Evolving Systems Reports 2007 Second Quarter Financial Results

Evolving Systems, Inc. (NASDAQ: EVOL)

--  Revenue up 11% to $9.1 million in Q2, 7% to $17.6 million YTD
--  License and services orders up 15% to $4.4 million in Q2, 18% to $9.4
    million YTD
--  Adjusted EBITDA of $1.4 million in Q2, $2.6 million YTD
--  Net income of $72,000 in Q2 vs. losses of $326,000 in Q1 and $16.2
    million in Q2 2006
--  Fourth consecutive quarter of positive operating income -- $629,000
    compared with $230,000 in Q1
--  Operating cash flow of $6.1 million YTD vs. $3.2 million a year ago
    

Evolving Systems, Inc. (NASDAQ: EVOL), a leading provider of software solutions and services to the wireless, wireline and IP carrier market, today reported financial results for its second quarter and six-month period ended June 30, 2007.

Second Quarter Results

The Company reported net income of $72,000, or less than one cent per basic and diluted share, in the second quarter as compared with a net loss of $16.2 million, or $0.85 per basic and diluted share, in the same quarter last year when the Company incurred a $15.0 million goodwill and intangible assets impairment charge net of income tax benefit of $1.5 million. Earnings before interest, taxes, depreciation, amortization, impairment, stock compensation and gain/loss on foreign exchange transactions ("adjusted EBITDA") for the second quarter were $1.4 million, an increase of 70% over adjusted EBITDA of $827,000 in the second quarter of 2006.

Revenue in the second quarter was $9.1 million, up 11% compared with $8.2 million in the second quarter last year and up 8% from the first quarter of 2007. The increase was attributable to new customers as well as higher revenue from existing customers. It was the Company's second straight quarter of year-over-year revenue growth. For the comparative second quarters, license fees and services revenue was $4.7 million versus $4.0 million, while customer support revenue was $4.4 million versus $4.3 million. Second quarter revenue mix included $4.9 million in Service Activation, $3.3 million in Numbering Solutions and $900,000 in Mediation. Revenue increases occurred in the Company's focus areas of Activation and Numbering Solutions, exceeding a small decline in Mediation revenue.

Total costs of revenue and operating expenses in the second quarter declined by 66% to $8.5 million from $25.3 million in the same quarter last year. Excluding the $16.5 million impairment charge in the second quarter last year, total costs of revenue and operating expenses in the 2007 second quarter decreased by 3%, to $8.5 million from $8.8 million, reflecting lower intangible amortization costs as well as management's commitment to maintaining a stable cost structure. Product development costs declined by 55%, or $441,000, as the Company completed development of the international version of its NumeriTrack® product. Intangible amortization expense declined by 56%, or $501,000, reflecting the impact of the second quarter 2006 impairment charge. General and administrative expense increased 19% to $1.6 million from $1.4 million due to higher professional fees associated with legal, Sarbanes-Oxley requirements and implementation of new accounting standard FASB Interpretation No. 48 - Accounting for Uncertainties in Income Taxes, and higher incentive compensation.

Income from operations in the second quarter was $629,000, an improvement of $17.7 million over the second quarter of 2006 when the $16.5 million impairment charge was taken, and of 173% over operating income of $230,000 in the first quarter of 2007. It was the Company's fourth consecutive quarter of positive operating income.

Bookings and Backlog Highlights

Second quarter new order bookings totaled $7.6 million, up from $6.1 million in the second quarter last year. The bookings were comprised of $4.4 million in license fees and services and $3.2 million in customer support. Bookings were allocated $4.7 million in Activation, $2.1 million in Numbering Solutions, and $800,000 in Mediation. The Company defines bookings as new, non-cancelable orders expected to be recognized as revenue during the following 12 months.

Backlog at June 30, 2007, was $15.1 million, up $400,000 from backlog of $14.7 million at the same time last year. A 49% increase in license and services backlog more than offset a 13% decline in customer support backlog, where the Company experienced delays in certain renewals and the end of life for one legacy product.

Balance Sheet Highlights

Evolving Systems generated $2.3 million in cash from operations in the second quarter and closed the quarter with cash and cash equivalents of $9.9 million, up from $5.1 million at the end of 2006. Working capital at the end of the second quarter was $1.1 million, up from $718,000 in the first quarter. In the second quarter certain holders of the Company's Series B Convertible Preferred Stock converted their preferred stock into approximately 60,000 shares of common stock, reducing the Company's preferred stock balance from $6.1 million to $5.9 million at June 30, 2007.