Intrinsic value of Evolving Systems - EVOL

Previous Close

$1.54

  Intrinsic Value

$14.81

stock screener

  Rating & Target

str. buy

+861%

Previous close

$1.54

 
Intrinsic value

$14.81

 
Up/down potential

+861%

 
Rating

str. buy

We calculate the intrinsic value of EVOL stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  38.90
  35.51
  32.46
  29.71
  27.24
  25.02
  23.02
  21.21
  19.59
  18.13
  16.82
  15.64
  14.57
  13.62
  12.76
  11.98
  11.28
  10.65
  10.09
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.60
Revenue, $m
  40
  54
  72
  93
  119
  148
  182
  221
  264
  312
  365
  422
  483
  549
  619
  693
  772
  854
  940
  1,030
  1,124
  1,222
  1,324
  1,430
  1,540
  1,654
  1,773
  1,897
  2,025
  2,159
Variable operating expenses, $m
  29
  38
  50
  64
  80
  100
  122
  147
  175
  207
  238
  275
  315
  358
  404
  452
  503
  557
  613
  671
  733
  797
  863
  932
  1,004
  1,078
  1,156
  1,237
  1,320
  1,407
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  29
  38
  50
  64
  80
  100
  122
  147
  175
  207
  238
  275
  315
  358
  404
  452
  503
  557
  613
  671
  733
  797
  863
  932
  1,004
  1,078
  1,156
  1,237
  1,320
  1,407
Operating income, $m
  11
  16
  22
  29
  38
  48
  60
  74
  89
  106
  127
  147
  168
  191
  215
  241
  268
  297
  327
  358
  391
  425
  461
  497
  536
  576
  617
  660
  705
  751
EBITDA, $m
  15
  20
  26
  34
  44
  54
  67
  81
  97
  115
  134
  155
  178
  202
  227
  255
  283
  314
  345
  378
  413
  449
  486
  525
  566
  608
  651
  697
  744
  793
Interest expense (income), $m
  0
  0
  1
  2
  2
  3
  4
  5
  7
  9
  10
  12
  15
  17
  20
  22
  25
  28
  32
  35
  39
  43
  46
  51
  55
  59
  64
  69
  74
  79
  84
Earnings before tax, $m
  10
  15
  20
  27
  35
  44
  55
  67
  80
  95
  115
  132
  151
  172
  193
  216
  240
  265
  292
  320
  349
  379
  410
  443
  476
  512
  548
  586
  626
  667
Tax expense, $m
  3
  4
  6
  7
  9
  12
  15
  18
  22
  26
  31
  36
  41
  46
  52
  58
  65
  72
  79
  86
  94
  102
  111
  120
  129
  138
  148
  158
  169
  180
Net income, $m
  8
  11
  15
  20
  26
  32
  40
  49
  59
  70
  84
  97
  110
  125
  141
  158
  175
  194
  213
  233
  254
  276
  299
  323
  348
  374
  400
  428
  457
  487

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  79
  107
  141
  183
  233
  291
  358
  434
  519
  613
  717
  829
  950
  1,079
  1,216
  1,362
  1,516
  1,677
  1,846
  2,023
  2,208
  2,400
  2,600
  2,809
  3,025
  3,250
  3,483
  3,726
  3,979
  4,241
Adjusted assets (=assets-cash), $m
  79
  107
  141
  183
  233
  291
  358
  434
  519
  613
  717
  829
  950
  1,079
  1,216
  1,362
  1,516
  1,677
  1,846
  2,023
  2,208
  2,400
  2,600
  2,809
  3,025
  3,250
  3,483
  3,726
  3,979
  4,241
Revenue / Adjusted assets
  0.506
  0.505
  0.511
  0.508
  0.511
  0.509
  0.508
  0.509
  0.509
  0.509
  0.509
  0.509
  0.508
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
Average production assets, $m
  20
  27
  35
  46
  58
  73
  90
  109
  130
  154
  180
  208
  238
  271
  305
  342
  380
  421
  463
  508
  554
  602
  653
  705
  759
  815
  874
  935
  998
  1,064
Working capital, $m
  6
  8
  10
  14
  17
  22
  27
  32
  39
  46
  53
  62
  71
  80
  90
  101
  113
  125
  137
  150
  164
  178
  193
  209
  225
  242
  259
  277
  296
  315
Total debt, $m
  17
  28
  42
  59
  78
  102
  128
  158
  192
  229
  270
  314
  362
  413
  468
  526
  586
  650
  717
  787
  861
  937
  1,016
  1,098
  1,184
  1,273
  1,366
  1,462
  1,562
  1,666
Total liabilities, $m
  31
  42
  56
  72
  92
  115
  142
  172
  206
  243
  284
  328
  376
  427
  482
  539
  600
  664
  731
  801
  874
  950
  1,030
  1,112
  1,198
  1,287
  1,379
  1,476
  1,576
  1,679
Total equity, $m
  47
  64
  85
  111
  141
  176
  216
  262
  314
  371
  433
  501
  573
  652
  735
  823
  916
  1,013
  1,115
  1,222
  1,334
  1,450
  1,571
  1,696
  1,827
  1,963
  2,104
  2,251
  2,403
  2,562
Total liabilities and equity, $m
  78
  106
  141
  183
  233
  291
  358
  434
  520
  614
  717
  829
  949
  1,079
  1,217
  1,362
  1,516
  1,677
  1,846
  2,023
  2,208
  2,400
  2,601
  2,808
  3,025
  3,250
  3,483
  3,727
  3,979
  4,241
Debt-to-equity ratio
  0.370
  0.440
  0.490
  0.530
  0.560
  0.580
  0.590
  0.600
  0.610
  0.620
  0.620
  0.630
  0.630
  0.630
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
Adjusted equity ratio
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8
  11
  15
  20
  26
  32
  40
  49
  59
  70
  84
  97
  110
  125
  141
  158
  175
  194
  213
  233
  254
  276
  299
  323
  348
  374
  400
  428
  457
  487
Depreciation, amort., depletion, $m
  4
  4
  4
  5
  5
  6
  7
  7
  8
  9
  7
  8
  9
  11
  12
  13
  15
  17
  18
  20
  22
  24
  26
  28
  30
  32
  34
  37
  39
  42
Funds from operations, $m
  11
  15
  19
  25
  31
  38
  47
  56
  67
  79
  91
  105
  120
  136
  153
  171
  190
  210
  231
  253
  276
  300
  325
  351
  378
  406
  435
  465
  496
  529
Change in working capital, $m
  2
  2
  3
  3
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
Cash from operations, $m
  10
  13
  17
  22
  27
  34
  42
  51
  61
  72
  83
  96
  111
  126
  143
  160
  179
  198
  219
  240
  263
  286
  310
  335
  362
  389
  417
  447
  477
  509
Maintenance CAPEX, $m
  -1
  -1
  -1
  -1
  -2
  -2
  -3
  -4
  -4
  -5
  -6
  -7
  -8
  -9
  -11
  -12
  -13
  -15
  -17
  -18
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -37
  -39
New CAPEX, $m
  -5
  -7
  -9
  -11
  -13
  -15
  -17
  -19
  -21
  -24
  -26
  -28
  -30
  -32
  -35
  -37
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -63
  -66
Cash from investing activities, $m
  -6
  -8
  -10
  -12
  -15
  -17
  -20
  -23
  -25
  -29
  -32
  -35
  -38
  -41
  -46
  -49
  -52
  -56
  -59
  -62
  -66
  -70
  -74
  -78
  -82
  -86
  -91
  -95
  -100
  -105
Free cash flow, $m
  4
  5
  7
  10
  13
  17
  22
  28
  35
  43
  51
  61
  72
  84
  98
  112
  127
  143
  160
  178
  196
  216
  236
  257
  280
  303
  327
  351
  377
  404
Issuance/(repayment) of debt, $m
  9
  11
  14
  17
  20
  23
  27
  30
  34
  37
  41
  44
  48
  51
  54
  58
  61
  64
  67
  70
  73
  76
  79
  82
  86
  89
  93
  96
  100
  104
Issuance/(repurchase) of shares, $m
  6
  6
  6
  6
  5
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  15
  17
  20
  23
  25
  26
  27
  30
  34
  37
  41
  44
  48
  51
  54
  58
  61
  64
  67
  70
  73
  76
  79
  82
  86
  89
  93
  96
  100
  104
Total cash flow (excl. dividends), $m
  18
  22
  27
  32
  37
  43
  49
  58
  69
  80
  92
  106
  120
  136
  152
  169
  188
  207
  227
  248
  269
  292
  315
  340
  365
  392
  419
  448
  477
  508
Retained Cash Flow (-), $m
  -13
  -17
  -21
  -25
  -30
  -35
  -40
  -46
  -51
  -57
  -62
  -68
  -73
  -78
  -83
  -88
  -93
  -98
  -102
  -107
  -111
  -116
  -121
  -126
  -131
  -136
  -141
  -147
  -152
  -159
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  5
  5
  6
  6
  7
  8
  8
  12
  17
  23
  30
  38
  47
  58
  69
  81
  95
  109
  125
  141
  158
  176
  195
  214
  235
  256
  278
  301
  325
  349
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  5
  5
  5
  5
  6
  6
  6
  8
  10
  12
  14
  16
  18
  19
  20
  21
  21
  20
  19
  18
  16
  15
  13
  11
  9
  7
  6
  5
  4
  3
Current shareholders' claim on cash, %
  81.4
  68.9
  60.8
  55.6
  52.5
  51.0
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9
  50.9

Evolving Systems, Inc. is a provider of software solutions for service enablement, on-device activation and management of services for connected devices for network operators. The Company operates in two segments: license fees and services revenue, and customer support revenue. Its service activation solution, Tertio is used to activate voice, video and data services for wireless, wireline and cable network operators. Its Subscriber Identity Module (SIM) card activation solution, Dynamic SIM Allocation is used to allocate and assign resources to Mobile Network Operators devices that rely on SIM cards. Its Mobile Data Enablement solution provides a data consumption and policy management solution for wireless carriers and Mobile Virtual Network Operators that monitor the usage and consumption of data services. Its Total Number Management product is an automated database solution that enables operators to manage their telephone numbers, as well as other communication identifiers.

FINANCIAL RATIOS  of  Evolving Systems (EVOL)

Valuation Ratios
P/E Ratio 6.1
Price to Sales 0.7
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 2.6
Price to Free Cash Flow 2.6
Growth Rates
Sales Growth Rate -3.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 13.8%
Total Debt to Equity 20.7%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.4%
Ret/ On Assets - 3 Yr. Avg. 8.9%
Return On Total Capital 7.8%
Ret/ On T. Cap. - 3 Yr. Avg. 11.2%
Return On Equity 9.8%
Return On Equity - 3 Yr. Avg. 12.3%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 76%
Gross Margin - 3 Yr. Avg. 74.1%
EBITDA Margin 24%
EBITDA Margin - 3 Yr. Avg. 22%
Operating Margin 24%
Oper. Margin - 3 Yr. Avg. 24.4%
Pre-Tax Margin 20%
Pre-Tax Margin - 3 Yr. Avg. 20.7%
Net Profit Margin 12%
Net Profit Margin - 3 Yr. Avg. 14.5%
Effective Tax Rate 40%
Eff/ Tax Rate - 3 Yr. Avg. 30%
Payout Ratio 100%

EVOL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EVOL stock intrinsic value calculation we used $28.812 million for the last fiscal year's total revenue generated by Evolving Systems. The default revenue input number comes from 0001 income statement of Evolving Systems. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our EVOL stock valuation model: a) initial revenue growth rate of 38.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for EVOL is calculated based on our internal credit rating of Evolving Systems, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Evolving Systems.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of EVOL stock the variable cost ratio is equal to 75.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for EVOL stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Evolving Systems.

Corporate tax rate of 27% is the nominal tax rate for Evolving Systems. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the EVOL stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for EVOL are equal to 49.3%.

Life of production assets of 25.4 years is the average useful life of capital assets used in Evolving Systems operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for EVOL is equal to 14.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $34.413 million for Evolving Systems - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 12.115 million for Evolving Systems is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Evolving Systems at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ Evolving Systems: 3Q Earnings Snapshot   [Nov-13-18 05:44PM  Associated Press]
▶ Evolving Systems: 2Q Earnings Snapshot   [Aug-14-18 06:51PM  Associated Press]
▶ Software company Evolving Systems fires CEO for cause   [Jul-18-18 08:44AM  MarketWatch]
▶ As America's hiring spree continues, these Denver companies are leading the charge   [Jul-16-18 04:35PM  American City Business Journals]
▶ Evolving Systems: 1Q Earnings Snapshot   [May-15-18 06:07PM  Associated Press]
▶ Evolving Systems reports 4Q loss   [Apr-03-18 09:57AM  Associated Press]
▶ Evolving Systems posts 3Q profit   [Nov-13-17 06:13PM  Associated Press]
▶ Evolving Systems Completes Acquisition of Lumata   [Sep-07-17 08:00AM  GlobeNewswire]
▶ Evolving Systems posts 2Q profit   [Aug-10-17 01:08AM  Associated Press]
▶ Colorado medical device company names CFO in bid to join major stock exchange   [Jun-09-17 02:40PM  American City Business Journals]
▶ Evolving Systems posts 1Q profit   [May-11-17 05:50PM  Associated Press]
▶ New Jersey, Colorado tech firms engage in a nasty donnybrook   [May-10-17 10:11AM  American City Business Journals]
▶ Evolving Systems posts 4Q profit   [04:18PM  Associated Press]

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