Symbolic Logic, Inc.
Q4 2020 Earnings Call Transcript

Published: 17 Mar 2021

[Keith Brody:]

…and Year End Results Conference Call. As you may have seen our Form 10-Q was filed after the market closed today and our press release was just issued. With us from management today will be Matthew Stecker, Evolving Systems’ Chief Executive Officer and Executive Chairman. On today’s call, we will provide an update on the fourth quarter 2020, as well as the cumulative year end 2020 results, as well as update you on the business investment activities currently underway. Additionally, Mark Szynkowski, Evolving Systems Senior Vice President of Finance is with us and 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.

[Matthew Stecker:]

All right. Thank you, Keith, and thank you everyone for attending today. If you’ve been with us for a while, you will remember that the third quarter 2020 saw Evolving complete our previously forecasted return to a cash flow positive position. While we were I think justifiably proud of that achievement, not least insofar as it occurred in the middle of the global pandemic, I’m even more delighted to report today that our upward trend in performance has been cemented by both a profitable fourth quarter and cumulatively a positive operating income of over $1 million for the year. This is great news. It gets a little bit better. Positive adjusted EBITDA for the year 2020 was $2.4 million. We generated positive flow across the 12-month period. Fourth quarter revenues rose by $0.2 million, in spite of globally adverse market conditions, annual revenues increased by $0.6 million to $26.4 million. Importantly, the company made the final payment on its outstanding bank loan in January. In short, we have been operating and continue to operate efficiently and now debt free. And I believe we are poised at the start of 2021 to build on last year’s success. There seems to me to be a few obvious questions provoked by these numbers. Why? Why now? And what’s next? What’s behind Evolving Systems turn around and furthermore, isn’t the timing in the most challenging societal and global economic conditions most of us have faced in our lifetimes unlikely? I think if we spend a moment looking at the answers to both these questions, you’ll see why I’m confident that company is moving in the right direction long-term, and more importantly, while the next 12 months can be a springboard to sustained success. The answer to the first question, why the turnaround is multifaceted? It’s the result of the combination of fiscally responsible management, tight operational control, streaming -- while streamlining how we work without sacrificing productivity, imaginative and timely product development that -- those are keywords for doing it on the cheap. But I like imagining it, it’s better than just saying efficient. Anyway, an improved -- improvement in exposure and brand recognition, and a razor sharp focus on meeting the needs of our clients through extended relationships designed to deliver real value.

[Mark Szynkowski:]

Thank you, Matthew. Good afternoon, everyone, and thank you for joining. I know Matthew covered some of the numbers earlier, but to put them all in context, I’ll go over them again. Let us begin with revenue, which was $7 million for the fourth quarter of 2020, as compared to $6.7 million in the comparable quarter a year ago, an increase of $0.3 million or 4.2%. Driving the year-over-year increase were higher revenues associated with new projects, partially offset by a decrease in work on other clients projects that reached or near completion. Total revenue for the year ended December 31, 2020, was $26.4 million, a $0.6 million increase or 2.3%, 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 for new clients and their projects, and upgrades to existing client’s platforms and services, which were partially offset by a decrease in 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 a year ago. The decrease is 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. This was partially offset by a larger number of hours worked on product development projects and 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, a decrease from the total of operating expenses of $25 million in the year ended December 31, 2019. Excluding a $6.7 million goodwill impairment charge in 2019, the company’s operating expenses were $18.3 million for 2019. This is a decrease of approximately $1.8 million, which is related to the reductions in the company’s sales and marketing costs through 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 costs associated to product development as the team had some exit of associates early in the year.

[Matthew Stecker:]

All right, Mark. Thank you very much. Appreciate you going through all 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 continuing progress. I also asked the question why now, is that it appear on the surface unlikely that in an adverse global market, any company not directly servicing COVID needs would be likely to significantly improve 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 is that the success we have started to experience will be sustained. For most, as I’ve already noted, has been our quick ability to identify the real everyday problems that our customers and prospects face 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 is a cliche that we frequently use in our sales and marketing literature, but it is stubbornly true. Our leadership draws on a deep well of industry knowledge and has unrivaled familiar -- familiarity with the operational and businesses challenged that the market phases. We also have gotten really good overtime at servicing operators regardless of their geography and that shouldn’t be underestimated going forward. Having that experience provides the foundation for our success, but its impact is minible -- is minimal, if not exposed. That’s an area that wants a shortcoming for Evolving Systems has also been dramatically turned around. Our visibility in the industry through media coverage and marketing output has improved dramatically. Today Evolving is publishing articles and interviews across numerous leading sources. The TM forum is already noted feature two of our customers and one of our SVPs in a recent seminar. The result is that now we are not just good at what we do, but good at what we do, but we are getting better at being seen to be doing it. The net of all this is that our sales pipeline is continuing to grow. We are also not sitting on 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 or expand our digital engagement business. Progress in this area has moved beyond the embryonic stage and I hope we 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 a sporting metaphor over the past 24 months roughly you’ve graduated -- gradually rebuilt and reassembled the roster we need to succeed in the early results are promising. Over the next 24 months, we’ll be very much focused on the progress we hope to make -- making the playoffs if you will. Let me conclude with a few comments about the market we’re facing in 2021 and simultaneously provide at least a sneak peek into the answer of my previously posed what next question. It’s no secret that 5G will continue to rollout with end customers benefiting from more reliable high speed internet access, while the operators increase their bandwidth capacity and thus allowing them to target new subscriber growth via 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 5G commercial opportunity will be table stakes for the future winners. From our perspective, there is good reason to believe the 2021 will be a year of infrastructure and investment in products like those Evolving Systems provides. I’m asked frequently about the impact of 5G on our business at Evolving Systems. I think it’s fair to say that while we don’t sell 5G explicitly, both sides of our businesses sell services and software that orchestrate new networks and make them run reliably and profitably. Whenever a new network is built, it provides us with a new opportunity to which we can sell all of our services. It’s a trend that’s good for us. More network implementations means more attach 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 to uncap many different plays ranging from digital ID to optimize operations. This is another area in which our solutions are highly relevant. The same is even more true for the operators search for still new ways to capitalize on customer data. AI offers one opportunity for a quantum leap and customer experience enhancement by utilizing the data to improve 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. Marketing is another key area that is changing for our operator customers. They’re moving beyond the basic chatbot. Inbound and outbound communication is being replaced by a new approach, interactive conversational marketing. Again, Evolving plays 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 that people are adopting digital habits more rapidly than before and also trying new products, services, et cetera as a result. Necessity and lockdown have been the Mothers of Invention, which translates to new opportunities to connect with segments and brands. That -- segments that the brands can previously reach. This means operators will need to work harder on their 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 the installation and upgrading of 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 to questions. Operator?

[Keith Brody:]

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[Keith Brody:]

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 further progress and developments with you. We’re now ready to end the call. Thank you.

[Matthew Stecker:]

Thanks everyone for attending.

[Mark Szynkowski:]

Thank you.

[Operator:]

Good-bye.