10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2015

OR

oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from               to               

Commission File Number: 001-34261

EVOLVING SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	84-1010843
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
9777 Pyramid Court, Suite 100 Englewood, Colorado	80112
(Address of principal executive offices)	(Zip Code)

(303) 802-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting companyx
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of April 30, 2015 there were 11,674,397 shares outstanding of Registrant’s Common Stock (par value $0.001 per share).

EVOLVING SYSTEMS, INC.

Quarterly Report on Form 10-Q

March 31, 2015

Table of Contents

PART I — FINANCIAL INFORMATION
Item 1	Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 (Unaudited)
	Condensed Consolidated Statements of Income for the Three months Ended March 31, 2015 and 2014 (Unaudited)
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three months Ended March 31, 2015 and 2014 (Unaudited)
	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three months Ended March 31, 2015 (Unaudited)
	Condensed Consolidated Statements of Cash Flows for the Three months Ended March 31, 2015 and 2014 (Unaudited)
	Notes to Unaudited Condensed Consolidated Financial Statements
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3	Quantitative and Qualitative Disclosures About Market Risk
Item 4	Controls and Procedures
PART II — OTHER INFORMATION
Item 1	Legal Proceedings
Item 1A	Risk Factors
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3	Defaults upon Senior Securities
Item 4	Mine Safety Disclosures
Item 5	Other Information
Item 6	Exhibits
Signature

2

PART I — FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except share data)

(unaudited)

	March 31,			December 31,
	2015			2014
ASSETS
Current assets:
Cash and cash equivalents	$	11,038		$	9,781
Contract receivables, net of allowance for doubtful accounts of $41 and $43 at March 31, 2015 and December 31, 2014, respectively	5,232			9,182
Unbilled work-in-progress, net of allowance of $306 at March 31, 2015 and December 31, 2014	6,147			4,995
Deferred income taxes	79			80
Prepaid and other current assets	1,275			1,331
Total current assets	23,771			25,369
Property and equipment, net	626			659
Amortizable intangible assets, net	584			608
Goodwill	16,183			17,010
Long-term deferred income taxes	582			586
Total assets	$	41,746		$	44,232
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capital lease obligations	$	5		$	5
Accounts payable and accrued liabilities	3,387			4,460
Income taxes payable	532			1,227
Unearned revenue	4,834			3,883
Total current liabilities	8,758			9,575
Long-term liabilities:
Capital lease obligations, net of current portion	5			7
Contingent earn-out obligation	178			178
Long-term unearned revenue	270			420
Total liabilities	9,211			10,180
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized; no shares issued and outstanding as of March 31, 2015 and December 31, 2014	—			—
Common stock, $0.001 par value; 40,000,000 shares authorized; 11,850,356 shares issued and 11,671,467 outstanding as of March 31, 2015 and 11,843,564 shares issued and 11,664,675 outstanding as of December 31, 2014	12			12
Additional paid-in capital	96,199			96,005
Treasury stock 178,889 shares as of March 31, 2015 and December 31, 2014, at cost	(1,253		)	(1,253		)
Accumulated other comprehensive loss	(5,830		)	(4,534		)
Accumulated deficit	(56,593		)	(56,178		)
Total stockholders’ equity	32,535			34,052
Total liabilities and stockholders’ equity	$	41,746		$	44,232

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands except per share data)

(unaudited)

	For the Three Months Ended March 31,
	2015			2014
REVENUE
License fees and services	$	4,339		$	4,367
Customer support	2,321			2,215
Total revenue	6,660			6,582
COSTS OF REVENUE AND OPERATING EXPENSES
Costs of license fees and services, excluding depreciation and amortization	1,225			1,478
Costs of customer support, excluding depreciation and amortization	388			420
Sales and marketing	1,584			1,660
General and administrative	907			834
Product development	1,014			883
Depreciation	96			46
Amortization	24			23
Restructuring	—			211
Total costs of revenue and operating expenses	5,238			5,555
Income from operations	1,422			1,027
Other income (expense)
Interest income	5			3
Interest expense	(3		)	(5		)
Foreign currency exchange loss	(125		)	(96		)
Other (expense) income, net	(123		)	(98		)
Income from operations before income taxes	1,299			929
Income tax expense	439			278
Net income	$	860		$	651
Basic income per common share	$	0.07		$	0.06
Diluted income per common share	$	0.07		$	0.05
Cash dividend declared per common share	$	0.11		$	0.10
Weighted average basic shares outstanding	11,668			11,621
Weighted average diluted shares outstanding	11,938			11,917

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands except per share data)

(unaudited)

	For the Three Months Ended March 31,
	2015			2014
Net income	$	860		$	651
Other comprehensive income (loss):
Foreign currency translation gain (loss)	(1,296		)	311
Other comprehensive income (loss)	(1,296		)	311
Comprehensive income (loss)	$	(436	)	$	962

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

									Accumulated
				Additional					Other						Total
	Common Stock			Paid-in		Treasury			Comprehensive			Accumulated			Stockholders’
	Shares	Amount		Capital		Stock			Loss			(Deficit)			Equity
Balance at December 31, 2014	11,664,675	$	12	$	96,005	$	(1,253	)	$	(4,534	)	$	(56,178	)	$	34,052
Stock option exercises	5,062	—		6		—			—			—			6
Common Stock issued pursuant to the Employee Stock Purchase Plan	1,730	—		13		—			—			—			13
Stock-based compensation expense	—	—		89		—			—			—			89
Excess tax benefits from stock-based compensation	—	—		86		—			—			—			86
Common stock cash dividends	—	—		—		—			—			(1,275		)	(1,275		)
Net income	—	—		—		—			—			860			860
Foreign currency translation adjustment	—	—		—		—			(1,296		)	—			(1,296		)
Balance at March 31, 2015	11,671,467	$	12	$	96,199	$	(1,253	)	$	(5,830	)	$	(56,593	)	$	32,535

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the Three Months Ended March 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	860		$	651
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	96			46
Amortization of intangible assets	24			23
Amortization of debt issuance costs	2			4
Stock based compensation	89			88
Unrealized foreign currency transaction losses, net	125			96
Provision for deferred income taxes	2			54
Change in operating assets and liabilities:
Contract receivables	3,654			474
Unbilled work-in-progress	(1,385		)	(737		)
Prepaid and other assets	37			44
Accounts payable and accrued liabilities	(1,646		)	(758		)
Unearned revenue	977			(308		)
Net cash provided by (used in) operating activities	2,835			(323		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(71		)	(90		)
Net cash used in investing activities	(71		)	(90		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital lease payments	(1		)	(3		)
Common stock cash dividends	(1,275		)	(1,163		)
Excess tax benefits from stock-based compensation	86			11
Proceeds from the issuance of stock	19			110
Net cash used in financing activities	(1,171		)	(1,045		)
Effect of exchange rate changes on cash	(336		)	79
Net (decrease) increase in cash and cash equivalents	1,257			(1,379		)
Cash and cash equivalents at beginning of period	9,781			13,785
Cash and cash equivalents at end of period	$	11,038		$	12,406
Supplemental disclosure of cash and non-cash transactions:
Income taxes paid	$	722		$	33
Issuance of common stock related to acquisition	—			19

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

EVOLVING SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

Organization — We are a provider of software solutions and services to the wireless, wireline and cable markets. We maintain long-standing relationships with many of the largest wireless, wireline and cable companies worldwide. Our customers rely on us to develop, deploy, enhance, maintain and integrate complex, highly reliable software solutions for a range of Operations Support Systems (“OSS”).  We offer software products and solutions focused on activation and provisioning: our service activation solution, TertioTM (“TSA”) used to activate complex bundles of voice, video and data services for traditional and next generation wireless and wireline networks; our SIM card activation solution, Dynamic SIM Allocation TM (“DSA”) used to dynamically allocate and assign resources to wireless devices that rely on SIM cards; our cloud-based (SaaS) service activation, self—service mobile applications and data enablement solutions to wireless carriers and Mobile Virtual Network Operators (MVNOs); our connected devices activation solution, Intelligent M2M Controller that supports the activation of M2M devices with intermittent or infrequent usage patterns; and our number inventory solution, Total Number Management™, (TNM) a scalable and fully automated solution that enables operators to reliably and efficiently manage their telephone numbers (i.e. SIMs, MSISDNs, IMSIs, ICCIDs, IPs) as well as other communication identifiers such as URLs and email addresses.

Interim Consolidated Financial Statements — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the three months ended March 31, 2015 are not necessarily indicative of the results that we will have for any subsequent period.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2014 included in our Annual Report on Form 10-K.

Use of Estimates — The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We made estimates with respect to revenue recognition for estimated hours to complete projects accounted for using the percentage-of-completion method, allowance for doubtful accounts, income tax valuation allowance, fair values of long-lived assets, valuation of intangible assets and goodwill, useful lives for property, equipment and intangible assets, business combinations, capitalization of internal software development costs and fair value of stock-based compensation amounts.  Actual results could differ from these estimates.

Foreign Currency — Our functional currency is the U.S. dollar.  The functional currency of our foreign operations is the respective local currency for each foreign subsidiary.  Assets and liabilities of foreign operations denominated in local currencies are translated at the spot rate in effect at the applicable reporting date.  Our consolidated statements of operations are translated at the weighted average rate of exchange during the applicable period.  The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other comprehensive loss in stockholders’ equity.  Realized and unrealized transaction gains and losses generated by transactions denominated in a currency different from the functional currency of the applicable entity are recorded in other income (expense) in the consolidated statements of operations in the period in which they occur.

Principles of Consolidation — The consolidated financial statements include the accounts of Evolving Systems, Inc. and subsidiaries, all of which are wholly owned.  All significant intercompany transactions and balances have been eliminated in consolidation.

Goodwill — Goodwill is the excess of acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired.  Goodwill is not amortized, but tested for impairment annually or whenever indicators of impairment exist. These indicators may include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit.

Intangible Assets — Amortizable intangible assets consist primarily of purchased software and licenses, customer contracts and relationships, trademarks and tradenames, and business partnerships acquired in conjunction with our purchase of Telespree

8

Communications (“Evolving Systems Labs, Inc.”).  These assets are amortized using the straight-line method over their estimated lives.

We assess the impairment of identifiable intangibles if events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.  If we determine that the carrying value of intangibles and/or long-lived assets may not be recoverable, we compare the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition to the asset’s carrying amount. If an amortizable intangible or long-lived asset is not deemed to be recoverable, we recognize an impairment loss representing the excess of the asset’s carrying value over its estimated fair value.

Fair Value Measurements — Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Cash and Cash Equivalents — All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents.

Revenue Recognition — We recognize revenue when an agreement is signed, the fee is fixed or determinable and collectability is reasonably assured. We recognize revenue from two primary sources: license fees and services, and customer support.   The majority of our license fees and services revenue is generated from fixed-price contracts, which provide for licenses to our software products and services to customize such software to meet our customers’ use.  When the customization services are determined to be essential to the functionality of the delivered software, we recognize revenue using the percentage-of-completion method of accounting. In these types of arrangements, we do not typically have Vendor Specific Objective Evidence (“VSOE”) of fair value on the license fee/services portion (services are related to customizing the software) of the arrangement due to the large amount of customization required by our customers; however, we do have VSOE for the warranty/maintenance services based on the renewal rate of the first year of maintenance in the arrangement. The license/services portion is recognized using the percentage-of-completion method of accounting and the warranty/maintenance services are separated based on the renewal rate in the contract and recognized ratably over the warranty or maintenance period. We estimate the percentage-of-completion for each contract based on the ratio of direct labor hours incurred to total estimated direct labor hours and recognize revenue based on the percent complete multiplied by the contract amount allocated to the license fee/services.  Since estimated direct labor hours, and changes thereto, can have a significant impact on revenue recognition, these estimates are critical and we review them regularly. If the arrangement includes a customer acceptance provision, the hours to complete the acceptance testing are included in the total estimated direct labor hours; therefore, the related revenue is recognized as the acceptance testing is performed. Revenue is not recognized in full until the customer has provided proof of acceptance on the arrangement.  Generally, our contracts are accounted for individually. However, when certain criteria are met, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts. We record amounts billed in advance of services being performed as unearned revenue. Unbilled work-in-progress represents revenue earned but not yet billable under the terms of the fixed-price contracts. All such amounts are expected to be billed and collected within 12 months.

We may encounter budget and schedule changes or increases on fixed-price contracts caused by increased labor or overhead costs. We make adjustments to cost estimates in the period in which the facts requiring such revisions become known. We record estimated losses, if any, in the period in which current estimates of total contract revenue and contract costs indicate a loss. If revisions to cost estimates are obtained after the balance sheet date but before the issuance of the interim or annual financial statements, we make adjustments to the interim or annual financial statements accordingly.

In arrangements where the services are not essential to the functionality of the delivered software, we recognize license revenue when a license agreement has been signed, delivery and acceptance have occurred, the fee is fixed or determinable and collectability is reasonably assured. Where applicable, we unbundle and record as revenue fees from multiple element arrangements as the elements are delivered to the extent that VSOE of fair value of the undelivered elements exist. If VSOE for the undelivered elements does not exist, we defer fees from such arrangements until the earlier of the date that VSOE does exist on the undelivered elements or all of the elements have been delivered.

We recognize revenue from fixed-price service contracts using the proportional performance method of accounting, which is similar to the percentage-of-completion method described above. We recognize revenue from professional services provided pursuant

9

to time-and-materials based contracts and training services as the services are performed, as that is when our obligation to our customers under such arrangements is fulfilled.

We recognize revenue from our Mobile Data Enablement (“MDE”) contracts based on the number of transactions per month multiplied by a factor based on a unique table for transaction volumes relating to each account.

We recognize customer support, including maintenance revenue, ratably over the service contract period. When maintenance is bundled with the original license fee arrangement, its fair value, based upon VSOE, is deferred and recognized during the periods when services are provided.

Stock-based Compensation — We account for stock-based compensation by applying a fair-value-based measurement method to account for share-based payment transactions with employees and directors. We record compensation costs associated with the vesting of unvested options on a straight-line basis over the vesting period.  Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of our common stock instead of settling such obligations with cash payments.    We use the Black-Scholes model to estimate the fair value of each option grant on the date of grant.  This model requires the use of estimates for expected term of the options and expected volatility of the price of our common stock.

Comprehensive Income (Loss) — Comprehensive income (loss) consists of two components, net income and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency.

Income Taxes — We record deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying condensed consolidated balance sheets, as well as operating loss and tax credit carry-forwards. We measure deferred tax assets and liabilities using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled.  We reduce deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that these benefits will not be realized.

We use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.  For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

Recent Accounting Pronouncements — In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” Topic 606.  This Update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance in this Update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to illustrate the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a reporting organization’s contracts with customers. This ASU is effective retrospectively for fiscal years, and interim periods within those years beginning after December 15, 2016 for public companies and 2017 for non-public entities, however the FASB has proposed deferral of the effective date by one year. We do not expect the adoption of this standard to have a significant impact on the Company’s financial position and results of operations.

NOTE 2 — GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill by reporting unit were as follows (in thousands):

	License and Services					Customer Support			Total
	U.S.		U.K.			U.K.			Goodwill
Balance as of December 31, 2014	$	1,097	$	7,118		$	8,795		$	17,010
Effects of changes in foreign currency exchange rates (1)	—		(370		)	(457		)	(827		)
Balance at March 31, 2015	$	1,097	$	6,748		$	8,338		$	16,183

10

(1)Represents the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. Goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income.

We conducted our annual goodwill impairment test as of July 31, 2014, and we determined that goodwill was not impaired as of the test date. From July 31, 2014 through the date of this report, no events have occurred that we believe may have impaired goodwill.

We amortized identifiable intangible assets on a straight-line basis over their estimated lives ranging from one to seven years and include the cumulative effects of foreign currency exchange rates.  As of March 31, 2015 and December 31, 2014, identifiable intangibles were as follows (in thousands):

	March 31, 2015						December 31, 2014						Weighted-
	Gross Amount		Accumulated Amortization		Net Carrying Amount		Gross Amount		Accumulated Amortization		Net Carrying Amount		Average Amortization Period
Purchased software	$	439	$	78	$	361	$	439	$	64	$	375	4.6 yrs
Trademarks and tradenames	63		18		45		63		15		48		3.8 yrs
Customer relationships	216		38		178		216		31		185		4.6 yrs
	$	718	$	134	$	584	$	718	$	110	$	608	4.5 yrs

Amortization expense of identifiable intangible assets was $24,000 and $23,000 for the three months ended March 31, 2015 and 2014, respectively.  Expected future amortization expense related to identifiable intangibles based on our carrying amount as of March 31, 2015 was as follows (in thousands):

Twelve months ending March 31,
2016	$	94
2017	94
2018	94
2019	89
2020	82
Thereafter	131
	$	584

NOTE 3 — EARNINGS PER COMMON SHARE

We compute basic earnings per share (“EPS”) by dividing net income or loss available to common stockholders by the weighted average number of shares outstanding during the period, including common stock issuable under participating securities. We compute diluted EPS using the weighted average number of shares outstanding, including participating securities, plus all potentially dilutive common stock equivalents. Common stock equivalents consist of stock options.

Our policy is to treat unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, as participating securities, included in the computation of both basic and diluted earnings per share.  The following is the reconciliation of the denominator of the basic and diluted EPS computations (in thousands, except per share data):

	For the Three Months Ended March 31,
	2015		2014
Basic income per share:
Net income available to common stockholders	$	860	$	651
Basic weighted average shares outstanding	11,668		11,621
Basic income per share:	$	0.07	$	0.06
Diluted income per share:
Net income available to common stockholders	$	860	$	651
Weighted average shares outstanding	11,668		11,621
Effect of dilutive securities - options	270		296
Diluted weighted average shares outstanding	11,938		11,917
Diluted income per share:	$	0.07	$	0.05

11

For the three months ended March 31, 2015 and 2014, 0.3 million and 0.1 million shares, respectively, of common stock were excluded from the dilutive stock calculation because their exercise prices were greater than the average fair value of our common stock for the period.

NOTE 4 — SHARE-BASED COMPENSATION

We account for stock-based compensation by applying a fair-value-based measurement method to account for share-based payment transactions with employees and directors, and record compensation cost for all stock awards granted after January 1, 2006 and awards modified, repurchased, or cancelled after that date, using the modified prospective method. We record compensation costs associated with the vesting of unvested options on a straight-line basis over the vesting period. We recognized $0.1 million of compensation expense in the consolidated statements of operations, with respect to our stock-based compensation plans for the three months ended March 31, 2015 and 2014.  The following table summarizes stock-based compensation expenses recorded in the consolidated statement of operations (in thousands):

	For the Three Months Ended March 31,
	2015		2014
Cost of license fees and services, excluding depreciation and amortization	$	22	$	16
Cost of customer support, excluding depreciation and amortization	2		2
Sales and marketing	7		11
General and administrative	24		42
Product development	34		17
Total share based compensation	$	89	$	88

Stock Incentive Plans

In January 1996, our stockholders approved an Amended and Restated Stock Option Plan (the “Option Plan”).  Under the Option Plan, as amended, 4,175,000 shares were reserved for issuance.  Options issued under the Option Plan were at the discretion of the Board of Directors, including the vesting provisions of each stock option granted. Options were granted with an exercise price equal to the closing price of our common stock on the date of grant, generally vest over four years and expire no more than ten years from the date of grant. The Option Plan terminated on January 18, 2006; options granted before that date were not affected by the plan termination.  At March 31, 2015 and December 31, 2014, 0.1 million options remained outstanding under the Option Plan.

In June 2007, our stockholders approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) with a maximum of 1,000,000 shares reserved for issuance. In June 2010, our stockholders approved an amendment to the 2007 Stock Plan which increased the maximum shares that may be awarded under the plan to 1,250,000. In June 2013, our stockholders approved an amendment to the 2007 Stock Plan which increased the maximum shares that may be awarded under the plan to 1,502,209.  Awards permitted under the 2007 Stock Plan include:  Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards and Other Stock-Based Awards.  Awards issued under the 2007 Stock Plan are at the discretion of the Board of Directors.  As applicable, awards are granted with an exercise price equal to the closing price of our common stock on the date of grant, generally vest over four years for employees and one year for directors and expire no more than ten years from the date of grant.  At March 31, 2015, there were approximately 27,000 shares available for grant under the 2007 Stock Plan, as amended.  At March 31, 2015 and December 31, 2014, 0.6 million were issued and outstanding under the 2007 Stock Plan as amended, respectively.

12

During the three months ended March 31, 2015 and 2014, there were no grants of restricted stock to members of our senior management.  During the three months ended March 31, 2015 and 2014, 94 and 2,000 shares of restricted stock vested, respectively. No shares of restricted stock were forfeited during the three months ended March 31, 2015 and 2014.  The fair market value of restricted shares for share-based compensation expensing is equal to the closing price of our common stock on the date of grant.  Stock-based compensation expense includes $1,000 and $15,000 for the three months ended March 31, 2015 and 2014, respectively, of expense related to restricted stock grants. The restrictions on the stock awards are released quarterly, generally over two and four years for senior management and over one year for board members.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes model.  The Black-Scholes model uses four assumptions to calculate the fair value of each option grant.  The expected term of share options granted is derived using the simplified method, which we adopted in January 2008. The risk-free interest rate is based upon the rate currently available on zero-coupon U.S. Treasury instruments with a remaining term equal to the expected term of the stock options.  The expected volatility is based upon historical volatility of our common stock over a period equal to the expected term of the stock options.  The expected dividend yield is based upon historical and anticipated payment of dividends.  The weighted-average assumptions used in the fair value calculations are as follows:

	For the Three Months Ended March 31,
	2015		2014
Expected term (years)	6.0		5.9
Risk-free interest rate	1.30	%	1.69	%
Expected volatility	51.48	%	55.98	%
Expected dividend yield	4.95	%	3.90	%

The following is a summary of stock option activity under the plans for the three months ended March 31, 2015:

					Weighted-
					Average
			Weighted-		Remaining	Aggregate
	Number of		Average		Contractual	Intrinsic
	Shares		Exercise		Term	Value
	(in thousands)		Price		(Years)	(in thousands)
Options outstanding at December 31, 2014	630		$	4.94	5.69	$	2,959
Options granted	102		8.98
Less options forfeited	(1	)	10.90
Less options exercised	(5	)	1.22
Options outstanding at March 31, 2015	726		$	5.53	6.06	$	2,659
Options exercisable at March 31, 2015	501		$	3.87	4.69	$	2,580

There were 102,000 and 154,500 stock options granted during the three months ended March 31, 2015 and 2014, respectively.  The weighted-average grant-date fair value of stock options granted during the three months ended March 31, 2015 and 2014 was $2.78 and $3.90, respectively.  As of March 31, 2015, there was approximately $0.7 million of total unrecognized compensation costs related to unvested stock options.  These costs are expected to be recognized over a weighted average period of 3.01 years.  The total fair value of stock options vested during the three months ended March 31, 2015 and 2014 was approximately $0.2 million and $38,000, respectively.

The deferred income tax benefits from stock option expense related to Evolving Systems U.K. totaled approximately $4,000 for the three months ended March 31, 2015 and 2014.

13

Cash received from stock option exercises for the three months ended March 31, 2015 and 2014 was $6,000 and $0.1 million, respectively.

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (“ESPP”), we are authorized to issue up to 550,000 shares.  Employees may elect to have up to 15% of their gross compensation withheld through payroll deductions to purchase our common stock, capped at $25,000 annually and no more than 10,000 shares per offering period. The purchase price of the stock is 85% of the lower of the market price at the beginning or end of each three-month participation period. As of March 31, 2015, there were approximately 58,000 shares available for purchase.  For the three months ended March 31, 2015 and 2014, we recorded compensation expense of $5,000 and $7,000, respectively, associated with grants under the ESPP which includes the fair value of the look-back feature of each grant as well as the 15% discount on the purchase price.  This expense fluctuates each period primarily based on the level of employee participation.

The fair value of each purchase made under our ESPP is estimated on the date of purchase using the Black-Scholes model.  The Black-Scholes model uses four assumptions to calculate the fair value of each purchase.  The expected term of each purchase is based upon the three-month participation period of each offering.  The risk-free interest rate is based upon the rate currently available on zero-coupon U.S. Treasury instruments with a remaining term equal to the expected term of each offering.  The expected volatility is based upon historical volatility of our common stock.  The expected dividend yield is based upon historical and anticipated payment of dividends.  The weighted average assumptions used in the fair value calculations are as follows:

	For the Three Months Ended March 31,
	2015		2014
Expected term (years)	0.25		0.25
Risk-free interest rate	0.04	%	0.04	%
Expected volatility	35.60	%	43.24	%
Expected dividend yield	4.99	%	4.44	%

Cash received from employee stock plan purchases for the three months ended March 31, 2015 and 2014 was $22,000 and $26,000, respectively.

We issued shares related to the ESPP of approximately 3,000 for the three months ended March 31, 2015 and 2014.

NOTE 5 — CONCENTRATION OF CREDIT RISK

For the three months ended March 31, 2015, one significant customer (defined as contributing at least 10%) accounted for 10% of revenue from operations.  The significant customer for the three months ended March 31, 2015 is a large telecommunications operator in the United Kingdom.  For the three months ended March 31, 2014, two significant customers accounted for 28% (17% and 11%) of revenue from operations.  The significant customers for the three months ended March 31, 2014 are large telecommunications operators in Europe and Mexico.

As of March 31, 2015, one significant customer accounted for approximately 26% of contract receivables and unbilled work-in-progress.  This customer is a large telecommunication operator in Nigeria.  As of December 31, 2014, three significant customers accounted for approximately 55% (26%, 16% and 13%) of contract receivables and unbilled work-in-progress.  These customers are large telecommunications operators in Nigeria, Mexico and Europe.

NOTE 6 — LONG-TERM DEBT

On October 31, 2014, we renewed our $5.0 million Loan and Security Agreement (the “Revolving Facility”).  The $5.0 million Revolving Facility bears interest at the greater of 2.75% or the U.S.A. Prime Rate minus one half of one percent (0.5%).  Prime Rate was 3.25% as of March 31, 2015.  The Revolving Facility is secured by all assets of Evolving Systems, including a pledge, subject to certain limitations with respect to stock of foreign subsidiaries, of the stock of the existing and future direct subsidiaries of Evolving Systems.  There is no mandated borrowing required against the Revolving Facility.  To take an advance under the Revolving Facility, we must have a balance of $3.0 million in cash on deposit and have quarterly net income and a specified ratio of current assets to current liabilities, as defined in the Revolving Facility.  The Revolving Facility requires us to pay an annual credit facility fee of $10,000.  All accrued interest on outstanding borrowings under the Revolving Facility is paid monthly, with any outstanding balance due with a final maturity of October 22, 2016.  As of March 31, 2015, we are in compliance with the covenants and have $5.0

14

million available to borrow under this Revolving Facility.  We are evaluating the Company’s need and potential uses for the facility, in the course of managing the company’s ongoing liquidity requirements.

NOTE 7 — INCOME TAXES

We recorded net income tax expense of $0.4 million and $0.3 million for the three months ended March 31, 2015 and 2014, respectively.  The net expense during the three months ended March 31, 2015 consisted of current income tax expense of $0.4 million. The current tax expense consists of income tax from our U.S., U.K. and India based operations.  The net expense during the three months ended March 31, 2014 consisted of current income tax expense of $0.2 million and a deferred tax expense of $57,000. The current tax expense consists primarily of income tax from our U.S., U.K. and India based operations and unrecoverable foreign withholding taxes in the U.S. The deferred tax expense was primarily related to undistributed foreign earnings, a decrease in deferred tax assets related to accrued liabilities and capitalized expenses for tax purpose related to the acquisition of Evolving Systems Labs, Inc.

Our effective tax rate was 34% for the three months ended March 31, 2015 and 2014.

As of March 31, 2015 and December 31, 2014 we continued to maintain a valuation allowance on portions of our domestic net deferred tax asset.  Such assets primarily consist of certain state Net Operating Loss (“NOL”) carryforwards, research and development tax credits and Alternative Minimum Tax (“AMT”) credits.  The $0.7 million of net deferred tax assets as of March 31, 2015, were comprised of the following:

	March 31, 2015
Deferred tax assets:
Net operating loss carryforwards	$	495
Research & Development Credits	303
AMT credits	951
Stock Compensation	670
Depreciable assets	119
Intangibles	199
Accrued liabilities and reserves	528
Total deferred tax assets	3,265
Deferred tax liabilities
Undistributed Foreign Earnings	$	(855	)
Total deferred tax liability	(855		)
Net deferred tax assets, before valuation allowance	$	2,410
Valuation allowance	(1,749		)
Net deferred tax asset	$	661

We have unrecognized tax benefit NOL’s which are comprised of windfall tax benefits related to stock-based compensation.  Due to a recent adopted accounting pronouncement, Accounting Standards Update No. 2014-09, topic 740 “Income Tax”, these NOL’s were deducted from our NOL carryforwards and are not included in the above summarized net deferred tax asset.  When utilized, windfall tax benefits related to stock-based compensation are recorded as a reduction to our taxes payable when realized, with a corresponding credit to additional paid in capital, not income tax expense.

As of March 31, 2015 and December 31, 2014 we had no liability for unrecognized tax benefits.

We conduct business globally and, as a result, Evolving Systems, Inc. or one or more of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions.  In the normal course of business, we are subject to examination by taxing authorities throughout the world, namely the United Kingdom and India.

NOTE 8 — STOCKHOLDERS’ EQUITY

Common Stock Dividend

On March 17, 2015, our Board of Directors declared a first quarter cash dividend of $0.11 per share, payable March 31, 2015, to stockholders of record March 24, 2015.

15

Any determination to declare a future quarterly dividend, as well as the amount of any cash dividend which may be declared, will be based on our financial position, earnings, financial covenants to which we are subject, earnings outlook and other relevant factors at that time.

Certain Anti-Takeover Provisions/Agreements with Stockholders

Our restated certificate of incorporation allows the board of directors to issue up to 2,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by our stockholders. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. Issuance of preferred stock, while providing desired flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of our outstanding voting stock. As of March 31, 2015 and December 31, 2014, no shares of preferred stock were outstanding.

In addition, we are subject to the anti-takeover provisions of Section 203 of Delaware General Corporation Law which prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in the prescribed manner. The application of Section 203 may have the effect of delaying or preventing changes in control of our management, which could adversely affect the market price of our common stock by discouraging or preventing takeover attempts that might result in the payment of a premium price to our stockholders.

NOTE 9 — SEGMENT INFORMATION

We define operating segments as components of our enterprise for which separate financial information is reviewed regularly by the chief operating decision-makers to evaluate performance and to make operating decisions. We have identified our Chief Executive Officer and Vice President of Finance as our chief operating decision-makers (“CODM”). These chief operating decision makers review revenues by segment and review overall results of operations.

We currently operate our business as two operating segments based on revenue type:  license fees and services revenue, and customer support revenue (as shown on the consolidated statements of operations).  License fees and services (“L&S”) revenue represents the fees received from the license of software products and those services directly related to the delivery of the licensed products, such as fees for custom development and integration services.  Customer support (“CS”) revenue includes annual support fees, recurring maintenance fees, fees for maintenance upgrades and warranty services.  Warranty services that are similar to software maintenance services are typically bundled with a license sale. Total assets by segment have not been disclosed as the information is not available to the chief operating decision-makers.

Segment information is as follows (in thousands):

	For the Three Months Ended March 31,
	2015			2014
Revenue
License fees and services	$	4,339		$	4,367
Customer support	2,321			2,215
Total revenue	6,660			6,582
Revenue less costs of revenue, excluding depreciation and amortization
License fees and services	3,114			2,889
Customer support	1,933			1,795
	5,047			4,684
Unallocated Costs
Other operating expenses	3,505			3,377
Depreciation and amortization	120			69
Restructuring	—			211
Interest income	(5		)	(3		)
Interest expense	3			5
Foreign currency exchange loss	125			96
Income from operations before income taxes	$	1,299		$	929

16

Geographic Regions

We are headquartered in Englewood, a suburb of Denver, Colorado. We use customer locations as the basis for attributing revenues to individual countries. We provide products and services on a global basis through our headquarters, our London-based Evolving Systems U.K. subsidiary and our San Francisco-based Evolving Systems Labs, Inc. subsidiary. Additionally, personnel in Bangalore, India provide software development services to our global operations. Financial information relating to operations by geographic region is as follows (in thousands):

	For the Three Months Ended March 31,
	2015						2014
	L&S		CS		Total		L&S		CS		Total
Revenue
United Kingdom	$	538	$	491	$	1,029	$	1,098	$	500	$	1,598
India	643		79		722		126		—		126
Nigeria	112		119		231		631		91		722
Mexico	316		117		433		588		114		702
Other	2,730		1,515		4,245		1,924		1,510		3,434
Total revenues	$	4,339	$	2,321	$	6,660	$	4,367	$	2,215	$	6,582

	March 31,		December 31,
	2015		2014
Long-lived assets, net
United States	$	1,967	$	1,998
United Kingdom	15,259		16,091
Other	167		188
	$	17,393	$	18,277

NOTE 10 — COMMITMENTS AND CONTINGENCIES

(a)Other Commitments

As permitted under Delaware law, we have agreements with officers and directors under which we agree to indemnify them for certain events or occurrences while the officer or director is, or was, serving at our request in this capacity. The term of the indemnification period is indefinite. There is no limit on the amount of future payments we could be required to make under these indemnification agreements; however, we maintain Director and Officer insurance policies, as well as an Employment Practices Liability Insurance Policy, that may enable us to recover a portion of any amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, there were no liabilities recorded for these agreements as of March 31, 2015 or December 31, 2014.

We enter into standard indemnification terms with customers and suppliers, in the ordinary course of business, for third party claims arising under our contracts. In addition, as we may subcontract the development of deliverables under customer contracts, we could be required to indemnify customers for work performed by subcontractors. Depending upon the nature of the indemnification, the potential amount of future payments we could be required to make under these indemnification agreements may be unlimited. We may be able to recover damages from a subcontractor or other supplier if the indemnification results from the subcontractor’s or supplier’s failure to perform. To the extent we are unable to recover damages from a subcontractor or other supplier, we could be required to reimburse the indemnified party for the full amount. We have never incurred costs to defend lawsuits or settle claims relating to an indemnification. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, there were no liabilities recorded for these agreements as of March 31, 2015 or December 31, 2014.

17

Our standard license agreements contain product warranties that the software will be free of material defects and will operate in accordance with the stated requirements for a limited period of time.  The product warranty provisions require us to cure any defects through any reasonable means.  We believe the estimated fair value of the product warranty provisions in the license agreements in place with our customers is minimal.  Accordingly, there were no liabilities recorded for these product warranty provisions as of March 31, 2015 or December 31, 2014.

Our software arrangements generally include a product indemnification provision whereby we will indemnify and defend a customer in actions brought against the customer for claims that our products infringe upon a copyright, trade secret, or valid patent of a third party. We have not historically incurred any significant costs related to product indemnification claims. Accordingly, there were no liabilities recorded for these indemnification provisions as of March 31, 2015 or December 31, 2014.

(b)Litigation

From time to time, we are involved in various legal matters arising in the normal course of business.  We do not expect the outcome of such proceedings, either individually or in the aggregate, to have a material effect on our financial position, cash flows or results of operations.

NOTE 11 — RESTRUCTURING

During the first quarter of 2014, we undertook a reduction in workforce involving the termination of employees resulting in an expense of $0.2 million primarily related to severance for the affected employees. The reduction in workforce was related to the consolidations of duplicative functions and alignment of staff with ongoing business activity as a result of the acquisition of Evolving Systems Labs, Inc. in the fourth quarter of 2013.  There was no restructuring expense for the three months ended March 31, 2015.

There was no restructuring liability as of March 31, 2015 or December 31, 2014.

NOTE 12 — SUBSEQUENT EVENTS

On May 5, 2015, our Board of Directors declared a second quarter cash dividend of $0.11 per share, payable May 29, 2015, to stockholders of record May 22, 2015.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are based on current expectations, estimates, and projections about Evolving Systems’ industry, management’s beliefs, and certain assumptions made by management.  Forward-looking statements include our expectations regarding product, services, and maintenance revenue, annual savings associated with the organizational changes effected in prior years, and short- and long-term cash needs.  In some cases, words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “estimates,” variations of these words, and similar expressions are intended to identify forward-looking statements.  The statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any forward-looking statements.  Risks and uncertainties of our business include those set forth in our Annual Report on Form 10-K for the year ended December 31, 2014 under “Item 1A. Risk Factors” as well as additional risks described in this Form 10-Q.  Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.  However, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

OVERVIEW

We are a provider of software solutions and services to the wireless, wireline and cable markets. We maintain long-standing relationships with many of the largest network operators worldwide. Our customers rely on us to develop, deploy, enhance, maintain and integrate complex, highly reliable software solutions for a range of OSS.  We offer software products and solutions focused on activation and provisioning: our service activation solution, TSA is used to activate complex bundles of voice, video and data services

18

for traditional and next generation wireless and wireline networks; our SIM card activation solution, DSA, is used to dynamically allocate and assign resources to wireless devices that rely on SIM cards, and our connected devices activation solutions, DataSpreeSM and IMC, supports the activation of M2M devices.  TNM focuses on the automation of all number resource management processes, allowing operators to adhere to regulatory requirements and effectively manage the lifecycle of telephone numbers, as well as benefit from time savings and reduced costs.

We recognize revenue in accordance with the prescribed accounting standards for software revenue recognition under generally accepted accounting principles.  Our license fees and services revenues fluctuate from period to period as a result of the timing of revenue recognition on existing projects.

RECENT DEVELOPMENTS

Consolidated revenue increased to $6.7 million from $6.6 million for three months ended March 31, 2015 and 2014, respectively.  The increase in revenue is due to increased DSA license and services and customer support revenue offset by lower TSA license and services and customer support revenue.

Our twelve month backlog decreased to $10.4 million as of March 31, 2015, compared to $13.1 million as of March 31, 2014 due primarily to a lower DSA and TSA balances.

We have operations in foreign countries where the local currency is used to prepare the financial statements which are translated into our reporting currency, U.S. Dollars. Changes in the exchange rates between these currencies and our reporting currency are partially responsible for some of the changes from period to period in our financial statement amounts. The chart below summarizes how our revenue and expenses would change had they been reported on a constant currency basis. The constant currency basis assumes that the exchange rate was constant for the periods presented (in thousands).

	For the Three Months Ended March 31,
	2015 vs. 2014
Revenue	$	(318	)
Costs of revenue and operating expenses	(312		)
Operating loss	$	(6	)

The net effect of our foreign currency translations for the three months ended March 31, 2015 was a $0.3 million decrease in revenue and a $0.3 million decrease in operating expenses versus the three months ended March 31, 2014.

RESULTS OF OPERATIONS

The following table presents the unaudited consolidated statements of operations reflected as a percentage of total revenue.

	For the Three Months Ended March 31,
	2015		2014
REVENUE
License fees and services	65	%	66	%
Customer support	35	%	34	%
Total revenue	100	%	100	%
COSTS OF REVENUE AND OPERATING EXPENSES
Costs of license fees and services, excluding depreciation and amortization	18	%	22	%
Costs of customer support, excluding depreciation and amortization	6	%	6	%
Sales and marketing	24	%	25	%
General and administrative	14	%	13	%
Product development	15	%	14	%
Depreciation	1	%	1	%
Restructuring	—		3	%
Total costs of revenue and operating expenses	78	%	84	%
Income from operations	22	%	16	%
Other income (expense)
Interest income	0	%	0	%
Interest expense	(0	)%	(0	)%
Foreign currency exchange (loss) gain	(2	)%	(2	)%
Other (expense) income, net	(2	)%	(2	)%
Income from operations before income taxes	20	%	14	%
Income tax expense	7	%	4	%
Net income	13	%	10	%

19

Revenue

Revenue is comprised of license fees/services and customer support.  License fees and services revenue represent the fees we receive from the licensing of our software products and those services directly related to the delivery of the licensed product as well as integration and consulting services.  Customer support revenue includes annual support, recurring maintenance and warranty services.  Warranty services consist of maintenance services and are typically bundled with a license sale and the related revenue, based on Vendor-Specific Objective Evidence (“VSOE”), is deferred and recognized ratably over the warranty period.

Revenue for the three months ended March 31, 2015 and 2014 was $6.7 million and $6.6 million, respectively.  Increased revenue for the three months is primarily due to increased license and services and customer support revenue from our DSA products offset by a decrease of license and services and customer support revenue from our TSA products.

License Fees and Services

License fees and services revenue decreased $28,000, or 1%, to $4.3 million for the three months ended March 31, 2015 from $4.4 million for the three months ended March 31, 2014.  The increase is due to higher revenue from DSA products offset by a decrease in TSA products.

Customer Support

Customer support revenue increased $0.1 million, or 5%, to $2.3 million for the three months ended March 31, 2015 from $2.2 million for the three months ended March 31, 2014. The increase is due to higher revenue from DSA offset by a decrease in TSA.

Costs of Revenue, Excluding Depreciation and Amortization

Costs of revenue, excluding depreciation and amortization, consist primarily of personnel costs and other direct costs associated with these personnel, facilities costs, costs of third-party software and partner commissions.  Costs of revenue, excluding depreciation and amortization, were $1.6 million and $1.9 million for the three months ended March 31, 2015 and 2014.

Costs of License Fees and Services, Excluding Depreciation and Amortization

Costs of license fees and services, excluding depreciation and amortization decreased $0.3 million, or 17%, to $1.2 million for the three months ended March 31, 2015 from $1.5 million for the three months ended March 31, 2014.  The decrease in costs of license fees and services is primarily attributable to the reduction of embedded software and partner fees, hours spent on license fees and service projects and travel costs.  As a percentage of license fees and services revenue, costs of license fees and services, excluding depreciation and amortization, decreased to 28% for the three months ended March 31, 2015  from 34% for the three months ended March 31, 2014.  The decrease as a percentage of revenue is primarily due the aforementioned reduction of costs during the period.

Costs of Customer Support, Excluding Depreciation and Amortization

Costs of customer support, excluding depreciation and amortization, were $0.4 million for the three months ended March 31, 2015 and 2014.  As a percentage of customer support revenue, costs of customer support revenue, excluding depreciation and

20

amortization, decreased to 17% for the three months ended March 31, 2015 from 19% for the three months ended March 31, 2014.  The decrease in costs as a percentage of revenue is primarily the result of the increase in customer support revenue during the period.

Sales and Marketing

Sales and marketing expenses primarily consist of compensation costs, including incentive compensation and commissions, travel expenses, advertising, marketing and facilities expenses. Sales and marketing expenses decreased $0.1 million, or 5%, to $1.6 million for the three months ended March 31, 2015 from $1.7 million for the three months ended March 31, 2014.  The decrease in expenses is attributable to less travel and entertainment as a result of increased people in the field in Latin America, the Middle East and Africa, and lower marketing expenses offset by an increase in incentive compensation.  As a percentage of total revenue, sales and marketing expenses decreased to 24% for the three months ended March 31, 2015 from 25% for the three months ended March 31, 2014. The decrease in sales and marketing expenses as a percentage of revenue is primarily due to increased revenue and aforementioned reduction of expenses during the period.

General and Administrative

General and administrative expenses consist principally of employee related costs and professional fees for the following departments: facilities, finance, legal, human resources, and certain executive management.  General and administrative expenses increased $0.1 million, or 9%, to $0.9 million for the three months ended March 31, 2015 from $0.8 million for the three months ended March 31, 2014.  The increase in general and administrative expenses is primarily the result of higher professional fees.  As a percentage of revenue, general and administrative expenses increased to 14% for the three months ended March 31, 2015 from 13% for the three months ended March 31, 2014.  The increase in general and administrative expenses as a percentage of revenue is primarily due to the aforementioned increase in costs during the period.

Product Development

Product development expenses consist primarily of employee related costs and subcontractor expenses.  Product development expenses increased $0.1 million, or 15%, to $1.0 million for the three months ended March 31, 2015 from $0.9 million for the three months ended March 31, 2014.  The increase in product development expenses is primarily attributable to increased hours on research and development projects and travel expense.  As a percentage of revenue, product development expenses for the three months ended increased to 15% for the three months ended March 31, 2015 from 13% for the three months ended March 31, 2014.  The increase in costs as a percentage of revenue is primarily the result of the aforementioned increase in expenses during the period.

Depreciation

Depreciation expense consists of depreciation of long-lived property and equipment.  Depreciation expense increased $50,000, or 109%, to $96,000 from $46,000 for the three months ended March 31, 2015 and 2014, respectively.  As a percentage of total revenue, depreciation expense for the three months ended March 31, 2015 and 2014, remained at 1%.

Amortization

Amortization expense consists of amortization of identifiable intangible assets acquired through our acquisition of Evolving Systems Labs, Inc.  Amortization expense was $24,000 for the three months ended March 31, 2015 and $23,000 for the three months ended March 31, 2014.  As a percentage of total revenue, amortization expense was 0% for the three months ended March 31, 2015 and 2014.

Restructuring

Restructuring expense includes the costs associated with a reduction in workforce due to the consolidation of duplicative functions and alignment of staff with ongoing business activity as a result of the acquisition of Evolving Systems Labs, Inc. There was restructuring expense of $0.2 million for the three months ended March 31, 2014.  There were no restructuring expenses for the three

21

months ended March 31, 2015.  As a percentage of revenue, restructuring expense was 3% for the three months ended March 31, 2014.

Interest Income

Interest income includes interest income earned on cash and cash equivalents.  Interest income was $5,000 and $3,000 for the three months ended March 31, 2015 and 2014, respectively.

Interest Expense

Interest expense includes interest expense from the amortization of debt issuance costs, our revolving debt facility and interest expense from our capital lease obligations.  Interest expense was $3,000 and $5,000 for the three months ended March 31, 2015 and 2014, respectively.

Foreign Currency Exchange Gain ( Loss)

Foreign currency transaction gains and losses resulted from transactions denominated in a currency other than the functional currency of the respective subsidiary and was ($0.1) million for the three months ended March 31, 2015 and 2014.  The gains and losses were generated primarily through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our Evolving Systems U.K. and India subsidiaries.

Other Comprehensive Income (Loss)

Other comprehensive income (loss) refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency. Other comprehensive income (loss) was ($1.3) million during the three months ended March 31, 2015 compared to $0.3 million during the three months ended March 31, 2014.  The current period loss is related to a weakened British Pound Sterling and the related translation of our U.K. subsidiary’s assets and liabilities to the United States Dollar for consolidation purposes, primarily related to the translation of the U.K. subsidiary’s goodwill.  Refer to Note 2 – Goodwill and Intangible Assets of this Quarterly Report on Form 10Q.

Income Taxes

We recorded net income tax expense of $0.4 million and $0.3 million for the three months ended March 31, 2015 and 2014, respectively.  The net expense during the three months ended March 31, 2015 consisted of current income tax expense of $0.4 million. The current tax expense consists of income tax from our U.S., U.K. and India based operations.  The net expense during the three months ended March 31, 2014 consisted of current income tax expense of $0.2 million and a deferred tax expense of $57,000. The current tax expense consists primarily of income tax from our U.S., U.K. and India based operations and unrecoverable foreign withholding taxes in the U.S. The deferred tax expense was primarily related to undistributed foreign earnings, a decrease in deferred tax assets related to accrued liabilities and capitalized expenses for tax purpose related to the acquisition of Evolving Systems Labs, Inc.

Our effective tax rate was 34% for the three months ended March 31, 2015 and 2014.

As of March 31, 2015 and December 31, 2014 we continued to maintain a valuation allowance on portions of our domestic net deferred tax asset.  Such assets primarily consist of certain state NOL carryforwards, research and development tax credits and AMT credits.

We have unrecognized tax benefit NOL’s which are comprised of windfall tax benefits related to stock-based compensation.  Due to a recent adopted accounting pronouncement, Accounting Standards Update No. 2014-09, topic 740 “Income Tax”, these NOL’s were deducted from our NOL carryforwards and are not included in our summarized net deferred tax asset.  When utilized, windfall tax benefits related to stock-based compensation are recorded as a reduction to our taxes payable when realized, with a corresponding credit to additional paid in capital, not income tax expense.  See Note 7 to the financial statements for a summary of our net deferred tax asset.

22

FINANCIAL CONDITION

Our working capital position decreased $0.8 million, or 5%, to $15.0 million as of March 31, 2015 from $15.8 million as of December 31, 2014.  The majority of the change in working capital is related to a reduction of contract receivables, accounts payable and accrued liabilities, income tax payable of which was offset by increases to unbilled work-in-progress and unearned revenue.

CONTRACTUAL OBLIGATIONS

There have been no material changes to the contractual obligations as disclosed in our 2014 Annual Report on Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed operations through cash flows from operations and equity transactions.  At March 31, 2015, our principal source of liquidity was $11.0 million in cash and cash equivalents and $5.2 million in contract receivables, net of allowances, and $5.0 million of unused availability under our revolving credit facility.  Our anticipated uses of cash in the future will be to fund the expansion of our business through both organic growth as well as possible acquisition activities and the expansion of our customer base internationally.  Uses of cash may include quarterly dividends, capital expenditures and technology expansion.

Net cash provided by (used in) operating activities for the three months ended March 31, 2015 and 2014 was $2.8 million and ($0.3) million, respectively.  The increase in cash provided by operating activities for the three months ended March 31, 2015 was primarily due to collections of contract receivables and billings of annual maintenance increasing unearned revenue offset by increases in unbilled work-in-progress, and decreases in accounts payable and accrued liabilities.

Net cash used in investing activities during each of the three months ended March 31, 2015 and 2014 was $0.1 million, respectively.  Cash used in investing activities is primarily due to purchase of property and equipment in the respective periods.

Net cash used in financing activities for the three months ended March 31, 2015 and 2014 was $1.2 million and $1.0 million, respectively.  The increase in cash used in financing activities is primarily due to an $0.11 per share common stock cash dividends paid during the three months ended March 31, 2015 compared to a $0.10 per share common stock cash dividend paid during the three months ended March 31, 2014.

We believe that our current cash and cash equivalents, together with anticipated cash flow from operations will be sufficient to meet our working capital, capital expenditure and financing requirements for at least the next twelve months. In making this assessment we considered the following:

·Our cash and cash equivalents balance at March 31, 2015 of $11.0 million;

·Our working capital balance of $15.0 million;

·Our demonstrated ability to generate positive cash flows from operations;

·The declaration of our quarterly cash dividends of $0.11 per share for the first quarter of 2015, and the possibility of future dividends;

·Our backlog as of March 31, 2015 of approximately $10.4 million, including $5.5 million in license fees and services and $4.9 million in customer support;

·The availability under our revolving credit facility of $5.0 million as of March 31, 2015.

We are exposed to foreign currency rate risks which impact the carrying amount of our foreign subsidiaries and our consolidated equity, as well as our consolidated cash position due to translation adjustments.  For the three months ended March 31, 2015 and 2014, the effect of exchange rate changes resulted in a $0.3 million decrease and $0.1 million increase to consolidated cash.  We do not currently hedge our foreign currency exposure, but we monitor rate changes and may hedge our exposures if we see significant negative trends in exchange rates.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

23

ITEM 3.  QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES

In the ordinary course of business, we are exposed to certain market risks, including changes in interest rates and foreign currency exchange rates. Uncertainties that are either non-financial or non-quantifiable such as political, economic, tax, other regulatory, or credit risks are not included in the following assessment of market risks.

Interest Rate Risks

Our cash balances are subject to interest rate fluctuations and as a result, interest income amounts may fluctuate from current levels.

Foreign Currency Risk

We are exposed to favorable and unfavorable fluctuations of the U.S. dollar (our functional currency) against the currencies of our operating subsidiaries. Any increase (decrease) in the value of the U.S. dollar against any foreign currency that is the functional currency of one of our operating subsidiaries will cause the parent company to experience unrealized foreign currency translation losses (gains) with respect to amounts already invested in such foreign currencies.  In addition, we and our operating subsidiaries are exposed to foreign currency risk to the extent that we enter into transactions denominated in currencies other than our respective functional currencies, such as accounts receivable (including intercompany amounts) that are denominated in a currency other than their own functional currency. Changes in exchange rates with respect to these items will result in unrealized (based upon period-end exchange rates) or realized foreign currency transaction gains and losses upon settlement of the transactions. In addition, we are exposed to foreign exchange rate fluctuations related to our operating subsidiaries’ monetary assets and liabilities and the financial results of foreign subsidiaries and affiliates when their respective financial statements are translated into U.S. dollars for inclusion in our consolidated financial statements. Cumulative translation adjustments are recorded in accumulated other comprehensive income (loss) as a separate component of equity. As a result of foreign currency risk, we may experience economic loss and a negative impact on earnings and equity with respect to our holdings solely as a result of foreign currency exchange rate fluctuations.

The relationship between the British pound sterling, Indian rupee and the U.S. dollar, which is our functional currency, is shown below, per one U.S. dollar:

	March 31,	December 31,
Spot rates:	2015	2014
British pound sterling	0.67710	0.64169
Indian rupee	62.57349	63.13131

	For the Three Months Ended March 31,
Average rates:	2015	2014
British pound sterling	0.66022	0.60419
Indian rupee	62.26657	61.72488

At the present time, we do not hedge our foreign currency exposure or use derivative financial instruments that are designed to reduce our long-term exposure to foreign currency exchange risk.  To the extent that translation and transaction gain and losses become significant, we will consider various options to reduce this risk.

ITEM 4.  CONTROLS AND PROCEDURES

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Vice President Finance and Administration, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Vice President Finance and Administration, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.  Based on that evaluation, our Chief Executive Officer and Vice President Finance and Administration have concluded that our disclosure controls and procedures were effective as of the end of such period.

24

In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.  Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

During the three months ended March 31, 2015, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We are involved in various legal matters arising in the normal course of business.  Losses, including estimated costs to defend, are recorded for these matters to the extent they were probable of loss and the amount of loss could be reasonably estimated.

ITEM 1A.  RISK FACTORS

There have been no material changes in the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March 17, 2015, except with respect to the following:

Dividends - Our Board of Directors has declared a first quarter cash dividend of $0.11 per share. The decision to pay dividends in the future will depend on general business conditions, the impact of such payment on our financial condition and other factors our Board of Directors may consider to be relevant. If we elect to pay future dividends, this could reduce our cash reserves to levels that may be inadequate to fund expansions to our business plan or unanticipated contingent liabilities.

This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors defined in our Annual Report on Form 10-K for the year ended December 31, 2014 under “Item 1A. Risk Factors.”

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.  MINE SAFETY DISCLOSURES

None

ITEM 5.  OTHER INFORMATION

None

ITEM 6.  EXHIBITS

(a)Exhibits

Exhibit 31.1 — Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 — Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 — Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2 — Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101 - The following financial information from the quarterly report on Form 10-Q of Evolving Systems, Inc. for the quarter ended March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income,

25

(iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statement of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.

*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

26

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 5, 2015	/s/ DANIEL J. MOORHEAD
	Daniel J. Moorhead
	Vice President Finance and Administration,
	Treasurer and Secretary
	(Principal Financial and Accounting Officer)

27

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Thaddeus Dupper, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Evolving Systems, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2015

/s/ Thaddeus Dupper

Thaddeus Dupper

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Daniel J. Moorhead, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Evolving Systems, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2015

/s/ Daniel J. Moorhead

Daniel J. Moorhead

Vice President of Finance and Administration

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Thaddeus Dupper, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Evolving Systems, Inc. on Form 10-Q for the quarterly period ended March 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Evolving Systems, Inc.

/s/ THADDEUS DUPPER

Thaddeus Dupper

Chairman and Chief Executive Officer

May 5, 2015

This certification is furnished with this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate it by reference.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel J. Moorhead, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Evolving Systems, Inc. on Form 10-Q for the quarterly period ended March 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Evolving Systems, Inc.

/s/ DANIEL J. MOORHEAD

Daniel J. Moorhead

Vice President of Finance and Administration

(Principal Financial and Accounting Officer)

May 5, 2015

This certification is furnished with this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate it by reference.

XML

Income Taxes (Components Of Deferred Tax Assets And Liabilities) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015
Income Taxes [Abstract]
Net operating loss carryforwards	$ 495
Research & Development Credits	303
AMT credits	951
Stock Compensation	670
Depreciable assets	119
Intangibles	199
Accrued liabilities and reserves	528
Total deferred tax assets	3,265
Undistributed Foreign Earnings	(855)
Total deferred tax liability	(855)
Net deferred tax assets, before valuation allowance	2,410
Valuation allowance	(1,749)
Net deferred tax asset	$ 661

XML

Share-Based Compensation (Summary Of Stock-Based Compensation Expenses) (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share based compensation	$ 89,000	$ 88,000
Cost Of License Fees And Services, Excluding Depreciation And Amortization [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share based compensation	22,000	16,000
Cost Of Customer Support, Excluding Depreciation And Amortization [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share based compensation	2,000	2,000
Sales And Marketing [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share based compensation	7,000	11,000
General And Administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share based compensation	24,000	42,000
Product Development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share based compensation	$ 34,000	$ 17,000

XML

Segment Information (Tables)

3 Months Ended

Mar. 31, 2015

Segment Information [Abstract]

Segment Information

	For the Three Months Ended March 31,
		2015		2014
Revenue
License fees and services	$	4,339	$	4,367
Customer support		2,321		2,215
Total revenue		6,660		6,582
Revenue less costs of revenue, excluding
depreciation and amortization
License fees and services		3,114		2,889
Customer support		1,933		1,795
		5,047		4,684
Unallocated Costs
Other operating expenses		3,505		3,377
Depreciation and amortization		120		69
Restructuring		-		211
Interest income		(5)		(3)
Interest expense		3		5
Foreign currency exchange loss		125		96
Income from operations before income taxes	$	1,299	$	929

Financial Information Relating To Operations By Geographic Region

	For the Three Months Ended March 31,
	2015						2014
Revenue		L&S		CS		Total		L&S		CS		Total
United Kingdom	$	538	$	491	$	1,029	$	1,098	$	500	$	1,598
India		643		79		722		126		-		126
Nigeria		112		119		231		631		91		722
Mexico		316		117		433		588		114		702
Other		2,730		1,515		4,245		1,924		1,510		3,434
Total revenues	$	4,339	$	2,321	$	6,660	$	4,367	$	2,215	$	6,582

		March 31,		December 31,
Long-lived assets, net		2015		2014
United States	$	1,967	$	1,998
United Kingdom		15,259		16,091
Other		167		188
	$	17,393	$	18,277

XML

Segment Information (Financial Information Relating To Operations By Geographic Region) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Segment Reporting Information [Line Items]
Total revenue	$ 6,660	$ 6,582
Long-lived assets, net	17,393		18,277
United States [Member]
Segment Reporting Information [Line Items]
Long-lived assets, net	1,967		1,998
India [Member]
Segment Reporting Information [Line Items]
Total revenue	722	126
Nigeria [Member]
Segment Reporting Information [Line Items]
Total revenue	231	722
United Kingdom [Member]
Segment Reporting Information [Line Items]
Total revenue	1,029	1,598
Long-lived assets, net	15,259		16,091
Mexico [Member]
Segment Reporting Information [Line Items]
Total revenue	433	702
Other [Member]
Segment Reporting Information [Line Items]
Total revenue	4,245	3,434
Long-lived assets, net	167		188
License Fees And Services [Member]
Segment Reporting Information [Line Items]
Total revenue	4,339	4,367
License Fees And Services [Member] | India [Member]
Segment Reporting Information [Line Items]
Total revenue	643	126
License Fees And Services [Member] | Nigeria [Member]
Segment Reporting Information [Line Items]
Total revenue	112	631
License Fees And Services [Member] | United Kingdom [Member]
Segment Reporting Information [Line Items]
Total revenue	538	1,098
License Fees And Services [Member] | Mexico [Member]
Segment Reporting Information [Line Items]
Total revenue	316	588
License Fees And Services [Member] | Other [Member]
Segment Reporting Information [Line Items]
Total revenue	2,730	1,924
Customer Support [Member]
Segment Reporting Information [Line Items]
Total revenue	2,321	2,215
Customer Support [Member] | India [Member]
Segment Reporting Information [Line Items]
Total revenue	79
Customer Support [Member] | Nigeria [Member]
Segment Reporting Information [Line Items]
Total revenue	119	91
Customer Support [Member] | United Kingdom [Member]
Segment Reporting Information [Line Items]
Total revenue	491	500
Customer Support [Member] | Mexico [Member]
Segment Reporting Information [Line Items]
Total revenue	117	114
Customer Support [Member] | Other [Member]
Segment Reporting Information [Line Items]
Total revenue	$ 1,515	$ 1,510

XML

Long-Term Debt (Details) (Revolving Facility [Member], USD $)	3 Months Ended
	Mar. 31, 2015	Oct. 31, 2014
Revolving Facility [Member]
Debt Instrument [Line Items]
Line of credit initiation date	Oct. 31, 2014
Line of credit facility, borrowing capacity, maximum		$ 5,000,000
Line of credit facility, interest rate	2.75%
Discount on prime rate, percentage	0.50%
Line of credit facility, interest rate terms, description	Revolving Facility bears interest at the greater of 2.75% or the U.S.A. Prime Rate minus one half of one percent (0.5%). Prime Rate was 3.25% as of March 31, 2015.
Line of credit facility, prime rate	3.25%
Line of credit facility, covenant terms	To take an advance under the Revolving Facility, we must have a balance of $3.0 million in cash on deposit and have quarterly net income and a specified ratio of current assets to current liabilities, as defined in the Revolving Facility. The Revolving Facility requires us to pay an annual credit facility fee of $10,000. All accrued interest on outstanding borrowings under the Revolving Facility is paid monthly, with any outstanding balance due with a final maturity of October 22, 2016.
Line of credit facility, cash deposit requirements for advance	3,000,000
Line of credit facility, annual fee	10,000
Line of credit facility, interest payment frequency	paid monthly
Line of credit facility, maturity date	Oct. 22, 2016
Available borrowing capacity under Revolving Facility	$ 5,000,000

XML

Goodwill And Intangible Assets

3 Months Ended

Mar. 31, 2015

Goodwill And Intangible Assets [Abstract]

Goodwill And Intangible Assets

NOTE 2 — GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill by reporting unit were as follows (in thousands):

	License and Services					Customer Support		Total
		U.S.		U.K.		U.K.		Goodwill
Balance as of December 31, 2014	$	1,097	$	7,118	$	8,795	$	17,010
Effects of changes in foreign
currency exchange rates (1)		-		(370)		(457)		(827)
Balance at March 31, 2015	$	1,097	$	6,748	$	8,338	$	16,183

(1) Represents the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. Goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income.

We conducted our annual goodwill impairment test as of July 31, 2014, and we determined that goodwill was not impaired as of the test date. From July 31, 2014 through the date of this report, no events have occurred that we believe may have impaired goodwill.

We amortized identifiable intangible assets on a straight-line basis over their estimated lives ranging from one to seven years and include the cumulative effects of foreign currency exchange rates.  As of March 31, 2015 and December 31, 2014, identifiable intangibles were as follows (in thousands):

	March 31, 2015						December 31, 2014
		Gross Amount		Accumulated Amortization		Net Carrying Amount		Gross Amount		Accumulated Amortization		Net Carrying Amount	Weighted-Average Amortization Period
Purchased software	$	439	$	78	$	361	$	439	$	64	$	375	4.6 yrs
Trademarks and tradenames		63		18		45		63		15		48	3.8 yrs
Customer relationships		216		38		178		216		31		185	4.6 yrs
	$	718	$	134	$	584	$	718	$	110	$	608	4.5 yrs

Amortization expense of identifiable intangible assets was $24,000 and $23,000 for the three months ended March 31, 2015 and 2014, respectively.  Expected future amortization expense related to identifiable intangibles based on our carrying amount as of March 31, 2015 was as follows (in thousands):

Twelve months ending March 31,
2016	$	94
2017		94
2018		94
2019		89
2020		82
Thereafter		131
	$	584

XML

Restructuring (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Restructuring [Abstract]
Expense of termination employees		$ 200,000
Restructuring costs paid	0
Restructuring liability	$ 0		$ 0

XML

Goodwill And Intangible Assets (Summary Of Identifiable Intangible Assets) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Dec. 31, 2014
Finite-Lived Intangible Assets [Line Items]
Gross Amount	$ 718	$ 718
Accumulated Amortization	134	110
Net Carrying Amount	584	608
Weighted-Average Amortization Period	4 years 6 months
Purchased Software [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	439	439
Accumulated Amortization	78	64
Net Carrying Amount	361	375
Weighted-Average Amortization Period	4 years 7 months 6 days
Trademarks And Tradenames [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	63	63
Accumulated Amortization	18	15
Net Carrying Amount	45	48
Weighted-Average Amortization Period	3 years 9 months 18 days
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	216	216
Accumulated Amortization	38	31
Net Carrying Amount	$ 178	$ 185
Weighted-Average Amortization Period	4 years 7 months 6 days

XML

Goodwill And Intangible Assets (Summary Of Changes In Carrying Amount Of Goodwill) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015		Dec. 31, 2014
Goodwill And Intangible Assets [Line Items]
Beginning Balance	$ 17,010
Effects of changes in foreign currency exchange rates	(827)	[1]
Ending Balance	16,183
United States [Member] | License Fees And Services [Member]
Goodwill And Intangible Assets [Line Items]
Beginning Balance			1,097
Ending Balance	1,097		1,097
United Kingdom [Member] | License Fees And Services [Member]
Goodwill And Intangible Assets [Line Items]
Beginning Balance	7,118
Effects of changes in foreign currency exchange rates	(370)	[1]
Ending Balance	6,748
United Kingdom [Member] | Customer Support [Member]
Goodwill And Intangible Assets [Line Items]
Beginning Balance	8,795
Effects of changes in foreign currency exchange rates	(457)	[1]
Ending Balance	$ 8,338

[1] Represents the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. Goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income.

XML

Subsequent Events (Details) (USD $)	0 Months Ended	3 Months Ended		0 Months Ended
	Mar. 17, 2015	Mar. 31, 2015	Mar. 31, 2014	May 05, 2015
Subsequent Event [Line Items]
Cash dividend declared per common share	$ 0.11	$ 0.11	$ 0.10
Dividends payable, payable date		Mar. 31, 2015
Dividends payable, record date		Mar. 24, 2015
Dividend declared date		Mar. 17, 2015
Subsequent Event [Member]
Subsequent Event [Line Items]
Cash dividend declared per common share				$ 0.11
Dividends payable, payable date		May 29, 2015
Dividends payable, record date		May 22, 2015
Dividend declared date		May 05, 2015

XML

Goodwill And Intangible Assets (Summary Of Expected Future Amortization Expense Related To Identifiable Intangibles) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Goodwill And Intangible Assets [Abstract]
2016	$ 94
2017	94
2018	94
2019	89
2020	82
Thereafter	131
Net Carrying Amount	$ 584	$ 608

XML

Earnings Per Common Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Earnings Per Common Share [Abstract]
Net income available to common stockholders	$ 860	$ 651
Basic weighted average shares outstanding	11,668,000	11,621,000
Basic income per share	$ 0.07	$ 0.06
Effect of dilutive securities - options	270,000	296,000
Diluted weighted average shares outstanding	11,938,000	11,917,000
Diluted income per share	$ 0.07	$ 0.05
Common stock excluded from dilutive stock calculation	300,000	100,000

XML

Basis Of Presentation

3 Months Ended

Mar. 31, 2015

Basis Of Presentation [Abstract]

Basis Of Presentation

NOTE 1 — BASIS OF PRESENTATION

Organization — We are a provider of software solutions and services to the wireless, wireline and cable markets. We maintain long-standing relationships with many of the largest wireless, wireline and cable companies worldwide. Our customers rely on us to develop, deploy, enhance, maintain and integrate complex, highly reliable software solutions for a range of Operations Support Systems (“OSS”).  We offer software products and solutions focused on activation and provisioning: our service activation solution, TertioTM (“TSA”) used to activate complex bundles of voice, video and data services for traditional and next generation wireless and wireline networks; our SIM card activation solution, Dynamic SIM Allocation TM (“DSA”) used to dynamically allocate and assign resources to wireless devices that rely on SIM cards; our cloud-based (SaaS) service activation, self—service mobile applications and data enablement solutions to wireless carriers and Mobile Virtual Network Operators (MVNOs); our connected devices activation solution, Intelligent M2M Controller that supports the activation of M2M devices with intermittent or infrequent usage patterns; and our number inventory solution, Total Number Management™, (TNM) a scalable and fully automated solution that enables operators to reliably and efficiently manage their telephone numbers (i.e. SIMs, MSISDNs, IMSIs, ICCIDs, IPs) as well as other communication identifiers such as URLs and email addresses.

Interim Consolidated Financial Statements — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the three months ended March 31, 2015 are not necessarily indicative of the results that we will have for any subsequent period.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2014 included in our Annual Report on Form 10-K.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We made estimates with respect to revenue recognition for estimated hours to complete projects accounted for using the percentage-of-completion method, allowance for doubtful accounts, income tax valuation allowance, fair values of long-lived assets, valuation of intangible assets and goodwill, useful lives for property, equipment and intangible assets, business combinations, capitalization of internal software development costs and fair value of stock-based compensation amounts.  Actual results could differ from these estimates.

Foreign Currency —Our functional currency is the U.S. dollar.  The functional currency of our foreign operations is the respective local currency for each foreign subsidiary.  Assets and liabilities of foreign operations denominated in local currencies are translated at the spot rate in effect at the applicable reporting date.  Our consolidated statements of operations are translated at the weighted average rate of exchange during the applicable period.  The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other comprehensive loss in stockholders’ equity.  Realized and unrealized transaction gains and losses generated by transactions denominated in a currency different from the functional currency of the applicable entity are recorded in other income (expense) in the consolidated statements of operations in the period in which they occur.

Principles of Consolidation —The consolidated financial statements include the accounts of Evolving Systems, Inc. and subsidiaries, all of which are wholly owned.  All significant intercompany transactions and balances have been eliminated in consolidation.

Goodwill —Goodwill is the excess of acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired.  Goodwill is not amortized, but tested for impairment annually or whenever indicators of impairment exist. These indicators may include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit.

Intangible Assets —Amortizable intangible assets consist primarily of purchased software and licenses, customer contracts and relationships, trademarks and tradenames, and business partnerships acquired in conjunction with our purchase of Telespree Communications (“Evolving Systems Labs, Inc.”).  These assets are amortized using the straight-line method over their estimated lives.

We assess the impairment of identifiable intangibles if events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.  If we determine that the carrying value of intangibles and/or long-lived assets may not be recoverable, we compare the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition to the asset’s carrying amount. If an amortizable intangible or long-lived asset is not deemed to be recoverable, we recognize an impairment loss representing the excess of the asset’s carrying value over its estimated fair value.

Fair Value Measurements—Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Cash and Cash Equivalents —All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. 

Revenue Recognition — We recognize revenue when an agreement is signed, the fee is fixed or determinable and collectability is reasonably assured. We recognize revenue from two primary sources: license fees and services, and customer support.   The majority of our license fees and services revenue is generated from fixed-price contracts, which provide for licenses to our software products and services to customize such software to meet our customers’ use.  When the customization services are determined to be essential to the functionality of the delivered software, we recognize revenue using the percentage-of-completion method of accounting. In these types of arrangements, we do not typically have Vendor Specific Objective Evidence (“VSOE”) of fair value on the license fee/services portion (services are related to customizing the software) of the arrangement due to the large amount of customization required by our customers; however, we do have VSOE for the warranty/maintenance services based on the renewal rate of the first year of maintenance in the arrangement. The license/services portion is recognized using the percentage-of-completion method of accounting and the warranty/maintenance services are separated based on the renewal rate in the contract and recognized ratably over the warranty or maintenance period. We estimate the percentage-of-completion for each contract based on the ratio of direct labor hours incurred to total estimated direct labor hours and recognize revenue based on the percent complete multiplied by the contract amount allocated to the license fee/services.  Since estimated direct labor hours, and changes thereto, can have a significant impact on revenue recognition, these estimates are critical and we review them regularly. If the arrangement includes a customer acceptance provision, the hours to complete the acceptance testing are included in the total estimated direct labor hours; therefore, the related revenue is recognized as the acceptance testing is performed. Revenue is not recognized in full until the customer has provided proof of acceptance on the arrangement.  Generally, our contracts are accounted for individually. However, when certain criteria are met, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts. We record amounts billed in advance of services being performed as unearned revenue. Unbilled work-in-progress represents revenue earned but not yet billable under the terms of the fixed-price contracts. All such amounts are expected to be billed and collected within 12 months.

We may encounter budget and schedule changes or increases on fixed-price contracts caused by increased labor or overhead costs. We make adjustments to cost estimates in the period in which the facts requiring such revisions become known. We record estimated losses, if any, in the period in which current estimates of total contract revenue and contract costs indicate a loss. If revisions to cost estimates are obtained after the balance sheet date but before the issuance of the interim or annual financial statements, we make adjustments to the interim or annual financial statements accordingly.

In arrangements where the services are not essential to the functionality of the delivered software, we recognize license revenue when a license agreement has been signed, delivery and acceptance have occurred, the fee is fixed or determinable and collectability is reasonably assured. Where applicable, we unbundle and record as revenue fees from multiple element arrangements as the elements are delivered to the extent that VSOE of fair value of the undelivered elements exist. If VSOE for the undelivered elements does not exist, we defer fees from such arrangements until the earlier of the date that VSOE does exist on the undelivered elements or all of the elements have been delivered.

We recognize revenue from fixed-price service contracts using the proportional performance method of accounting, which is similar to the percentage-of-completion method described above. We recognize revenue from professional services provided pursuant to time-and-materials based contracts and training services as the services are performed, as that is when our obligation to our customers under such arrangements is fulfilled.

We recognize revenue from our Mobile Data Enablement (“MDE”) contracts based on the number of transactions per month multiplied by a factor based on a unique table for transaction volumes relating to each account.

We recognize customer support, including maintenance revenue, ratably over the service contract period. When maintenance is bundled with the original license fee arrangement, its fair value, based upon VSOE, is deferred and recognized during the periods when services are provided.

Stock-based Compensation — We account for stock-based compensation by applying a fair-value-based measurement method to account for share-based payment transactions with employees and directors. We record compensation costs associated with the vesting of unvested options on a straight-line basis over the vesting period.  Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of our common stock instead of settling such obligations with cash payments.    We use the Black-Scholes model to estimate the fair value of each option grant on the date of grant.  This model requires the use of estimates for expected term of the options and expected volatility of the price of our common stock.

Comprehensive Income (Loss) —Comprehensive income (loss) consists of two components, net income and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency.

Income Taxes — We record deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying condensed consolidated balance sheets, as well as operating loss and tax credit carry-forwards. We measure deferred tax assets and liabilities using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled.  We reduce deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that these benefits will not be realized.

We use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.  For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

Recent Accounting Pronouncements – In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” Topic 606.  This Update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance in this Update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to illustrate the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a reporting organization’s contracts with customers. This ASU is effective retrospectively for fiscal years, and interim periods within those years beginning after December 15, 2016 for public companies and 2017 for non-public entities, however the FASB has proposed deferral of the effective date by one year. We do not expect the adoption of this standard to have a significant impact on the Company’s financial position and results of operations. 

XML

Share-Based Compensation (Narrative) (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014	Jun. 30, 2013	Jun. 30, 2010	Jun. 30, 2007	Jan. 31, 1996
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Recognized compensation expense	$ 89,000	$ 88,000
Restricted stock granted in period	0	0
Restricted stock expense	1,000	15,000
Stock Incentive Plans [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted non-qualified options	102,000	154,500
Stock option shares of restricted stock vested	94	2,000
Forfeited restricted stock	0	0
Options remained outstanding under option plan	726,000		630,000
Weighted-average grant-date fair value of stock options granted	$ 2.78	$ 3.90
Total unrecognized compensation costs related to unvested stock options	700,000
Weighted average recognition period	3 years 4 days
Fair value of stock options vested	200,000	38,000
Cash received from exercise of stock options	6,000	100,000
2007 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized				1,502,209	1,250,000	1,000,000
Shares available for grant	27,000
Options remained outstanding under option plan	600,000		600,000
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Recognized compensation expense	5,000	7,000
Number of shares authorized	550,000
Cash received from exercise of stock options	22,000	26,000
Maximum employee subscription rate	15.00%
Maximum value of shares per employee	25,000
Maximum number of shares per employee	10,000
Purchase price of stock	85.00%
Shares available for purchase under ESPP	58,000
Discount on the purchase price of stock option	15.00%
Issued shares related to the ESPP	3,000	3,000
Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Amended and restated stock option plan, reserved for issuance							4,175,000
Vesting period	4 years
Option plan termination date	Jan. 18, 2006
Options remained outstanding under option plan	100,000		100,000
Maximum [Member] | 2007 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option expiration period	10 years
Maximum [Member] | Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option expiration period	10 years
Employees [Member] | 2007 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Directors [Member] | 2007 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year
Senior Management [Member] | Minimum [Member] | Stock Incentive Plans [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Release period for restricted stock options	2 years
Senior Management [Member] | Maximum [Member] | Stock Incentive Plans [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Release period for restricted stock options	4 years
Board Members [Member] | Stock Incentive Plans [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Release period for restricted stock options	1 year
Evolving Systems U.K. [Member] | Stock Incentive Plans [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Deferred income tax benefits from stock option expense	$ 4,000	$ 4,000

XML

Stockholders' Equity (Details) (USD $)	0 Months Ended	3 Months Ended
	Mar. 17, 2015	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Stockholders' Equity [Abstract]
Dividend declared date		Mar. 17, 2015
Cash dividend declared per common share	$ 0.11	$ 0.11	$ 0.10
Dividends payable, payable date		Mar. 31, 2015
Dividends payable, record date		Mar. 24, 2015
Preferred stock, shares authorized		2,000,000		2,000,000
Preferred stock, shares outstanding		0		0
Anti-takeover provisions period		3 years

XML

Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 11,038	$ 9,781
Contract receivables, net of allowance for doubtful accounts of $41 and $43 at March 31, 2015 and December 31, 2014, respectively	5,232	9,182
Unbilled work-in-progress, net of allowance of $306 at March 31, 2015 and December 31, 2014	6,147	4,995
Deferred income taxes	79	80
Prepaid and other current assets	1,275	1,331
Total current assets	23,771	25,369
Property and equipment, net	626	659
Amortizable intangible assets, net	584	608
Goodwill	16,183	17,010
Long-term deferred income taxes	582	586
Total assets	41,746	44,232
Current liabilities:
Current portion of capital lease obligations	5	5
Accounts payable and accrued liabilities	3,387	4,460
Income taxes payable	532	1,227
Unearned revenue	4,834	3,883
Total current liabilities	8,758	9,575
Long-term liabilities:
Capital lease obligations, net of current portion	5	7
Contingent earn-out obligation	178	178
Long-term unearned revenue	270	420
Total liabilities	9,211	10,180
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized; no shares issued and outstanding as of March 31, 2015 and December 31, 2014
Common stock, $0.001 par value; 40,000,000 shares authorized; 11,850,356 shares issued and 11,671,467 outstanding as of March 31, 2015 and 11,843,564 shares issued and 11,664,675 outstanding as of December 31, 2014	12	12
Additional paid-in capital	96,199	96,005
Treasury stock 178,889 shares as of March 31, 2015 and December 31, 2014, at cost	(1,253)	(1,253)
Accumulated other comprehensive loss	(5,830)	(4,534)
Accumulated deficit	(56,593)	(56,178)
Total stockholders' equity	32,535	34,052
Total liabilities and stockholders' equity	$ 41,746	$ 44,232

XML

Condensed Consolidated Statements Of Changes In Stockholders' Equity (USD $) In Thousands, except Share data	Common Stock [Member]	Additional Paid-In Capital [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Loss [Member]	Accumulated (Deficit) [Member]	Total
Balance at Dec. 31, 2014	$ 12	$ 96,005	$ (1,253)	$ (4,534)	$ (56,178)	$ 34,052
Balance, shares at Dec. 31, 2014	11,664,675
Stock option exercises		6				6
Stock option exercises, shares	5,062
Common Stock issued pursuant to the Employee Stock Purchase Plan		13				13
Common Stock issued pursuant to the Employee Stock Purchase Plan, shares	1,730
Stock-based compensation expense		89				89
Excess tax benefits from stock-based compensation		86				86
Common stock cash dividends					(1,275)	(1,275)
Net income					860	860
Foreign currency translation adjustment				(1,296)		(1,296)
Balance at Mar. 31, 2015	$ 12	$ 96,199	$ (1,253)	$ (5,830)	$ (56,593)	$ 32,535
Balance, shares at Mar. 31, 2015	11,671,467

XML

Share-Based Compensation (Summary Of Stock Option Activity) (Details) (Stock Incentive Plans [Member], USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Stock Incentive Plans [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of Shares, Options outstanding at December 31, 2014	630,000
Number of Shares, Options granted	102,000	154,500
Number of Shares, Less options forfeited	(1,000)
Number of Shares, Less options exercised	(5,000)
Number of Shares, Options outstanding at March 31, 2015	726,000		630,000
Number of Shares, Option exercisable at March 31, 2015	501,000
Weighted-Average Exercise Price, Options outstanding at December 31, 2014	$ 4.94
Weighted-Average Exercise Price, Options granted	$ 8.98
Weighted Average Exercise Price, Less options forfeited	$ 10.90
Weighted-Average Exercise Price, Less options exercised	$ 1.22
Weighted-Average Exercise Price, Options outstanding at March 31, 2015	$ 5.53		$ 4.94
Weighted-Average Exercise Price, Options exercisable at March 31, 2015	$ 3.87
Weighted-Average Remaining Contractual Term (Years), Options outstanding at December 31, 2014	6 years 22 days		5 years 8 months 9 days
Weighted-Average Remaining Contractual Term (Years), Options outstanding at March 31, 2015	6 years 22 days		5 years 8 months 9 days
Weighted-Average Remaining Contractual Term (Years), Option exercisable at March 31, 2015	4 years 8 months 9 days
Aggregate Intrinsic Value, Options outstanding at December 31, 2014	$ 2,959
Aggregate Intrinsic Value, Options outstanding at March 31, 2015	2,659		2,959
Aggregate Intrinsic Value, Options exercisable at March 31, 2015	$ 2,580

XML

Earnings Per Common Share (Tables)

3 Months Ended

Mar. 31, 2015

Earnings Per Common Share [Abstract]

Summary Of Basic And Diluted Earnings Per Share

	For the Three Months Ended March 31,
		2015		2014
Basic income per share:
Net income available to common stockholders	$	860	$	651
Basic weighted average shares outstanding		11,668		11,621
Basic income per share:	$	0.07	$	0.06
Diluted income per share:
Net income available to common stockholders	$	860	$	651
Weighted average shares outstanding		11,668		11,621
Effect of dilutive securities - options		270		296
Diluted weighted average shares outstanding		11,938		11,917
Diluted income per share:	$	0.07	$	0.05

XML

Concentration Of Credit Risk (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2015 customer	Mar. 31, 2014 customer	Dec. 31, 2014 customer
Sales Revenue Net [Member] | Customer Concentration Risk [Member]
Concentration Risk [Line Items]
Number of significant customers	1	2
Concentration risk, percentage	10.00%	28.00%
Sales Revenue Net [Member] | Customer One [Member]
Concentration Risk [Line Items]
Concentration risk, percentage	10.00%	17.00%
Sales Revenue Net [Member] | Customer Two [Member]
Concentration Risk [Line Items]
Concentration risk, percentage		11.00%
Contract Receivables And Unbilled Work-In-Progress [Member] | Customer Concentration Risk [Member]
Concentration Risk [Line Items]
Number of significant customers	1		3
Concentration risk, percentage	26.00%		55.00%
Contract Receivables And Unbilled Work-In-Progress [Member] | Customer One [Member]
Concentration Risk [Line Items]
Concentration risk, percentage			26.00%
Contract Receivables And Unbilled Work-In-Progress [Member] | Customer Two [Member]
Concentration Risk [Line Items]
Concentration risk, percentage			16.00%
Contract Receivables And Unbilled Work-In-Progress [Member] | Customer Three [Member]
Concentration Risk [Line Items]
Concentration risk, percentage			13.00%

XML

Income Taxes (Tables)

3 Months Ended

Mar. 31, 2015

Income Taxes [Abstract]

Components Of Deferred Tax Assets And Liabilities

		March 31, 2015
Deferred tax assets:
Net operating loss carryforwards	$	495
Research & Development Credits		303
AMT credits		951
Stock Compensation		670
Depreciable assets		119
Intangibles		199
Accrued liabilities and reserves		528
Total deferred tax assets		3,265
Deferred tax liabilities
Undistributed Foreign Earnings	$	(855)
Total deferred tax liability		(855)
Net deferred tax assets, before valuation allowance	$	2,410
Valuation allowance		(1,749)
Net deferred tax asset	$	661

XML

Condensed Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 860	$ 651
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	96	46
Amortization of intangible assets	24	23
Amortization of debt issuance costs	2	4
Stock-based compensation	89	88
Unrealized foreign currency transaction losses, net	125	96
Provision for deferred income taxes	2	54
Change in operating assets and liabilities:
Contract receivables	3,654	474
Unbilled work-in-progress	(1,385)	(737)
Prepaid and other assets	37	44
Accounts payable and accrued liabilities	(1,646)	(758)
Unearned revenue	977	(308)
Net cash provided by (used in) operating activities	2,835	(323)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(71)	(90)
Net cash used in investing activities	(71)	(90)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital lease payments	(1)	(3)
Common stock cash dividends	(1,275)	(1,163)
Excess tax benefits from stock-based compensation	86	11
Proceeds from the issuance of stock	19	110
Net cash used in financing activities	(1,171)	(1,045)
Effect of exchange rate changes on cash	(336)	79
Net (decrease) increase in cash and cash equivalents	1,257	(1,379)
Cash and cash equivalents at beginning of period	9,781	13,785
Cash and cash equivalents at end of period	11,038	12,406
Supplemental disclosure of cash and non-cash financing transactions:
Income taxes paid	722	33
Issuance of common stock related to acquisition		$ 19

XML

Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Condensed Consolidated Balance Sheets [Abstract]
Allowance for doubtful accounts receivable	$ 41	$ 43
Unbilled work-in-progress, allowance	$ 306	$ 306
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	11,850,356	11,843,564
Common stock, shares outstanding	11,671,467	11,664,675
Treasury Stock, Shares	178,889	178,889

XML

Commitments And Contingencies

3 Months Ended

Mar. 31, 2015

Commitments And Contingencies [Abstract]

Commitments And Contingencies

NOTE 10 — COMMITMENTS AND CONTINGENCIES

(a)          Other Commitments

As permitted under Delaware law, we have agreements with officers and directors under which we agree to indemnify them for certain events or occurrences while the officer or director is, or was, serving at our request in this capacity. The term of the indemnification period is indefinite. There is no limit on the amount of future payments we could be required to make under these indemnification agreements; however, we maintain Director and Officer insurance policies, as well as an Employment Practices Liability Insurance Policy, that may enable us to recover a portion of any amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, there were no liabilities recorded for these agreements as of March 31, 2015 or December 31, 2014.

We enter into standard indemnification terms with customers and suppliers, in the ordinary course of business, for third party claims arising under our contracts. In addition, as we may subcontract the development of deliverables under customer contracts, we could be required to indemnify customers for work performed by subcontractors. Depending upon the nature of the indemnification, the potential amount of future payments we could be required to make under these indemnification agreements may be unlimited. We may be able to recover damages from a subcontractor or other supplier if the indemnification results from the subcontractor’s or supplier’s failure to perform. To the extent we are unable to recover damages from a subcontractor or other supplier, we could be required to reimburse the indemnified party for the full amount. We have never incurred costs to defend lawsuits or settle claims relating to an indemnification. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, there were no liabilities recorded for these agreements as of March 31, 2015 or December 31, 2014.

Our standard license agreements contain product warranties that the software will be free of material defects and will operate in accordance with the stated requirements for a limited period of time.  The product warranty provisions require us to cure any defects through any reasonable means.  We believe the estimated fair value of the product warranty provisions in the license agreements in place with our customers is minimal.  Accordingly, there were no liabilities recorded for these product warranty provisions as of March 31, 2015 or December 31, 2014.

Our software arrangements generally include a product indemnification provision whereby we will indemnify and defend a customer in actions brought against the customer for claims that our products infringe upon a copyright, trade secret, or valid patent of a third party. We have not historically incurred any significant costs related to product indemnification claims. Accordingly, there were no liabilities recorded for these indemnification provisions as of March 31, 2015 or December 31, 2014.

(b)         Litigation

From time to time, we are involved in various legal matters arising in the normal course of business.  We do not expect the outcome of such proceedings, either individually or in the aggregate, to have a material effect on our financial position, cash flows or results of operations.

XML

Document And Entity Information	3 Months Ended
	Mar. 31, 2015	Apr. 30, 2015
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2015
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2015
Entity Registrant Name	EVOLVING SYSTEMS INC
Trading Symbol	evol
Entity Central Index Key	0001052054
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		11,674,397

XML

Restructuring

3 Months Ended

Mar. 31, 2015

Restructuring [Abstract]

Restructuring

NOTE 11 – RESTRUCTURING

During the first quarter of 2014, we undertook a reduction in workforce involving the termination of employees resulting in an expense of $0.2 million primarily related to severance for the affected employees. The reduction in workforce was related to the consolidations of duplicative functions and alignment of staff with ongoing business activity as a result of the acquisition of Evolving Systems Labs, Inc. in the fourth quarter of 2013.  There was no restructuring expense for the three months ended March 31, 2015.

There was no restructuring liability as of March 31, 2015 or December 31, 2014.

XML

Condensed Consolidated Statements Of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
REVENUE
License fees and services	$ 4,339	$ 4,367
Customer support	2,321	2,215
Total revenue	6,660	6,582
COSTS OF REVENUE AND OPERATING EXPENSES
Costs of license fees and services, excluding depreciation and amortization	1,225	1,478
Costs of customer support, excluding depreciation and amortization	388	420
Sales and marketing	1,584	1,660
General and administrative	907	834
Product development	1,014	883
Depreciation	96	46
Amortization	24	23
Restructuring		211
Total costs of revenue and operating expenses	5,238	5,555
Income from operations	1,422	1,027
Other income (expense)
Interest income	5	3
Interest expense	(3)	(5)
Foreign currency exchange loss	(125)	(96)
Other (expense) income, net	(123)	(98)
Income from operations before income taxes	1,299	929
Income tax expense	439	278
Net income	$ 860	$ 651
Basic income per common share	$ 0.07	$ 0.06
Diluted income per common share	$ 0.07	$ 0.05
Cash dividend declared per common share	$ 0.11	$ 0.10
Weighted average basic shares outstanding	11,668	11,621
Weighted average diluted shares outstanding	11,938	11,917

XML

Concentration Of Credit Risk

3 Months Ended

Mar. 31, 2015

Concentration Of Credit Risk [Abstract]

Concentration Of Credit Risk

NOTE 5 — CONCENTRATION OF CREDIT RISK

For the three months ended March 31, 2015, one significant customer (defined as contributing at least 10%) accounted for 10% of revenue from operations.  The significant customer for the three months ended March 31, 2015 is a large telecommunications operator in the United Kingdom.  For the three months ended March 31, 2014, two significant customers accounted for 28%  (17% and 11%)  of revenue from operations.  The significant customers for the three months ended March 31, 2014 are large telecommunications operators in Europe and Mexico.

As of March 31, 2015, one significant customer accounted for approximately 26% of contract receivables and unbilled work-in-progress.  This customer is a large telecommunication operator in Nigeria.  As of December 31, 2014, three significant customers accounted for approximately 55%  (26%,  16% and 13%) of contract receivables and unbilled work-in-progress.  These customers are large telecommunications operators in Nigeria, Mexico and Europe.

XML

Share-Based Compensation

3 Months Ended

Mar. 31, 2015

Share-Based Compensation [Abstract]

Share-Based Compensation

NOTE 4 — SHARE-BASED COMPENSATION

We account for stock-based compensation by applying a fair-value-based measurement method to account for share-based payment transactions with employees and directors, and record compensation cost for all stock awards granted after January 1, 2006 and awards modified, repurchased, or cancelled after that date, using the modified prospective method. We record compensation costs associated with the vesting of unvested options on a straight-line basis over the vesting period. We recognized $0.1 million of compensation expense in the consolidated statements of operations, with respect to our stock-based compensation plans for the three months ended March 31, 2015 and 2014.  The following table summarizes stock-based compensation expenses recorded in the consolidated statement of operations (in thousands):

	For the Three Months Ended March 31,
		2015		2014
Cost of license fees and services, excluding
depreciation and amortization	$	22	$	16
Cost of customer support, excluding
depreciation and amortization		2		2
Sales and marketing		7		11
General and administrative		24		42
Product development		34		17
Total share based compensation	$	89	$	88

Stock Incentive Plans

In January 1996, our stockholders approved an Amended and Restated Stock Option Plan (the “Option Plan”).  Under the Option Plan, as amended, 4,175,000 shares were reserved for issuance.  Options issued under the Option Plan were at the discretion of the Board of Directors, including the vesting provisions of each stock option granted. Options were granted with an exercise price equal to the closing price of our common stock on the date of grant, generally vest over four years and expire no more than ten years from the date of grant. The Option Plan terminated on January 18, 2006; options granted before that date were not affected by the plan termination.  At March 31, 2015 and December 31, 2014, 0.1 million options remained outstanding under the Option Plan.

In June 2007, our stockholders approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) with a maximum of 1,000,000 shares reserved for issuance. In June 2010, our stockholders approved an amendment to the 2007 Stock Plan which increased the maximum shares that may be awarded under the plan to 1,250,000. In June 2013, our stockholders approved an amendment to the 2007 Stock Plan which increased the maximum shares that may be awarded under the plan to 1,502,209.  Awards permitted under the 2007 Stock Plan include:  Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards and Other Stock-Based Awards.  Awards issued under the 2007 Stock Plan are at the discretion of the Board of Directors.  As applicable, awards are granted with an exercise price equal to the closing price of our common stock on the date of grant, generally vest over four years for employees and one year for directors and expire no more than ten years from the date of grant.  At March 31, 2015, there were approximately 27,000 shares available for grant under the 2007 Stock Plan, as amended.  At March 31, 2015 and December 31, 2014,  0.6 million were issued and outstanding under the 2007 Stock Plan as amended, respectively.

During the three months ended March 31, 2015 and 2014, there were no grants of restricted stock to members of our senior management.  During the three months ended March 31, 2015 and 2014, 94 and 2,000 shares of restricted stock vested, respectively. No shares of restricted stock were forfeited during the three months ended March 31, 2015 and 2014.  The fair market value of restricted shares for share-based compensation expensing is equal to the closing price of our common stock on the date of grant.  Stock-based compensation expense includes $1,000 and $15,000 for the three months ended March 31, 2015 and 2014, respectively, of expense related to restricted stock grants. The restrictions on the stock awards are released quarterly, generally over two and four years for senior management and over one year for board members.

 The fair value of each option grant is estimated on the date of grant using the Black-Scholes model.  The Black-Scholes model uses four assumptions to calculate the fair value of each option grant.  The expected term of share options granted is derived using the simplified method, which we adopted in January 2008. The risk-free interest rate is based upon the rate currently available on zero-coupon U.S. Treasury instruments with a remaining term equal to the expected term of the stock options.  The expected volatility is based upon historical volatility of our common stock over a period equal to the expected term of the stock options.  The expected dividend yield is based upon historical and anticipated payment of dividends.  The weighted-average assumptions used in the fair value calculations are as follows:

	For the Three Months Ended March 31,
	2015		2014
Expected term (years)	6.0		5.9
Risk-free interest rate	1.30	%	1.69	%
Expected volatility	51.48	%	55.98	%
Expected dividend yield	4.95	%	3.90	%

The following is a summary of stock option activity under the plans for the three months ended March 31, 2015:

				Weighted-
				Average
			Weighted-	Remaining		Aggregate
	Number of		Average	Contractual		Intrinsic
	Shares		Exercise	Term		Value
	(in thousands)		Price	(Years)		(in thousands)
Options outstanding at December 31, 2014	630	$	4.94	5.69	$	2,959
Options granted	102		8.98
Less options forfeited	(1)		10.90
Less options exercised	(5)		1.22
Options outstanding at March 31, 2015	726	$	5.53	6.06	$	2,659
Options exercisable at March 31, 2015	501	$	3.87	4.69	$	2,580

There were 102,000 and 154,500 stock options granted during the three months ended March 31, 2015 and 2014, respectively.  The weighted-average grant-date fair value of stock options granted during the three months ended March 31, 2015 and 2014 was $2.78 and $3.90, respectively.  As of March 31, 2015, there was approximately $0.7 million of total unrecognized compensation costs related to unvested stock options.  These costs are expected to be recognized over a weighted average period of 3.01 years.  The total fair value of stock options vested during the three months ended March 31, 2015 and 2014 was approximately $0.2 million and $38,000, respectively.   

The deferred income tax benefits from stock option expense related to Evolving Systems U.K. totaled approximately $4,000 for the three months ended March 31, 2015 and 2014.   

Cash received from stock option exercises for the three months ended March 31, 2015 and 2014 was $6,000 and $0.1 million, respectively. 

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (“ESPP”), we are authorized to issue up to 550,000 shares.  Employees may elect to have up to 15% of their gross compensation withheld through payroll deductions to purchase our common stock, capped at $25,000 annually and no more than 10,000 shares per offering period. The purchase price of the stock is 85% of the lower of the market price at the beginning or end of each three-month participation period. As of March 31, 2015, there were approximately 58,000 shares available for purchase.  For the three months ended March 31, 2015 and 2014, we recorded compensation expense of $5,000 and $7,000, respectively, associated with grants under the ESPP which includes the fair value of the look-back feature of each grant as well as the 15% discount on the purchase price.  This expense fluctuates each period primarily based on the level of employee participation.

The fair value of each purchase made under our ESPP is estimated on the date of purchase using the Black-Scholes model.  The Black-Scholes model uses four assumptions to calculate the fair value of each purchase.  The expected term of each purchase is based upon the three-month participation period of each offering.  The risk-free interest rate is based upon the rate currently available on zero-coupon U.S. Treasury instruments with a remaining term equal to the expected term of each offering.  The expected volatility is based upon historical volatility of our common stock.  The expected dividend yield is based upon historical and anticipated payment of dividends.  The weighted average assumptions used in the fair value calculations are as follows:

	For the Three Months Ended March 31,
	2015		2014
Expected term (years)	0.25		0.25
Risk-free interest rate	0.04	%	0.04	%
Expected volatility	35.60	%	43.24	%
Expected dividend yield	4.99	%	4.44	%

Cash received from employee stock plan purchases for the three months ended March 31, 2015 and 2014 was $22,000 and $26,000, respectively. 

We issued shares related to the ESPP of approximately 3,000 for the three months ended March 31, 2015 and 2014. 

XML

Share-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2015

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Summary Of Stock-Based Compensation Expenses

	For the Three Months Ended March 31,
		2015		2014
Cost of license fees and services, excluding
depreciation and amortization	$	22	$	16
Cost of customer support, excluding
depreciation and amortization		2		2
Sales and marketing		7		11
General and administrative		24		42
Product development		34		17
Total share based compensation	$	89	$	88

Summary Of Stock Option Activity

				Weighted-
				Average
			Weighted-	Remaining		Aggregate
	Number of		Average	Contractual		Intrinsic
	Shares		Exercise	Term		Value
	(in thousands)		Price	(Years)		(in thousands)
Options outstanding at December 31, 2014	630	$	4.94	5.69	$	2,959
Options granted	102		8.98
Less options forfeited	(1)		10.90
Less options exercised	(5)		1.22
Options outstanding at March 31, 2015	726	$	5.53	6.06	$	2,659
Options exercisable at March 31, 2015	501	$	3.87	4.69	$	2,580

Stock Incentive Plans [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Assumptions For Weighted Average Fair Value Of Stock Options

	For the Three Months Ended March 31,
	2015		2014
Expected term (years)	6.0		5.9
Risk-free interest rate	1.30	%	1.69	%
Expected volatility	51.48	%	55.98	%
Expected dividend yield	4.95	%	3.90	%

Employee Stock Purchase Plan [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Assumptions For Weighted Average Fair Value Of Stock Options

	For the Three Months Ended March 31,
	2015		2014
Expected term (years)	0.25		0.25
Risk-free interest rate	0.04	%	0.04	%
Expected volatility	35.60	%	43.24	%
Expected dividend yield	4.99	%	4.44	%

XML

Subsequent Events

3 Months Ended

Mar. 31, 2015

Subsequent Events [Abstract]

Subsequent Events

NOTE 12 — SUBSEQUENT EVENTS

On May 5, 2015, our Board of Directors declared a second quarter cash dividend of $0.11 per share, payable May 29, 2015, to stockholders of record May 22, 2015.

XML

Stockholders' Equity

3 Months Ended

Mar. 31, 2015

Stockholders' Equity [Abstract]

Stockholders' Equity

NOTE 8 — STOCKHOLDERS’ EQUITY

Common Stock Dividend

On March 17, 2015, our Board of Directors declared a first quarter cash dividend of $0.11 per share, payable March 31, 2015, to stockholders of record March 24, 2015.   

Any determination to declare a future quarterly dividend, as well as the amount of any cash dividend which may be declared, will be based on our financial position, earnings, financial covenants to which we are subject, earnings outlook and other relevant factors at that time.

CertainAnti-Takeover Provisions/Agreements with Stockholders

Our restated certificate of incorporation allows the board of directors to issue up to 2,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by our stockholders. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. Issuance of preferred stock, while providing desired flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of our outstanding voting stock. As of March 31, 2015 and December 31, 2014, no shares of preferred stock were outstanding.

In addition, we are subject to the anti-takeover provisions of Section 203 of Delaware General Corporation Law which prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in the prescribed manner. The application of Section 203 may have the effect of delaying or preventing changes in control of our management, which could adversely affect the market price of our common stock by discouraging or preventing takeover attempts that might result in the payment of a premium price to our stockholders.

XML

Long-Term Debt

3 Months Ended

Mar. 31, 2015

Long-Term Debt [Abstract]

Long-Term Debt

NOTE 6 — LONG-TERM DEBT

On October 31, 2014, we renewed our $5.0 million Loan and Security Agreement (the “Revolving Facility”).  The $5.0 million Revolving Facility bears interest at the greater of 2.75% or the U.S.A. Prime Rate minus one half of one percent (0.5%).  Prime Rate was 3.25% as of March 31, 2015.  The Revolving Facility is secured by all assets of Evolving Systems, including a pledge, subject to certain limitations with respect to stock of foreign subsidiaries, of the stock of the existing and future direct subsidiaries of Evolving Systems.  There is no mandated borrowing required against the Revolving Facility.  To take an advance under the Revolving Facility, we must have a balance of $3.0 million in cash on deposit and have quarterly net income and a specified ratio of current assets to current liabilities, as defined in the Revolving Facility.  The Revolving Facility requires us to pay an annual credit facility fee of $10,000.  All accrued interest on outstanding borrowings under the Revolving Facility is paid monthly, with any outstanding balance due with a final maturity of October 22, 2016.  As of March 31, 2015, we are in compliance with the covenants and have $5.0 million available to borrow under this Revolving Facility.  We are evaluating the Company’s need and potential uses for the facility, in the course of managing the company’s ongoing liquidity requirements.

XML

Income Taxes

3 Months Ended

Mar. 31, 2015

Income Taxes [Abstract]

Income Taxes

NOTE 7 — INCOME TAXES

We recorded net income tax expense of $0.4 million and $0.3 million for the three months ended March 31, 2015 and 2014, respectively.  The net expense during the three months ended March 31, 2015 consisted of current income tax expense of $0.4 million. The current tax expense consists of income tax from our U.S., U.K. and India based operations.  The net expense during the three months ended March 31, 2014 consisted of current income tax expense of $0.2 million and a deferred tax expense of $57,000. The current tax expense consists primarily of income tax from our U.S., U.K. and India based operations and unrecoverable foreign withholding taxes in the U.S. The deferred tax expense was primarily related to undistributed foreign earnings, a decrease in deferred tax assets related to accrued liabilities and capitalized expenses for tax purpose related to the acquisition of Evolving Systems Labs, Inc.

Our effective tax rate was 34% for the three months ended March 31, 2015 and 2014. 

As of March 31, 2015 and December 31, 2014 we continued to maintain a valuation allowance on portions of our domestic net deferred tax asset.  Such assets primarily consist of certain state Net Operating Loss(“NOL”) carryforwards, research and development tax credits and Alternative Minimum Tax (“AMT”) credits.  The $0.7 million of net deferred tax assets as of March 31, 2015, were comprised of the following:

		March 31, 2015
Deferred tax assets:
Net operating loss carryforwards	$	495
Research & Development Credits		303
AMT credits		951
Stock Compensation		670
Depreciable assets		119
Intangibles		199
Accrued liabilities and reserves		528
Total deferred tax assets		3,265
Deferred tax liabilities
Undistributed Foreign Earnings	$	(855)
Total deferred tax liability		(855)
Net deferred tax assets, before valuation allowance	$	2,410
Valuation allowance		(1,749)
Net deferred tax asset	$	661

We have unrecognized tax benefit NOL’s which are comprised of windfall tax benefits related to stock-based compensation.  Due to a recent adopted accounting pronouncement, Accounting Standards Update No. 2014-09, topic 740 “Income Tax”, these NOL’s were deducted from our NOL carryforwards and are not included in the above summarized net deferred tax asset.  When utilized, windfall tax benefits related to stock-based compensation are recorded as a reduction to our taxes payable when realized, with a corresponding credit to additional paid in capital, not income tax expense.

As of March 31, 2015 and December 31, 2014 we had no liability for unrecognized tax benefits. 

We conduct business globally and, as a result, Evolving Systems, Inc. or one or more of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions.  In the normal course of business, we are subject to examination by taxing authorities throughout the world, namely the United Kingdom and India.

XML

Segment Information

3 Months Ended

Mar. 31, 2015

Segment Information [Abstract]

Segment Information

NOTE 9 — SEGMENT INFORMATION

We define operating segments as components of our enterprise for which separate financial information is reviewed regularly by the chief operating decision-makers to evaluate performance and to make operating decisions. We have identified our Chief Executive Officer and Vice President of Finance as our chief operating decision-makers (“CODM”). These chief operating decision makers review revenues by segment and review overall results of operations.

We currently operate our business as two operating segments based on revenue type:  license fees and services revenue, and customer support revenue (as shown on the consolidated statements of operations).  License fees and services (“L&S”) revenue represents the fees received from the license of software products and those services directly related to the delivery of the licensed products, such as fees for custom development and integration services.  Customer support (“CS”) revenue includes annual support fees, recurring maintenance fees, fees for maintenance upgrades and warranty services.  Warranty services that are similar to software maintenance services are typically bundled with a license sale. Total assets by segment have not been disclosed as the information is not available to the chief operating decision-makers.

Segment information is as follows (in thousands):

	For the Three Months Ended March 31,
		2015		2014
Revenue
License fees and services	$	4,339	$	4,367
Customer support		2,321		2,215
Total revenue		6,660		6,582
Revenue less costs of revenue, excluding
depreciation and amortization
License fees and services		3,114		2,889
Customer support		1,933		1,795
		5,047		4,684
Unallocated Costs
Other operating expenses		3,505		3,377
Depreciation and amortization		120		69
Restructuring		-		211
Interest income		(5)		(3)
Interest expense		3		5
Foreign currency exchange loss		125		96
Income from operations before income taxes	$	1,299	$	929

Geographic Regions

We are headquartered in Englewood, a suburb of Denver, Colorado. We use customer locations as the basis for attributing revenues to individual countries. We provide products and services on a global basis through our headquarters, our London-based Evolving Systems U.K. subsidiary and our San Francisco-based Evolving Systems Labs, Inc. subsidiary. Additionally, personnel in Bangalore, India provide software development services to our global operations. Financial information relating to operations by geographic region is as follows (in thousands):

	For the Three Months Ended March 31,
	2015						2014
Revenue		L&S		CS		Total		L&S		CS		Total
United Kingdom	$	538	$	491	$	1,029	$	1,098	$	500	$	1,598
India		643		79		722		126		-		126
Nigeria		112		119		231		631		91		722
Mexico		316		117		433		588		114		702
Other		2,730		1,515		4,245		1,924		1,510		3,434
Total revenues	$	4,339	$	2,321	$	6,660	$	4,367	$	2,215	$	6,582

		March 31,		December 31,
Long-lived assets, net		2015		2014
United States	$	1,967	$	1,998
United Kingdom		15,259		16,091
Other		167		188
	$	17,393	$	18,277

XML

Share-Based Compensation (Assumptions For Weighted Average Fair Value Of Stock Options) (Details)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Stock Incentive Plans [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (years)	6 years	5 years 10 months 24 days
Risk-free interest rate	1.30%	1.69%
Expected volatility	51.48%	55.98%
Expected dividend yield	4.95%	3.90%
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (years)	3 months	3 months
Risk-free interest rate	0.04%	0.04%
Expected volatility	35.60%	43.24%
Expected dividend yield	4.99%	4.44%

XML

Goodwill And Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2015

Goodwill And Intangible Assets [Abstract]

Summary Of Changes In Carrying Amount Of Goodwill

	License and Services					Customer Support		Total
		U.S.		U.K.		U.K.		Goodwill
Balance as of December 31, 2014	$	1,097	$	7,118	$	8,795	$	17,010
Effects of changes in foreign
currency exchange rates (1)		-		(370)		(457)		(827)
Balance at March 31, 2015	$	1,097	$	6,748	$	8,338	$	16,183

(1) Represents the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. Goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income.

Summary Of Identifiable Intangible Assets

	March 31, 2015						December 31, 2014
		Gross Amount		Accumulated Amortization		Net Carrying Amount		Gross Amount		Accumulated Amortization		Net Carrying Amount	Weighted-Average Amortization Period
Purchased software	$	439	$	78	$	361	$	439	$	64	$	375	4.6 yrs
Trademarks and tradenames		63		18		45		63		15		48	3.8 yrs
Customer relationships		216		38		178		216		31		185	4.6 yrs
	$	718	$	134	$	584	$	718	$	110	$	608	4.5 yrs

Summary Of Expected Future Amortization Expense Related To Identifiable Intangibles

Twelve months ending March 31,
2016	$	94
2017		94
2018		94
2019		89
2020		82
Thereafter		131
	$	584

XML

Basis Of Presentation (Details)	3 Months Ended
	Mar. 31, 2015 item
Basis Of Presentation [Abstract]
Number of recognized sources for revenue	2
Time period for unearned revenue to be billed and collected	12 months

XML

Segment Information (Segment Information) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015 segment	Mar. 31, 2014
Revenue
Total revenue	$ 6,660	$ 6,582
Revenue less costs of revenue, excluding depreciation and amortization
Revenue less costs of revenue, excluding depreciation and amortization	5,047	4,684
Unallocated Costs [Abstract]
Other operating expenses	3,505	3,377
Depreciation and amortization	120	69
Restructuring		211
Interest income	(5)	(3)
Interest expense	3	5
Foreign currency exchange loss	125	96
Income from operations before income taxes	1,299	929
Number of operating segments based on revenue type	2
License Fees And Services [Member]
Revenue
Total revenue	4,339	4,367
Revenue less costs of revenue, excluding depreciation and amortization
Revenue less costs of revenue, excluding depreciation and amortization	3,114	2,889
Customer Support [Member]
Revenue
Total revenue	2,321	2,215
Revenue less costs of revenue, excluding depreciation and amortization
Revenue less costs of revenue, excluding depreciation and amortization	$ 1,933	$ 1,795

XML

Condensed Consolidated Statements Of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Condensed Consolidated Statements Of Comprehensive Income (Loss) [Abstract]
Net income	$ 860	$ 651
Other comprehensive income (loss):
Foreign currency translation gain (loss)	(1,296)	311
Other comprehensive income (loss)	(1,296)	311
Comprehensive income (loss)	$ (436)	$ 962

XML

Earnings Per Common Share

3 Months Ended

Mar. 31, 2015

Earnings Per Common Share [Abstract]

Earnings Per Common Share

NOTE 3 — EARNINGS PER COMMON SHARE

We compute basic earnings per share (“EPS”) by dividing net income or loss available to common stockholders by the weighted average number of shares outstanding during the period, including common stock issuable under participating securities. We compute diluted EPS using the weighted average number of shares outstanding, including participating securities, plus all potentially dilutive common stock equivalents. Common stock equivalents consist of stock options.

Our policy is to treat unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, as participating securities, included in the computation of both basic and diluted earnings per share.  The following is the reconciliation of the denominator of the basic and diluted EPS computations (in thousands, except per share data):

	For the Three Months Ended March 31,
		2015		2014
Basic income per share:
Net income available to common stockholders	$	860	$	651
Basic weighted average shares outstanding		11,668		11,621
Basic income per share:	$	0.07	$	0.06
Diluted income per share:
Net income available to common stockholders	$	860	$	651
Weighted average shares outstanding		11,668		11,621
Effect of dilutive securities - options		270		296
Diluted weighted average shares outstanding		11,938		11,917
Diluted income per share:	$	0.07	$	0.05

For the three months ended March 31, 2015 and 2014, 0.3 million and 0.1million shares, respectively, of common stock were excluded from the dilutive stock calculation because their exercise prices were greater than the average fair value of our common stock for the period.

XML

Goodwill And Intangible Assets (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Goodwill And Intangible Assets [Line Items]
Amortization of intangible assets	$ 24	$ 23
Minimum [Member]
Goodwill And Intangible Assets [Line Items]
Estimated useful life of intangible asset	1 year
Maximum [Member]
Goodwill And Intangible Assets [Line Items]
Estimated useful life of intangible asset	7 years

XML

Income Taxes (Narrative) (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Income Taxes [Abstract]
Income tax expense	$ 439,000	$ 278,000
Current income tax expense (benefit)	400,000	200,000
Deferred tax expense		57,000
Effective tax rate	34.00%	34.00%
Net deferred tax assets	661,000
Unrecognized tax benefits	$ 0		$ 0

XML

Basis Of Presentation (Policy)

3 Months Ended

Mar. 31, 2015

Basis Of Presentation [Abstract]

Organization

Organization — We are a provider of software solutions and services to the wireless, wireline and cable markets. We maintain long-standing relationships with many of the largest wireless, wireline and cable companies worldwide. Our customers rely on us to develop, deploy, enhance, maintain and integrate complex, highly reliable software solutions for a range of Operations Support Systems (“OSS”).  We offer software products and solutions focused on activation and provisioning: our service activation solution, TertioTM (“TSA”) used to activate complex bundles of voice, video and data services for traditional and next generation wireless and wireline networks; our SIM card activation solution, Dynamic SIM Allocation TM (“DSA”) used to dynamically allocate and assign resources to wireless devices that rely on SIM cards; our cloud-based (SaaS) service activation, self—service mobile applications and data enablement solutions to wireless carriers and Mobile Virtual Network Operators (MVNOs); our connected devices activation solution, Intelligent M2M Controller that supports the activation of M2M devices with intermittent or infrequent usage patterns; and our number inventory solution, Total Number Management™, (TNM) a scalable and fully automated solution that enables operators to reliably and efficiently manage their telephone numbers (i.e. SIMs, MSISDNs, IMSIs, ICCIDs, IPs) as well as other communication identifiers such as URLs and email addresses.

Interim Consolidated Financial Statements

Interim Consolidated Financial Statements — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the three months ended March 31, 2015 are not necessarily indicative of the results that we will have for any subsequent period.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2014 included in our Annual Report on Form 10-K.

Use Of Estimates

Use of Estimates—The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We made estimates with respect to revenue recognition for estimated hours to complete projects accounted for using the percentage-of-completion method, allowance for doubtful accounts, income tax valuation allowance, fair values of long-lived assets, valuation of intangible assets and goodwill, useful lives for property, equipment and intangible assets, business combinations, capitalization of internal software development costs and fair value of stock-based compensation amounts.  Actual results could differ from these estimates.

Foreign Currency

Foreign Currency —Our functional currency is the U.S. dollar.  The functional currency of our foreign operations is the respective local currency for each foreign subsidiary.  Assets and liabilities of foreign operations denominated in local currencies are translated at the spot rate in effect at the applicable reporting date.  Our consolidated statements of operations are translated at the weighted average rate of exchange during the applicable period.  The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other comprehensive loss in stockholders’ equity.  Realized and unrealized transaction gains and losses generated by transactions denominated in a currency different from the functional currency of the applicable entity are recorded in other income (expense) in the consolidated statements of operations in the period in which they occur.

Principles Of Consolidation

Principles of Consolidation —The consolidated financial statements include the accounts of Evolving Systems, Inc. and subsidiaries, all of which are wholly owned.  All significant intercompany transactions and balances have been eliminated in consolidation.

Goodwill

Goodwill —Goodwill is the excess of acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired.  Goodwill is not amortized, but tested for impairment annually or whenever indicators of impairment exist. These indicators may include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit.

Intangible Assets

Intangible Assets —Amortizable intangible assets consist primarily of purchased software and licenses, customer contracts and relationships, trademarks and tradenames, and business partnerships acquired in conjunction with our purchase of Telespree Communications (“Evolving Systems Labs, Inc.”).  These assets are amortized using the straight-line method over their estimated lives.

We assess the impairment of identifiable intangibles if events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.  If we determine that the carrying value of intangibles and/or long-lived assets may not be recoverable, we compare the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition to the asset’s carrying amount. If an amortizable intangible or long-lived asset is not deemed to be recoverable, we recognize an impairment loss representing the excess of the asset’s carrying value over its estimated fair value.

Fair Value Measurements

Fair Value Measurements—Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Cash And Cash Equivalents

Cash and Cash Equivalents —All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. 

Revenue Recognition

Revenue Recognition — We recognize revenue when an agreement is signed, the fee is fixed or determinable and collectability is reasonably assured. We recognize revenue from two primary sources: license fees and services, and customer support.   The majority of our license fees and services revenue is generated from fixed-price contracts, which provide for licenses to our software products and services to customize such software to meet our customers’ use.  When the customization services are determined to be essential to the functionality of the delivered software, we recognize revenue using the percentage-of-completion method of accounting. In these types of arrangements, we do not typically have Vendor Specific Objective Evidence (“VSOE”) of fair value on the license fee/services portion (services are related to customizing the software) of the arrangement due to the large amount of customization required by our customers; however, we do have VSOE for the warranty/maintenance services based on the renewal rate of the first year of maintenance in the arrangement. The license/services portion is recognized using the percentage-of-completion method of accounting and the warranty/maintenance services are separated based on the renewal rate in the contract and recognized ratably over the warranty or maintenance period. We estimate the percentage-of-completion for each contract based on the ratio of direct labor hours incurred to total estimated direct labor hours and recognize revenue based on the percent complete multiplied by the contract amount allocated to the license fee/services.  Since estimated direct labor hours, and changes thereto, can have a significant impact on revenue recognition, these estimates are critical and we review them regularly. If the arrangement includes a customer acceptance provision, the hours to complete the acceptance testing are included in the total estimated direct labor hours; therefore, the related revenue is recognized as the acceptance testing is performed. Revenue is not recognized in full until the customer has provided proof of acceptance on the arrangement.  Generally, our contracts are accounted for individually. However, when certain criteria are met, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts. We record amounts billed in advance of services being performed as unearned revenue. Unbilled work-in-progress represents revenue earned but not yet billable under the terms of the fixed-price contracts. All such amounts are expected to be billed and collected within 12 months.

We may encounter budget and schedule changes or increases on fixed-price contracts caused by increased labor or overhead costs. We make adjustments to cost estimates in the period in which the facts requiring such revisions become known. We record estimated losses, if any, in the period in which current estimates of total contract revenue and contract costs indicate a loss. If revisions to cost estimates are obtained after the balance sheet date but before the issuance of the interim or annual financial statements, we make adjustments to the interim or annual financial statements accordingly.

In arrangements where the services are not essential to the functionality of the delivered software, we recognize license revenue when a license agreement has been signed, delivery and acceptance have occurred, the fee is fixed or determinable and collectability is reasonably assured. Where applicable, we unbundle and record as revenue fees from multiple element arrangements as the elements are delivered to the extent that VSOE of fair value of the undelivered elements exist. If VSOE for the undelivered elements does not exist, we defer fees from such arrangements until the earlier of the date that VSOE does exist on the undelivered elements or all of the elements have been delivered.

We recognize revenue from fixed-price service contracts using the proportional performance method of accounting, which is similar to the percentage-of-completion method described above. We recognize revenue from professional services provided pursuant to time-and-materials based contracts and training services as the services are performed, as that is when our obligation to our customers under such arrangements is fulfilled.

We recognize revenue from our Mobile Data Enablement (“MDE”) contracts based on the number of transactions per month multiplied by a factor based on a unique table for transaction volumes relating to each account.

We recognize customer support, including maintenance revenue, ratably over the service contract period. When maintenance is bundled with the original license fee arrangement, its fair value, based upon VSOE, is deferred and recognized during the periods when services are provided.

Stock-Based Compensation

Stock-based Compensation — We account for stock-based compensation by applying a fair-value-based measurement method to account for share-based payment transactions with employees and directors. We record compensation costs associated with the vesting of unvested options on a straight-line basis over the vesting period.  Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of our common stock instead of settling such obligations with cash payments.    We use the Black-Scholes model to estimate the fair value of each option grant on the date of grant.  This model requires the use of estimates for expected term of the options and expected volatility of the price of our common stock.

Comprehensive Income (Loss)

Comprehensive Income (Loss) —Comprehensive income (loss) consists of two components, net income and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency.

Income Taxes

Income Taxes — We record deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying condensed consolidated balance sheets, as well as operating loss and tax credit carry-forwards. We measure deferred tax assets and liabilities using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled.  We reduce deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that these benefits will not be realized.

We use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.  For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

Recent Accounting Pronouncements

Recent Accounting Pronouncements – In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” Topic 606.  This Update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance in this Update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to illustrate the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a reporting organization’s contracts with customers. This ASU is effective retrospectively for fiscal years, and interim periods within those years beginning after December 15, 2016 for public companies and 2017 for non-public entities, however the FASB has proposed deferral of the effective date by one year. We do not expect the adoption of this standard to have a significant impact on the Company’s financial position and results of operations.