Thank you. Good afternoon, and welcome to Evolving Systems 2012 First Quarter Earnings Call.

I'm Dan Moorhead, Vice President of Finance and Administration. And joining me today is Thad Dupper, Chief Executive Officer.

During the course of this call, we will be making forward-looking statements based on current expectations, estimates and projections that are subject to risks. Specifically, our statements about future revenue, expenses, cash, taxes and the company's growth strategy are forward-looking statements.

Listeners should not place undue reliance on these statements. There are many factors that could cause actual results to differ materially from our forward-looking statements.

We encourage you to review our publicly filed documents, including our SEC filings, news releases and website for more information about the company.

Once again, for the benefit of our new investors, I want to point out that our financial statements reflect the July 2011 asset sale of our numbering business for $39.4 million in cash plus the assumption of $5.8 million in liabilities. The resulting gain from the asset sale, as well as the financial results attributed to the numbering business, are presented as discontinued operations in our financial statements.

First quarter results. Revenue increased 10% in the first quarter to $5.9 million from $5.4 million in the first quarter last year.

License and services revenue increased 20% to $3.8 million from $3.1 million. That increase more than offset the slight reduction in customer support revenue to $2.1 million from $2.2 million.

Total costs of revenue and operating expenses in Q1 were lower by 8% at $5.3 million versus $5.8 million in Q1 last year. Sales and marketing expense declined 28% to $1.3 million from $1.9 million due to lower sales-related travel and marketing activities.

G&A expense declined 17% to $900,000 from $1.1 million due to lower employee-related costs. And product development costs were flat at $700,000 year-over-year.

Income from operations in the first quarter improved by approximately $1 million to $600,000 versus an operating loss of $400,000 in Q1 last year. Other income in Q1, primarily interest on marketable debt securities, totaled $400,000 compared to $100,000 in Q1 last year.

Pretax income from continuing operations grew to $900,000 from a loss of $300,000 in Q1 a year ago, a $1.2 million improvement. Q1 net income was $800,000 or $0.07 per basic and diluted share versus net income of $900,000 or $0.09 per basic and $0.08 per diluted share in Q1 last year.

Remember, however, that the year ago Q1 net income figure included $1.2 million in income from discontinued operations. Adjusted EBITDA from continuing operations in Q1 increased to $800,000 from $14,000 in the same quarter last year.

Now a review of our booking and backlog highlights. We booked $5.6 million in new orders in the first quarter, a 10% increase over $5.1 million in Q1 last year.

License and services bookings in Q1 were up 23% year-over-year to $3.8 million from $3.1 million. It was our third straight quarter of solid year-over-year increases in license and services bookings.

DSA license and services bookings in Q1 were up 123% year-over-year to $2.6 million from $1.2 million. It was the highest first quarter DSA total since the product was introduced in 2007.

Customer support bookings in Q1 were down 10% to $1.8 million versus $2.1 million in the comparable quarter last year. Total backlog at March 31, 2012, was $12.5 million, up 63% from $7.6 million in Q1 last year.

License and services backlog was $7.8 million, up 184% year-over-year from $2.8 million. DSA license and services backlog grew by 782% to $5.9 million from $700,000.

Customer support backlog was $4.7 million in the first quarter down from $4.9 million in Q1 last year.

Balance sheet highlights. Our cash position remained strong at March 31, 2012.

We generated $1.5 million in cash from continuing operations in Q1 versus $600,000 in the same quarter last year.

Cash and cash equivalents plus long-term investments in marketable debt securities totaled $31 million compared with $50.7 million at year end. Remember, however, that the $50.7 million year-end total was prior to the first quarter 2012 special dividend payment of $22.3 million.

Dividend update. In January, we paid a $2 per share special dividend that returned $22.3 million to our stockholders.

Later in the quarter, in March, we declared our regular $0.05 quarterly dividend that was paid in April. Today, we announced a second special dividend of $1.70 per share or approximately $19.3 million, which is payable at the end of this month.

To avoid any confusion, I would direct stockholders to read today's special dividend news release very carefully. Stockholders must hold their Evolving Systems shares until May 30, 2012, in order to receive the dividend.

Keep in mind if a stockholder sells their shares before May 30, the stockholder will relinquish the dividend to the buyer of the shares.

With that, I'll now turn the call over to Thad.

Thanks, Dan, and good afternoon, everyone. Our Q1 results showed across-the-board strength.

L&S bookings and revenue grew at double-digit rates while DSA L&S bookings and backlog, as well as our profit metrics, grew at triple-digit rates.

Specifically, it was our best Q1 for DSA L&S bookings. DSA L&S bookings were up 123% year-over-year and DSA L&S backlog was up 782% year-over-year.

first, increasing our focus on our Activation solutions; and second, constantly strengthening our ability to sell and support customers around the globe.

Beginning with our increased focus. As you know, last July, we sold our numbering business, a transformative event that allowed us to reinvent EVOL as a company that is 100% focused on the activation business.

You've heard me refer to the new EVOL as an activation pure play, and we believe that is an accurate description.

Today, we sell 3 products that focus exclusively on the wireless activation market. First, our Tertio Service Activation or TSA product is widely regarded as the best-in-breed solution for carriers looking to replace either their existing homegrown system or one provided by their network switch vendors.

TSA allows carriers to quickly and cost effectively activate an ever-expanding bundle of value-added services while at the same time reducing their time to market, which is extremely important in today's hypercompetitive wireless markets. For example, the ability to quickly provision services such as mobile broadband or new data plans, which are critical areas of growth for wireless carriers, is a prime example how TSA can help carriers.

The second product in our activation portfolio is dynamic SIM allocation or DSA. This is where we are seeing the majority of our growth.

When we sold our numbering business 3 quarters ago, it was with the clear intention to focus our resources on our activation products, and DSA has been the biggest beneficiary of this change in strategy. This is highlighted by the fact that over the last 3 quarters, again since the sale of our numbering business, our DSA L&S bookings are up 374%.

Looking beyond our DSA booking results, we also made progress with our production deployments. Earlier this quarter, we announced that we have now activated over 75 million SIMs with DSA.

We are activating over 4 million SIMs per month, and keep in mind, we still have customers who are not yet in production. Once we get those customers in production, our run rate will no doubt increase significantly.

And again, with every additional 1 million SIM cards we activate, we continue to extend our market leadership.

The production experience we gain from our DSA implementations, as well as the feedback we get from our customers, funnels directly back into our product roadmap. And as a result, DSA continues to evolve.

This cycle of more production experience leading to a better, more robust DSA solution is one of the main reasons we expect to keep whatever competition we see with DSA in our rearview mirror.

On the IP front, Q1 was also a good quarter. We announced earlier we were pleased to receive a U.S.

patent for our DSA solution during the quarter. And we have several more applications under review, both in the U.S.

and EU.

And finally, let me tell you about some progress we made on the marketing front. We just posted a new DSA video on YouTube.

Simply go to YouTube and search on DSA Evolving Systems or Dynamic SIM Allocation. Please take a look at the new video.

And let me add, knowing that many of our investors are from the East Coast, you'll be happy to know that the video is less than 3 minutes long.

The third product in our activation portfolio is our connected device product. We continue to generate interest in this software as the market for connected devices continues to develop.

And we remain optimistic about the potential the connected device market represents for EVOL. We are convinced that our subject matter expertise, combined with our network integration experience positions us to be a valuable partner for carriers looking to roll out a comprehensive end-to-end and connected device activation strategy, especially for devices that need only intermittent or infrequent connection to the network.

A few words about our partnerships. As we discussed last quarter, we said that we expected 2012 to be a breakthrough year for our partner channel.

And I am pleased to report that for Q1, 75% of our DSA orders came via our partner channel. And looking to Q2, we expect our partner channel to again drive strong results for us.

On the international front. We continued to expand our global footprint in Q1 with the addition of a major new DSA win.

As you know, today, Evolving Systems generates 100% of its revenue outside the U.S. So clearly, we are a company that knows what it takes to sell, implement and support customers in the international markets, which, of course, includes the high-growth emerging markets.

And now a word on our special dividends. As you know in January of this year, we distributed a onetime special dividend of $2 per share.

And today, based on our sustained confidence in the business, we declared a second special dividend that will return an additional $1.70 per share to our stockholders. We are confident even after this second special dividend is paid, we will remain a well-capitalized company with adequate levels of cash on hand.

Furthermore, we continue to fund our growth initiatives to the level that will allow us to continue to maintain our market leadership position.

As Dan mentioned, if you have any questions about the latest special dividend, please contact us or our investment relations firm as well as review our press releases and website.

And as I do every quarter, let me remind you that we remain a small company where the delay of any single key order can have a pronounced effect on our quarterly results. With that, we continue to believe it's more accurate to judge EVOL on an annual rather than quarterly basis.

In conclusion, we believe our success over these last 3 quarters is a result of our activation pure play strategy and our ability to execute. And given our strong Q1 results and the shape and size of our Q2 funnel, we remain confident that we'll be able to build on our current momentum and that will position us for accelerated growth through the balance of 2012.

With that, we thank you again for joining us today, and we're now happy to take your questions.

So it's nice to see that you guys reached that milestone of $75 million DSA activations announced during the quarter. Just curious if you can remind us, is there still a royalty component associated with those activations, and what's the time frame for when you might realize that?

Well, you're right. The way we license the product, Chris, is it comes with the base license.

And once that license is exhausted, the carrier has to reload the license, so to speak, for the next tranche of activations. And as you'd also expect, each contract is specific to the customer.

So we call these first-use activation license upticks. We've had several from some of these customers.

It really depends on the path each one is on. They are defined in each individual contract.

I think we gave guidance in prior calls that we didn't think the FUA revenue for 2012 would be material. But as these customers do move into production and they do use their current activation balances, that gets them closer to when they have to reload.

Now, when they reload, we are talking pennies or cents per activation on the reload of the license. But again when you're talking about 4 million, 6 million, 8 million, 12 million activations a month, we can quickly exhaust the initial tranches and that will turn into a license uptick as we call it.

And again the gross margin on those license expansions is 100%. So we like the recurring nature of that revenue model as we go forward.

But I would say, 2013 and '14 is when we see those contributions really kick in.

Okay. And then, curious, with some of these new DSA customers starting to ramp their activations, are you seeing any sort of reactions in the market from their competitors kind of reacting to the offering that DSA provides?

Well, that's an excellent question. And yes, we are.

What's happening is as the DSA customers are beginning to roll out their solutions, their competitors are taking notice and either they're inviting us in for sales calls or they're starting sales motions with us or they're just taking notes. So we've seen a knock-on effect in some of the countries where DSA is deployed where we're gaining interest from the other carriers within the country.

And we think that bodes well for the future.

Okay. And then finally, I just noticed in the Q that you guys own a good amount of bonds in Primus Telecommunications.

After they just recently sold their Australian unit, I think those bonds are trading quite higher today than where you have them marked. And just kind of curious what your plan is for those investments.

Yes, this is Dan. Actually, if you check the subsequent event in 10-Q, we sold all those during April, so we are not holding those bonds anymore and those were sold on the open market during April.

We expect to record and realize that gain on that sale in Q2.

And Chris, just to add, the sale of those bonds is what puts us in a position to be able to be declare the second special dividend.

Can you give us little bit more information about whether you're seeing any orders on the machine-to-machine and what the outlook for that might be?

We are, and I'll be glad to. We continue to receive interest in machine-to-machine and it really comes in to 2 flavors.

One is our intelligent M2M controller product. And we're also seeing carriers come to us for what we call DSA for M2M.

And one of those scenarios was where the pallet -- you have a shipping pallet that's making its way through Europe. And as it goes to a different country, rather than roam, and we all know how roaming charges are exorbitant, the SIM card would reactivate in the local country and use local rates.

So that's a use case that we're in discussions with with some carriers in Europe and you can see the efficiency and the savings associated with that. Overall, though, I would say M2M and the connected device space for Evolving Systems in 2012 will be a space that's developing.

We don't think it will contribute materially to 2012 results, but we think it's something that holds a lot of hope for the future for us as that market starts to materialize, and we think we're in a nice position to participate in that growth.

Okay. Another question is your revenues are exclusively outside of North America.

Are any of these products generating interest that might lead to North American revenues in the future?

Well -- and that's another good question. We'd like to think so.

And again, I mentioned that YouTube video. I really encourage everybody to see it.

DSA's best value proposition is in the prepaid wireless market. And as many of you know, the U.S.

is mostly a postpaid market, not exclusively postpaid, but most. But we know there's a fit.

We know there's a fit for the Tertio Service Activation. Last year, we had successfully sold that product to LightSquared.

And as you know, LightSquared's business has taken a different turn, so we will be deploying that solution. Now let me just add before anybody gets nervous, we have no exposure to receivables.

We have no further booked business with LightSquared or revenue at risk. But we were able to sell it in the U.S.

I believe the U.S. carriers would benefit greatly from DSA.

I think the amount of money U.S. carriers spend on their retail channel is very, very high.

But when you're in a market like the U.S., where you'd get a $63 a month ARPU and you've got contract customers that sign up for 12-, 24-month contracts, it really doesn't speak to the strongest strength of DSA. DSA's sweet spot is prepay and that tends -- that doesn't tend, but it dramatically focuses us outside the U.S.

where it's very common, whether it's the U.K., Germany, France, Spain or the emerging markets, for wireless users to use a prepaid plan and not enter into a contract relationship with the carrier.

I came into the call a little late and maybe you'll be repeating yourself, but I'm trying to understand, you made a -- I kind of caught a comment about the trajectory of results for rest of the year. You used the word accelerating in some framework and I didn't catch the complete context.

Could you maybe go back through and give us some sense of what your expectations are for growth and profitability over the rest of the year?

Yes, it's Thad. I'll start and then I'll turn it over to Dan.

We did say we expect, given the strong order and backlog position we're in, that we expect our results will accelerate through the balance of the year. And those of you who know us well, and I know you do, Harvey, bookings and backlog are a very strong leading indicator for follow-on revenue and earnings for the subsequent quarters.

And the fact that our L&S backlog is at $7.8 million versus $2.8 million a year ago bodes very well for the next several quarters. The other thing that I would add, and this is all public information of course, is if you look at our comps for Q2, Q3 and Q4, but especially Q2 and Q3, they're very, very beatable.

And I would say if you liked Q1, I think you'll be very pleased with Q2 and Q3. Anything you'd like to there?

No.

I think that's enough, isn't it?

Yes.

All right. Thank you, very much.

We appreciate everybody's continued interest in EVOL, and we look forward to giving you reports sometime in the early August time frame when we report our Q2 results. Thank you, again, for joining us today.