Symbolic Logic, Inc.
Q1 2020 Earnings Call Transcript

Published: 15 May 2020

[Operator:]

Thank you and welcome to Evolving Systems 2020 First Quarter Results Conference Call. As you may have seen, 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 on the quarter 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?

[Matthew Stecker:]

Okay, thank you. Good afternoon and thank you for joining us. As we're all only too aware the company is presently operating in unusual conditions. The coronavirus pandemic has fundamentally changed both, the commercial and for that matter of personal landscapes for all of us. I mentioned this at the start of this presentation because, among other things, it means that the context in which all earnings releases must be understood today differs from both, previously releases and existing forecasts.With this new and challenging backdrop in mind, however, the headline in today's news of the first quarter earnings is positive, Evolving Systems is weathering the COVID-19 storm successfully, probably better than most. Fundamentally, the update that I gave in the last call remains true; we are working, our customers are working, and the business moves forward through a transition from what we have previously acknowledged, has been a period of change in both, our products and our performance. Best of all, we are finding new opportunities, not only in spite of but in some cases as a result of the pandemic.One update that reflects this is the increase in income from services in the first quarter versus Q1 2019. In particular, this reflects increases in work for a number of major clients, and it underlines the point I made earlier, the difficult market conditions have also yielded new opportunities. If you think about what we do at Evolving, this is actually not entirely surprising. View our two core product lines as being broadly in the areas of subscriber activation and customer relations, and you can immediately grasp that our technology either has an obvious role to play or can be easily adapted to play a necessary and often key role in meeting the demands of managing the pandemic.One of the immediate societal requirements of COVID-19 has been for the rapid dissemination of vital information to the general public, something more often than not accomplished via mobile devices; this basically is what Evolving Systems software enables. The cause and effect of sending out a communication, engaging a consumer, and increasing brand loyalty in commercial terms is only superficially different to sending out a key healthcare update. If your technology can enable the former, it can also enable the latter. The proof of this assertion is as ever in the pudding and some of you may have noticed that our recent press release in which one of our clients in Latin America met a government order to do just this by adapting and using Evolving's technology. In fact, we made an aggressive marketing push this quarter to make the world's wireless operators aware of ways that we can help specifically through the current situation.How do we do this? Fortunately, a number of media articles highlighting the sort of use cases we support, as well as a paper documenting specifically how our company works with telecoms during the pandemic has been published and distributed in the past couple of months, and links can be found on our website. The response has been significant and we are now working to progress a number of opportunities that have risen as a direct result of the awareness they've created. If or as these come to fruition as new business, it should give us confidence that while the balance of 2020 will doubtless continue to be challenging, Evolving remains well placed to keep weathering the storm, not only with our existing clientele but with new customer wins as well, even if not won into the traditional manner.Another piece of good financial news is that we continue the march as planned towards the milestone of retiring the debt taken onto purchase Lumata, BLS and SSM from 2015 to 2017. Our last payment is scheduled to January but we have a right to prepay the loan and are considering various options to put it behind us, possibly even quicker.Looking ahead, if we are able to continue executing for the next nine months, the prospect of a debt-free profitable Evolving with updated and new products and profiles, now both very real and very close within reach. Today's Evolving Systems is a different company than it was 12 months ago, more so than you might think. We've become leaner and more self-reliant, we have sharpened our messaging and focus, and we've explicitly responded to the market needs with new technology. One small example of this in our first quarter earnings report is reduction in sub-contracting expenses over the period. While this gain has been offset in the short-term by an increase in assigned project hours, as internal relief resources have shifted from project product development to client work, the long-term impact of this is entirely positive.We also continue to take advantage of Evolving's distributed foundation. As I said in our last call, our people serve a global footprint of operators and are themselves highly decentralized. Just as men [ph] adapting to pandemic conditions has been easier for us albeit still not easy, than it has been for many other organizations; it's a major positive in the present context that we have for years been a company that has had to run itself and interact with customers remotely, and it is because of our ability to implement and provide support remotely to our clients and staff that the present global situation has had a relatively limited effect on our operations.If 2019 did present us with considerable challenges, 2020, taking into account the prevailing market conditions that are affecting every company, is off to a good start. The Evolving Systems that rebuilt over the past 24 months is now demonstrating to compete in today's telecom market. Once we would be gone COVID-19, we will be in an even stronger position as digitization and 5G yield opportunities for wireless carriers that we are ideally placed to support. As a result, I'm confidently anticipating that 2020 will see revenues increase and even with the pandemic, the flow of win announcements will continue.I will discuss these and other developments in a little bit more detail later in the call. But first, let's start with an overview of the quarter and numbers.So at this point, I'll hand it over to Mark Szynkowski. Mark?

[Mark Szynkowski:]

Thank you, Matthew. Good evening. Let me run through those numbers.Total revenue for the first quarter ended March 31, 2020 was $6.3 million; this was $0.4 million or approximately a 6.1% decrease from the first quarter of 2019. The decrease was primarily related to a one-time licensing fee recognized last year from one client. However, service revenues increased year-over-year by $0.1 to $6.1 million. The company reported gross profit margins excluding depreciation and amortization of approximately 66% for the quarter ended March 31, 2020, which is consistent with the prior year, and as compared to the gross profit from the comparative quarter in 2019 of approximately 71%, a decrease which was primarily related to the revenue mix, which included that aforementioned licensing revenue.Total operating expenses in the quarter ended March 31, 2020 were $4.3 million, a decrease by approximately of $1.1 million as compared to the $5.4 million in the corresponding year ago period. The decrease was primarily related to the reduction in sales and marketing costs as commission expense decreased, as well as travel and trade show costs were reduced due to the travel restrictions imposed. Our focus on the product development continues, however, staff working on product development in the previous periods were assigned to client project work as needed, therefore reducing product development costs. Further included in the first quarter of last year were one-time charges of general and administrative costs, mostly associated with the complexities and completion of our 2018 year audit and the accounting services related to updating our global transfer pricing and fees for -- related to R&D credits refunded to our UK subsidiaries.The company reported an operating loss of $0.2 million and a net loss of less than $0.1 million for the quarter ended March 31, 2020, as compared to an operating loss of $0.7 million and a net loss of $1.1 million in the comparable year ago period. The company reported adjusted earnings before interest, taxes, depreciation and amortization; our adjusted EBITDA was $0.2 million in the first quarter of 2020, as compared to a negative $0.3 million in the first quarter of 2019. The tune of the 2020 EBITDA figure though was below the prescribed trailing three month adjusted EBITDA amount required by the amendment agreed upon with our lender East West Bank in 2019. This has resulted in us not being compliant with one of the bank covenants.We are currently negotiating the restructuring of our terms, and there was not sufficient time to properly negotiate those terms prior to this filing deadline. The company has made every loan payment in full and as originally scheduled, we anticipate making all future payments timely, and we believe there is ample cash-on-hand in liquidity and the working capital to fund our business, and continued strategic investments. And the loan is all in short-term as it is scheduled to be paid-off by January 2021, right now.The cash and cash equivalents as of March 31, 2019 was $2.6 million, and the working capital is $3.9 million. Working capital increased $0.1 million as compared to $3.8 million as of December 31, 2019. However, cash and cash equivalents did decreased by 15.3% compared to the $3.1 million as of December 31, 2019. Contract receivables net of allowance for doubtful accounts were $5.1 million, and unbilled work in progress was $1.8 million for the period ended March 31, 2020.Thank you for your time this evening. And let me turn it back over to Matthew.

[Matthew Stecker:]

Okay, Mark. Thank you. So with these results in mind and to underline what I said earlier, I'm confident that the company has now well passed through the key inflection points of the integrations of our acquisitions and the rebuilding and repositioning of our products. And we're now on-track to begin delivering on an upward trend in revenues, the present pandemic notwithstanding. We've done the heavy lifting and we are in position to look ahead.Since all of us are highly aware of the COVID situation, I thought it might be worth spending a minute or two elaborating on something I mentioned earlier, the obvious suitability of our products to help confront and manage the requirements of the crisis. Do you understand why this is the case and what exactly Evolving's products do, then it's easier to understand the compelling proposition our stock makes to informed investors. Let me give you just a couple of very brief examples.For one, we all know right now that government's public health services and other organizations must provide relevant information to populations searching for sources they can trust. While traditional social media can be used for this, several of our clients are, as I noted, offering services on behalf of their governments delivered through mobile devices. This is critical in the early phases of the epidemic when first cases are identified. The remains very important in the peak and later phases as cases start spiking and there is need to manage traffic, divert people to specific locations for testing, and educate people on new developments, regulations and advice. Users of our products can help governments capture survey data or manage digital voting, help healthcare systems to provide symptom check flows and provide the necessary advice, help retailers to provide information as to opening hours or stocks of scarce resources, and many other possibilities.Another examples are customers adjusting their ongoing lifecycle campaign messaging and targets to tailor them to the current situation. Many wireless operators manage a large portfolio of automated below-the-line personalized lifecycle campaigns using our software. Based on customer profiles and real-time event triggers, these traditionally result in customers being sent offers and/or notifications through our platform as reminders of expiring plans, new services or depleting balances. In the current moment, operators are finding it wise to review these base shaping mechanics and adjust them for the current climate. For example, customers may not be in a position to make a recharge in the timeframe that an offer is valid as result of social distancing and closed stores, it may be wise to remind customers of the digital channels available to them for data replenishment. It might be worth delivering some segmented information campaigns based on customer location, and it may be a good time to relax some of the airtime or data expirations that carriers or governments have imposed.In many of our countries, we're seeing government's mandate changes to the way that data is sold as wireless data moves in some cases from being a luxury to a critical resource. Changes like this present opportunities for us to re-engage existing customers with our marketing services, as well as to upsell the flexibility inherent in our modern evolution platform, which enables complex campaigns and profiling beyond the capabilities of not only our previous platforms but the entire previous generation of solutions in market. There are numerous other examples of how Evolving is helping it's customers and can help others in pandemic conditions. In the rationing of scarce resources through digital vouchers and enabling charitable donations, and adjusting the loyalty program peer status expirations and rewards portfolios, and so on. I hope this small flavor of the relevance of our work right now underlines and provides substance to my confidence that we will successfully continue to weather the storm. As I said previously, more than ever, we are positioned as the leading partner in digital innovation; the pandemic is only underlying that.Moving in and looking inwards rather than outwards, Evolving continues to fine-tune it's operations. As the balance sheet demonstrates, costs are tightly controlled and this year we are making a strong push to invest in and optimize our digital marketing performance, the early results of which activity is encouraging. You will know that two years ago we began a push to upgrade our general marketing, among the results of which were our new website, and a much higher media and industry profile. This year we are focused on optimizing the site and aggressively upgrading our returns from digital channels. In the past few months alone, we have moved up significantly in the Google search rankings, and of course, we now have the evolution platform and the repositioned (e)SIM Lifecycle Management Suite as products to leverage in our efforts. All this is really important because the traditional work of our sales people running around the world and knocking on doors, doing meetings and taking clients at dinner has ended; so it is both fortuitous, and in some sense, well planned that we have put a big amount of effort into our digital marketing and digital outreach to new customers, instead of simply relying on the time proven methods of global travel.So to summarize, the first quarter 2020 has been an encouraging for the new Evolving Systems, despite very challenging market conditions. As ever, we continue to optimize our own performance but we are now doing so on a strong foundation that we have built in recent years. I'm confident that our performance can return to more consistent top-line and bottom-line growth as the world reopens.I want to thank you for your support and look forward to updating you on our continued progress.So at this point, I'd be happy to open the call to questions. Operator?

[Matthew Stecker:]

Well, great. I will -- I will take that as a sign that we successfully anticipated all the questions that we might receive. But I do want to point out, I want to thank everyone for attending today and remind everyone that these calls are archived on our Investor Relations website. And also that if anyone would like a more personal walkthrough, either our finances or any of our business operations, there is a link on our Investor Relations website to set up a time to get in touch with us. I do many of those each quarter and I'm happy to continue meeting many of you through that channel.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. And you may now disconnect.