Evolving Systems ends turnaround third quarter with CMS acquisition

Evolving Systems lived up to its name this week with a $20 million swing in year-to-date net income, the acquisition of CMS Communications and the appointment of a new CEO.

George Hallenbeck, chairman and CEO of Evolving Systems, will move to chief technology officer on Jan. 1, and appoint current executive vice president of sales and operations, Stephen Gartside, as CEO.

"I will be giving up my CEO role in order to focus more of my time on the technology side of the business," Hallenbeck said. "I will remain with Evolving Systems as chairman of the board and full-time member of the executive management team in my new role as chief technology officer, a role I have been informally filling for years."

As founder of Evolving Systems, Hallenbeck took the Englewood, Colo.-based provider of number management and local number portability solutions from a private startup in 1985 to a publicly traded company in May of 1998.

"I am proud of what I accomplished as CEO of Evolving Systems, [but] I can tell you my greatest strengths and certainly my professional passions are on the technical side of the business," Hallenbeck said.

Announced on the heels of its best year so far as a public company, Hallenbeck assured investors that the pattern of five consecutive quarters will continue. "I know everyone gets concerned when a CEO steps down and a new one is announced…I assure you that as the largest individual stockholder of Evolving Systems stock, no one has thought longer and harder about this than me," he said. "I’m convinced this is the right decision and that the company will prosper and grow because of it."

The new CEO, Stephen Gartside, came to the company in 2001. He played a key role in the transformation of the company over the last two years and led the team responsible for the CMS acquisition, Hallenbeck said.

The CMS acquisition was an all-stock deal valued at approximately $10,485.00. It signals the start of Evolving Systems’ new growth strategy via revenue and acquisition. Evolving Systems also acquired certain software assets from Lucent last year. The deal also signals the end of a string of acquisitions made by CMS itself over the summer. CMS acquired Astracon’s activation and connection management software assets as well as Softalia’s element management system.

"With the CMS acquisition, we will receive revenue from Tier 1 carriers related to the use of the CMS product called Traffic Data management System," Gartside said.

CFO Brian Ervine said that based on a strong year-to-date performance and the acquisition of CMS, which will make a small contribution to Q4 revenue, the company is raising its full-year guidance to a range of $27.7 million to $28.7 million.

Ervine stressed that the company was exercising increased caution in guidance due to a number of variables that fall in the fourth quarter, including the yet-to-be determined financial upside of any wireless number portability volumes starting in November, the pending results of a CMS financial audit and a better understanding about how the acquisition will play out in terms of revenue generating synergies.

Evolving’s third quarter (ending Sept. 30) net income rose to $2.1 million compared with $239,000 for the same quarter last year. Revenue increased 8% to $7.1 million from last year’s third quarter of $6.6 million. "Our bottom line performance was driven by careful management of our cost structure in combination with revenue growth," Ervine said.

The company’s cash balance as of Sept. 30 was $17.3 million. For the nine-month period ending in September, the net income of $6.4 million represented a $20 million swing from last year’s loss of $14 million.