide leadership by to coin a phrase helping the industry find solutions that enable them to stay ahead of the Covid curve, we know that the pandemic of slowly starting to abate, but evolving systems isn't sitting still and waiting to see what the market conditions emerge before reacting we've been anticipating future service provider.
Needs for some months now and exposing our ideas and advice in the media, we think in the wake of Covid. The service provider market will be particularly interesting for many customers. The pandemic has brought to the for the importance of their mobile devices at the same time the distancing requirements have in some cases made it harder to maintain service with the closing of retail outlets.
Et cetera mobile devices of also become a fail safe means of disseminating by pushing vital information as competition for subscribers increases how will service providers convert these realities and to increase market share. Some strategies. We are already discussing include the importance of data connections at the time when the network may be overloaded or dynamics.
Sim allocation service can be used as the serving solution for data connections without the additional overhead of having the provision the BSS Oss entirely and can be introduced as an anticipatory measure emergency workers need of the data Sim. The can then make use of these unlimited connections while the associated costs are drastically reduced enabling our newfound.
Reality of working from home be of better telecommuting for rapid <unk> and soon <unk> activation assignments come in a way operators have become the the real estate agents data has become an extremely important servicing countries affected by COVID-19 secure self service Sim swap for example can enable subscribers to switch or upgraded from <unk> to <unk>.
Or change phones within the comfort of their own homes, such terms may avoid using network resources until the <unk> service is activated.
Interactive digital information services for government health care and retail came to the for during the pandemic when governments public health services and other organizations had to provide relevant information to customers.
Who were searching for information sources. They can trust now that Pandora's box has been opened it's unlikely to be closed while traditional social media can be used as before an increasing number of operators of offered services on behalf of government as a trusted source of information delivered through the mobile device. These new channels of communication are unlikely to disappear in the post pandemic.
MC World in fact, theyre likely to inspire new and profitable relationships and partnerships with vendors and operators like evolving.
On evolving systems, our belief is right now as the new economy unfolds telcos would be wise to rebuild the competitive strategies articulating their direction on the post COVID-19 world rather than jumping in with more of the same based on the assumption that normal service will soon be resumed a different set of use cases are likely to be required in the post COVID-19 world to match.
<unk> efficiency and profitability, we articulating the message that now is the time to start identifying and building them out.
These examples of our work during the last 12 months give you a flavor of why we've been able to both established and cement our turnaround in 2020, but also encourage you to share my confidence in the company's future since I became CEO of roughly three years ago evolving systems has sometimes slowly but with the increasing speed now matured into a more confident.
Clearly articulated more progressive and I think demonstrably more successful company I'll talk about the business and future plans a little bit more at the end of the session, but for now I'll turn it over to Mark and Koski to talk about the numbers.
Okay.
Thank you Matthew.
Good afternoon, everyone and thank you for joining I.
I know Matthew covered some of the numbers earlier, but to put them all in the context.
Context, I'll go over them again.
Let's begin with revenue.
For the $7 million for the fourth quarter of 2020, as compared to $6 $7 million in the comparable quarter a year ago.
The increase of <unk> 3 million or for 2%.
Driving the year over year increase were higher revenue associated with new projects, partially offset by a decrease in work on other client projects that reached or near completion.
Total revenue for the year ended December 31, 2020 was $26 4 million.
The point $6 million increase or two 3% compared to the 12 months of 2019.
Service revenues were $25 6 million. This was an increase year over year of $1 1 million.
This again was mostly related to work from new clients and their projects and upgrades to existing clients platform and services, which were partially offset by a decrease.
Work on those projects that have reached completion.
Over the course of the year, our gross margin percentages were consistent with the prior year.
Total operating expenses for the three months ended December 31, 2020 were $4 1 million compared to $4 2 million for the fourth quarter of year ago.
The decrease was mostly related to lower travel and entertainment costs due to the restrictions during the global pandemic and also led to a reduction of our marketing programs.
Partially offset by a larger number of hours worked on project product development projects. Our staff previously working on delivery shifted the product development work during the past quarter.
Total operating expenses for the year ended December 31, 2020 were $16 5 million of decrease from the total of operating expenses of $25 million in the year ended December 31 2019 ex.
<unk> of $6 7 million goodwill impairment charge in 2019, the Companys operating expenses were $18 3 million for 2019.
This was the decrease of approximately $1.8 million, which was related to the reductions in the company's sales and marketing costs.
Three of declining incentive compensation expense a decrease in the travel and marketing cost again due to the ongoing pandemic.
There was also a decrease in the overall resource cost associated the product development as the team had some exit of associates early in the year.
The company reported operating income of <unk> 5 million and net income of <unk> 6 million for the three months ended December 31 2020.
The company had operating income of $1 million kind of net loss of $1 4 million for the three months ended December 31 2019.
The company reported adjusted earnings before interest taxes, depreciation and amortization, our adjusted EBITDA number for the fourth quarter of 2020 was <unk> 8 million as compared to an adjusted EBITDA of <unk> 4 million in the fourth quarter of 2019.
The company reported an operating profit of $1 million and net income of <unk> 6 million for the year ended December 31 2020. This.
This is compared to an operating loss of $7 9 million and net losses of $9 7 million for the year ended December 31 2019.
Excluding the effect of that goodwill impairment in 2019, the operating loss would have been $1 2 million and the net loss would have been point of 3 million net.
Net earnings per share both basic and diluted was <unk> 10 for the year ended December 31, 2020, as compared to a net loss per share.
Both basic and diluted of the negative 80 in the comparable year ago period.
The company reported adjusted EBITDA of $2 4 million as Matthew noted earlier for the month for this year and Thats compared the point of $3 million for the year ended December 31 2019.
The company plans to continue to strategically invest a portion of these profit that are continuing initiatives the foster long term growth.
Moving to the balance sheet, the company reported cash and cash equivalents.
As of December 31, 2020 of approximately $2 8 million compared to approximately $3 1 million as of December 31, 2019 Con.
The contract receivables and the net allowance for doubtful accounts for $5 7 million a decrease of $1 million of approximately 15, 6% compared to December 31 2019.
However, the working capital increased by $1 7 million on approximately 44, 9% to $5 5 million.
From $3 8 million the same period a year ago.
Working capital.
The increased working for us.
And the decrease in the current portion of term loans that were paid off.
And also offset slightly by that small decrease in cash and the decrease in contract receivable.
Along with income tax receivables as large amounts of refunds and credits were received and the accounts payable on crude liabilities also decreased the.
The company was also proud to make the final payment on the bank term as Matthew noted on the bank term loan in January of 2021.
Thank you and I'll now hand, the call back over to Matthew Stecker Matthew.
Alright, Mark. Thank you very much I appreciate you going through all of that.
So earlier I gave everyone an insight into some of the exciting actions that evolving has taken in the past 12 months to provide you with some insights into the reasons for our continuum of progress I also asked the question why now is it would appear on the surface unlikely that in an adverse global market any company not directly servicing COVID-19 needs would be likely to.
<unk> improved its fortunes, but for us we can articulate some reasons why this has been the case. These are worth considering for a minute because they hold the reasons why you should be confident in our future and for believing that the success. We have started to experience will be sustained.
For most as I've already noted has been a quick ability to identify the real everyday problems that our customers and prospects.
<unk> and address them with well positioned to flexible and cost effective solutions that resonate with their target audiences that evolving systems has three years' experience servicing clients around the world. The cliche that we frequently using our sales and marketing literature, but it is stubbornly true our leadership draws on a deep well of industry knowledge.
<unk> and his unrivalled Samir familiarity with the operational and business is challenged that the market phases. We also have gotten really good over time at servicing operators, regardless of their geography and that shouldnt be underestimated going forward.
Having that experience provides the foundation for our success, but its impact is minimal minimal if not expose that's an area that once the shortcoming for evolving systems has also been dramatically turned around our visibility in the visibility in the industry through media coverage and marketing output has improved dramatically.
Today evolving as publishing of articles in the interviews across numerous leading sources. The TM for them as already noted featured two of our customers on one of our SVP of recent seminar. The result is that now we are not just good of what we do the good.
Good at what we do but we are getting better of being seem to be doing it. The net of all of this is that our sales pipeline is continuing to grow. We are also not seeing our laurels. It would be premature to present at present to offer specific details, but we are looking around long and hard at options to fundamentally change reposition.
On or expand our digital engagement business progress in this area has moved beyond the embryonic stage and I hope to be able to present more about our future directions on our next investor call for now suffice to say, we are focused on how to move the needle significantly rather than simply growing the business at its present pace.
If I can use the sporting metaphor for the past 24 months roughly the gratulate gradually rebuilt and reassembled the roster we need to succeed and the early results are promising over the next 24 months will be very much focus on the progress we hope to make making the playoffs. If you will let.
Let me conclude with a few comments about the market for phasing in 2021 and simultaneously provide at least the sneak peek into the answer of my previously posed what next question. It's no secret that <unk> will continue to roll out with end customers benefitting from a reliable high speed Internet access while the operators increased their bandwidth capacity, thus, allowing them.
The target new subscriber of growth be of new services or by taking a bigger share of the marketplace. It's axiomatic that every operator cannot grab an increased share of every marketplace. So there will be winners and there will be losers put another way gearing up now to leverage the incoming <unk> commercial opportunity will be table stakes for the future of winners from our perspective.
There is good reason to believe the 2021 of the Euro b of year of infrastructure investment in products like those evolving systems provides I'm asked frequently about the impact of <unk> on our business that are evolving systems I think it's fair to say that while we don't sell <unk> explicitly both sides of our businesses sales services and software that on.
Orchestrate new networks to make them run reliably and profitably whenever a new network and built it provides us with the new opportunity to which we can sell all of our services is the trend that's good for us.
More network implementation means more at bats for the entire portfolio of our solutions.
You can also expect an increasing focus and determination to capitalize on our customer trust. There is an ongoing battle for data intimacy, which is yet to be won and the winners will be in a position on cap. Many different plays ranging from digital I'd to optimize operations. This is another area in which our solutions are highly relevant and the same is even more true for the operator.
Search for still new ways to capitalize on customer data.
<unk> offers one opportunity for a quantum leap in customer experience enhancement by utilizing the data.
The improved targeting and personalization the right offer at the right moment, the right customer and right channel. Thanks to an integrated customer view, which is what the industry will trend towards evolving doesn't just operate in this area. We are leaders in it and marketing is another key area that is changing for our operator customers. They are moving beyond the basic chatbot.
Inbound and outbound communication is being replaced by a new approach interactive conversational marketing again evolving place heavily in delivering solutions that enable operators to navigate the shift and lastly, we know that the pandemic has changed customer sentiment with the result of people are adopting digital habits more rapidly than before.
And also trying new products services et cetera, as a result necessity in lockdown had been the mothers of invention, which translates to new opportunities to connect the segments and brands.
The segments as the brands couldn't previously reached this means the operators will need to work harder on the loyalty programs than ever before our solutions enable them to be successful in doing that in short disruption in the wireless industry provides opportunities for carriers to compete and.
That sells the digital marketing side of our business and.
On the installation and upgrading of the networks provides opportunity for the traditional software side of our business.
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 for questions operator.
So if we have any questions could you. Please raise your hand.
Yeah.
Right I am not seeing any questions. So I'd like to thank you for your continued support.
Management will be available to talk with investors throughout the week and if you have any questions by all means please feel free to contact us directly and we look forward to communicating set of progress and developments with you.
We're now ready to end the call. Thank you.
Thanks, everyone for attending.
Thank you.
Yes.