Attached files
file | filename |
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8-K/A - 8-K/A - EVOLVING SYSTEMS INC | a15-24724_18ka.htm |
EX-23.1 - EX-23.1 - EVOLVING SYSTEMS INC | a15-24724_1ex23d1.htm |
EX-99.1 - EX-99.1 - EVOLVING SYSTEMS INC | a15-24724_1ex99d1.htm |
EX-99.2 - EX-99.2 - EVOLVING SYSTEMS INC | a15-24724_1ex99d2.htm |
Exhibit 99.3
EVOLVING SYSTEMS, INC.
Pro Forma Condensed Combined Financial Statements (Unaudited)
Year Ended December 31, 2014 and Six Months Ended June 30, 2015
Table of Contents
|
Page(s) |
|
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Condensed Combined Financial Statements (Unaudited) |
|
|
|
Condensed Combined Balance Sheets |
3 |
|
|
Condensed Combined Statements of Income for the year ending December 31, 2014 |
4 |
|
|
Condensed Combined Statements of Income for the six months ending June 30, 2015 |
5 |
|
|
Notes to Condensed Combined Financial Statements |
6-8 |
Basis of Presentation
The following unaudited pro forma condensed combined financial information and related notes present the historical financial statements of Evolving Systems, Inc. (Evolving Systems) and its subsidiaries and RateIntegration, Inc. (RateIntegration) after giving effect to our acquisition of RateIntegration that was completed on September 30, 2015 as well as the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma financial statements.
The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2015 and for the year ended December 31, 2014 assume that the acquisition occurred as of January 1, 2014. The unaudited pro forma condensed combined balance sheet as of June 30, 2015 is presented as if the acquisition had occurred as of June 30, 2015.
The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not purport to represent what the results of operations or financial position would actually have been had the acquisition occurred on the dates noted above, or to project the results of operations or financial position for any future periods. The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable. Unless otherwise indicated, the pro forma adjustments are directly attributable to the acquisition and are expected to have a continuing impact on the results of operations. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma condensed consolidation financial information have been made.
The accompanying unaudited pro forma condensed combined financial information should be read in conjunction with the notes thereto and Evolving Systems consolidated financial statements and notes thereto included in our Annual Report on Form 10-K as of and for the year ended December 31, 2014, and our Quarterly Report on Form 10-Q as of and for the six months ended June 30, 2015, the historical financial statements of RateIntegration as of and for the year ended December 31, 2014 included herein and the historical unaudited condensed consolidated interim financial statements of RateIntegration as of and for the six months ended June 30, 2015 included herein.
EVOLVING SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
June 30, 2015
(in thousands)
|
|
As Reported |
|
RateIntegration, |
|
Pro Forma |
|
Pro Forma |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
$ |
10,254 |
|
$ |
1,732 |
|
$ |
(9,750 |
)(a) |
|
| |
|
|
|
|
|
|
10,000 |
(b) |
|
| ||||
|
|
|
|
|
|
(535 |
)(d) |
|
| ||||
|
|
|
|
|
|
(1,662 |
)(e) |
$ |
10,039 |
| |||
Contract receivables, net |
|
6,460 |
|
1,368 |
|
|
|
7,828 |
| ||||
Unbilled work-in-progress |
|
4,775 |
|
279 |
|
|
|
5,054 |
| ||||
Deferred income taxes |
|
95 |
|
|
|
|
|
95 |
| ||||
Prepaid and other current assets |
|
1,524 |
|
68 |
|
|
|
1,592 |
| ||||
Total current assets |
|
23,108 |
|
3,447 |
|
(1,947 |
) |
24,608 |
| ||||
Property and equipment, net |
|
640 |
|
10 |
|
|
|
650 |
| ||||
Amortizable intangible assets, net |
|
560 |
|
201 |
|
4,642 |
(f) |
|
| ||||
|
|
|
|
|
|
(201 |
)(g) |
5,202 |
| ||||
Goodwill |
|
17,157 |
|
|
|
6,949 |
(f) |
24,106 |
| ||||
Long-term deferred income taxes |
|
601 |
|
|
|
|
|
601 |
| ||||
Total assets |
|
$ |
42,066 |
|
$ |
3,658 |
|
$ |
9,443 |
|
$ |
55,167 |
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
| ||||
Current portion of capital lease obligations |
|
$ |
5 |
|
$ |
|
|
$ |
|
|
$ |
5 |
|
Line of credit |
|
|
|
283 |
|
|
|
283 |
| ||||
Accounts payable and accrued liabilities |
|
4,046 |
|
420 |
|
238 |
(h) |
4,704 |
| ||||
Income taxes payable |
|
552 |
|
|
|
|
|
552 |
| ||||
Unearned revenue |
|
3,695 |
|
734 |
|
|
|
4,429 |
| ||||
Total current liabilities |
|
8,298 |
|
1,437 |
|
238 |
|
9,973 |
| ||||
Long-term liabilities: |
|
|
|
|
|
|
|
|
| ||||
Capital lease obligations, net of current portion |
|
4 |
|
|
|
|
|
4 |
| ||||
Other long-term obligations |
|
178 |
|
|
|
|
|
178 |
| ||||
Long-term debt, net of current portion |
|
|
|
|
|
10,000 |
(b) |
10,000 |
| ||||
Seller financed notes payable |
|
|
|
|
|
250 |
(c) |
250 |
| ||||
Deferred income taxes |
|
|
|
|
|
1,760 |
(f) |
1,760 |
| ||||
Unearned revenue - Long term |
|
120 |
|
|
|
|
|
120 |
| ||||
Total liabilities |
|
8,600 |
|
1,437 |
|
12,248 |
|
22,285 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Stockholders equity: |
|
33,466 |
|
2,221 |
|
(1,662 |
)(e) |
|
| ||||
|
|
|
|
|
|
(201 |
)(g) |
|
| ||||
|
|
|
|
|
|
(238 |
)(h) |
|
| ||||
|
|
|
|
|
|
(704 |
)(i) |
32,882 |
| ||||
Total liabilities and stockholders equity |
|
$ |
42,066 |
|
$ |
3,658 |
|
$ |
9,443 |
|
$ |
55,167 |
|
The accompanying notes are an integral part of these condensed combined consolidated financial statements.
EVOLVING SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
For the Year Ended December 31, 2014
(in thousands except per share data)
(unaudited)
|
|
As Reported |
|
RateIntegration,Inc. |
|
Pro Forma |
|
Pro Forma |
| ||||
REVENUE |
|
|
|
|
|
|
|
|
| ||||
License fees and services |
|
$ |
19,738 |
|
$ |
5,071 |
|
$ |
|
|
$ |
24,809 |
|
Customer support |
|
9,942 |
|
1,158 |
|
|
|
11,100 |
| ||||
Total revenue |
|
29,680 |
|
6,229 |
|
|
|
35,909 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
COSTS OF REVENUE AND OPERATING EXPENSES |
|
|
|
|
|
|
|
|
| ||||
Costs of license fees and services, excluding depreciation and amortization |
|
5,782 |
|
1,448 |
|
|
|
7,230 |
| ||||
Costs of customer support, excluding depreciation and amortization |
|
1,866 |
|
546 |
|
|
|
2,412 |
| ||||
Sales and marketing |
|
5,734 |
|
586 |
|
|
|
6,320 |
| ||||
General and administrative |
|
3,639 |
|
1,324 |
|
|
|
4,963 |
| ||||
Product development |
|
3,643 |
|
956 |
|
|
|
4,599 |
| ||||
Depreciation |
|
246 |
|
4 |
|
|
|
250 |
| ||||
Amortization |
|
95 |
|
39 |
|
663 |
(j) |
|
| ||||
|
|
|
|
|
|
(39 |
)(m) |
758 |
| ||||
Restructuring and other recovery |
|
237 |
|
|
|
|
|
237 |
| ||||
Total costs of revenue and operating expenses |
|
21,242 |
|
4,903 |
|
624 |
|
26,769 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income from operations |
|
8,438 |
|
1,326 |
|
(624 |
) |
9,140 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other income (expense) |
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
19 |
|
8 |
|
|
|
27 |
| ||||
Interest expense |
|
(17 |
) |
(14 |
) |
(413 |
)(k) |
(444 |
) | ||||
Other income |
|
(27 |
) |
|
|
|
|
(27 |
) | ||||
Gain (loss) on extinguishment of debt |
|
|
|
|
|
|
|
|
| ||||
Foreign currency exchange gain (loss) |
|
(9 |
) |
(112 |
) |
|
|
(121 |
) | ||||
Other income (expense), net |
|
(34 |
) |
(118 |
) |
(413 |
) |
(565 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
|
8,404 |
|
1,208 |
|
(1,037 |
) |
8,575 |
| ||||
Income tax expense |
|
2,797 |
|
|
|
265 |
(l) |
3,062 |
| ||||
Net income |
|
$ |
5,607 |
|
$ |
1,208 |
|
$ |
(1,302 |
) |
$ |
5,513 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic income per common share |
|
$ |
0.48 |
|
|
|
|
|
$ |
0.47 |
| ||
|
|
|
|
|
|
|
|
|
| ||||
Diluted income per common share |
|
$ |
0.47 |
|
|
|
|
|
$ |
0.46 |
| ||
|
|
|
|
|
|
|
|
|
| ||||
Weighted average basic shares outstanding |
|
11,642 |
|
|
|
|
|
11,642 |
| ||||
Weighted average diluted shares outstanding |
|
11,926 |
|
|
|
|
|
11,926 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
EVOLVING SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
For the Six Months Ended June 30, 2015
(in thousands except per share data)
(unaudited)
|
|
As Reported |
|
RateIntegration, |
|
Pro Forma |
|
Pro Forma |
| ||||
REVENUE |
|
|
|
|
|
|
|
|
| ||||
License fees and services |
|
$ |
7,949 |
|
$ |
2,321 |
|
$ |
|
|
$ |
10,270 |
|
Customer support |
|
4,782 |
|
647 |
|
|
|
5,429 |
| ||||
Total revenue |
|
12,731 |
|
2,968 |
|
|
|
15,699 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
COSTS OF REVENUE AND OPERATING EXPENSES |
|
|
|
|
|
|
|
|
| ||||
Costs of license fees and services, excluding depreciation and amortization |
|
2,415 |
|
660 |
|
|
|
3,075 |
| ||||
Costs of customer support, excluding depreciation and amortization |
|
720 |
|
212 |
|
|
|
932 |
| ||||
Sales and marketing |
|
3,099 |
|
390 |
|
|
|
3,489 |
| ||||
General and administrative |
|
1,933 |
|
392 |
|
|
|
2,325 |
| ||||
Product development |
|
1,974 |
|
416 |
|
|
|
2,390 |
| ||||
Depreciation |
|
180 |
|
2 |
|
|
|
182 |
| ||||
Amortization |
|
47 |
|
19 |
|
332 |
(j) |
|
| ||||
|
|
|
|
|
|
(19 |
)(m) |
379 |
| ||||
Total costs of revenue and operating expenses |
|
10,368 |
|
2,091 |
|
313 |
|
12,772 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income from operations |
|
2,363 |
|
877 |
|
(313 |
) |
2,927 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other income (expense) |
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
9 |
|
5 |
|
|
|
14 |
| ||||
Interest expense |
|
(6 |
) |
(3 |
) |
(206 |
)(k) |
(215 |
) | ||||
Foreign currency exchange gain (loss) |
|
26 |
|
(26 |
) |
|
|
0 |
| ||||
Other income (expense), net |
|
29 |
|
(24 |
) |
(206 |
) |
(201 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
|
2,392 |
|
853 |
|
(519 |
) |
2,726 |
| ||||
Income tax benefit |
|
752 |
|
|
|
203 |
(l) |
955 |
| ||||
Net income |
|
$ |
1,640 |
|
$ |
853 |
|
$ |
(722 |
) |
$ |
1,771 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic income per common share |
|
$ |
0.14 |
|
|
|
|
|
$ |
0.15 |
| ||
|
|
|
|
|
|
|
|
|
| ||||
Diluted income per common share |
|
$ |
0.14 |
|
|
|
|
|
$ |
0.15 |
| ||
|
|
|
|
|
|
|
|
|
| ||||
Weighted average basic shares outstanding |
|
11,672 |
|
|
|
|
|
11,672 |
| ||||
Weighted average diluted shares outstanding |
|
11,943 |
|
|
|
|
|
11,943 |
|
The accompanying notes are an integral part of these condensed combined consolidated financial statements.
EVOLVING SYSTEMS, INC.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
NOTE 1 BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma balance sheet as of June 30, 2015 combines Evolving Systems historical condensed balance sheet derived from the unaudited condensed consolidated financial statements from its Quarterly Report on Form 10-Q as of and for the six months ended June 30, 2015 with the historical unaudited condensed consolidated interim balance sheet of RateIntegration, Inc. for the same period and has been prepared as if Evolving Systems acquisition of RateIntegration had occurred on June 30, 2015. The unaudited pro forma statements of operations for the six months ended June 30, 2015 and for the year ended December 31, 2014 were derived from the unaudited condensed consolidated financial statements from Evolving Systems Quarterly Report on Form 10-Q for the six months ended June 30, 2015 and the audited consolidated financial statements from Evolving Systems Annual Report on Form 10-K for the year ended December 31, 2014, respectively, with the historical consolidated statements of operations for RateIntegration for the same periods and has been prepared as if our acquisition had occurred on January 1, 2014.
RateIntegrations audited historical consolidated financial statements for the year ended December 31, 2014 and unaudited condensed consolidated financial statements for the six months ended June 30, 2015 are included in this Current Report on Form 8-K/A. These statements should be read in conjunction with such historical financial statements. The historical financial information is adjusted in the unaudited pro forma financial statements to give effect to pro forma adjustments that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the pro forma statements of operations, expected to have a continuing impact on the combined results.
We have accounted for the acquisition of RateIntegration under the acquisition method of accounting in accordance with the authoritative guidance on business combinations. The accounting for the acquisition of RateIntegration was based on a preliminary valuation of the assets acquired and liabilities assumed and is subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed become available. The final allocation may include changes to the amount of intangible assets, goodwill, deferred taxes, accounts receivable and other current liabilities as well as other items. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could be material. Additionally, the differences, if any, could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and our future results of operation and financial position.
The unaudited pro forma financial statements are presented solely for informational purposes and are not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company.
The unaudited pro forma financial statements do not reflect any cost savings from future operating synergies or integration activities, or any revenue, tax, or other synergies that could result from the acquisition.
NOTE 2 ACQUISITION
On September 30, 2015 we acquired privately held RateIntegration, Inc. d/b/a Sixth Sense Media (RateIntegration), now known as Evolving Systems NC, Inc. for an initial payment of approximately $9.75 million and a $0.5 million working capital adjustment. We also agreed to make a payment on the one year anniversary of the transaction of $0.3 million, with such payment being available to secure RateIntegrations representations and warranties in the agreement.
We accounted for this business combination by applying the acquisition method, and accordingly, the purchase price was allocated to the assets and liabilities assumed based upon their fair values at the acquisition date. The excess of the purchase price over the net assets and liabilities, approximately $6.9 million, was recorded as goodwill. The Company is in the process of finalizing the purchase allocation, thus the provisional measures of deferred income taxes, intangibles and goodwill are subject to change. The Company expects the purchase price allocation will be finalized in 2016. The results of RateIntegrations operations have been included in the consolidated financial statements since the acquisition date.
We believe this acquisition complements our activation and SIM management products. Combining RateIntegrations real-time analytics and campaign capabilities with our DSA and MDE solutions will allow the company to offer global wireless carriers solutions that utilize the highly valuable contextual data captured from the subscribers initial welcome experience via DSA, their network usage via RLM and their on-device app usage via MDE. The combined solutions will create a highly personalized experience that engages subscribers in real time from the first time subscribers power on their new devices right through their day-to-day usage.
Our strategic focus is primarily on the wireless markets in the areas of subscriber activation, SIM card management and activation, selfservice mobile applications, data enablement solutions, connected device activation, mobile marketing campaigns, advertising and analytics and management of services.
Total purchase price is summarized as follows (in thousands):
|
|
September 30, 2015 |
| |
Cash Consideration |
|
|
| |
Initial Cash Purchase Price |
|
$ |
9,750 |
|
Cash/Working Capital Adjustment |
|
535 |
| |
Total Cash Consideration |
|
$ |
10,285 |
|
|
|
|
| |
Assumed Liabilities |
|
250 |
| |
Total purchase price |
|
$ |
10,535 |
|
The following table summarizes the preliminary estimated fair values of the assets and liabilities assumed at the acquisition date (in thousands):
|
|
September 30, 2015 |
| |
Cash and cash equivalents |
|
$ |
1,521 |
|
Contract receivables |
|
1,057 |
| |
Unbilled work-in-progress |
|
89 |
| |
Intangible assets |
|
4,642 |
| |
Prepaid and other current assets |
|
68 |
| |
Other assets, non-current |
|
32 |
| |
Total identifiable assets acquired |
|
$ |
7,409 |
|
|
|
|
| |
Accounts payable and accrued liabilities |
|
$ |
1,506 |
|
Deferred tax liability |
|
1,760 |
| |
Deferred revenue |
|
557 |
| |
Total identifiable liabilities acquired |
|
$ |
3,823 |
|
|
|
|
| |
Net identifiable assets acquired |
|
3,586 |
| |
|
|
|
| |
Goodwill |
|
6,949 |
| |
Net assets acquired |
|
$ |
10,535 |
|
We recorded $4.6 million in intangible assets as of the acquisition date with a weighted-average amortization period of approximately seven years and are amortizing the value of the trade name, technology, non-competition and customer relationships over an estimated useful life of 2, 8, 2 and 7 years, respectively. No amortization expense related to the acquired intangible assets was recorded during the period ended September 30, 2015.
The $5.4 million of goodwill was assigned to the license and service segment and $1.5 million was assigned to the customer support segment. The goodwill recognized is attributed primarily to expected synergies and the assembled workforce of RateIntegration. As of the date of this report there were no changes in the recognized amounts of goodwill resulting from the acquisition of RateIntegration.
Intangible assets related to the acquisition as of September 30, 2015 (in thousands):
|
|
September 30, 2015 |
| |||||||||
|
|
Gross Amount |
|
Accumulated |
|
Net Carrying |
|
Weighted- |
| |||
Purchased software |
|
$ |
1,679 |
|
$ |
|
|
$ |
1,679 |
|
8 yrs |
|
Trademarks and tradenames |
|
122 |
|
|
|
122 |
|
2 yrs |
| |||
Non-competition |
|
33 |
|
|
|
33 |
|
2 yrs |
| |||
Customer relationships |
|
2,808 |
|
|
|
2,808 |
|
7 yrs |
| |||
|
|
$ |
4,642 |
|
$ |
|
|
$ |
4,642 |
|
7.19 yrs |
|
NOTE 3 PRO FORMA ADJUSTMENTS
The following is a description of the pro forma adjustments to the unaudited pro forma condensed combined balance sheets and statements of operations. These adjustments are based on preliminary estimates which are subject to change as management finalizes its valuations or obtains additional information.
(a) |
- |
To record cash paid related to the acquisition |
(b) |
- |
To record borrowing on revolving line of credit |
(c) |
- |
To record seller financed note payable |
(d) |
- |
To record the contractual purchase price adjustment based on the working capital |
(e) |
- |
To record the estimated cash dividend paid subsequent to the balance sheet date |
(f) |
- |
To record goodwill, intangible assets and deferred income taxes associated with RateIntegration |
(g) |
- |
To remove prior intangible assets |
(h) |
- |
To accrue for estimated professional fees related to the acquisition |
(i) |
- |
To record working capital acquired in the transaction |
(j) |
- |
To record estimated amortization expense related to identifiable intangible assets |
(k) |
- |
To record interest expense on the revolver which was borrowed in conjunction with the acquisition |
(l) |
- |
To reflect a standard rate of corporation tax on RateIntegrations earnings |
(m) |
- |
To reverse amortization of prior intangible assets |