Decreased comfort level

[throwaway1]

Hi admin,

Just wanted to point out that the 900m+ backlog today includes iPass. The 615m as of end 2018 was excluding iPass; including would have stood at >800m. So it seems their backlog is still growing at reasonable speed.

With regards to revenue guidance, I think its a combination of lower conversion (as guided) and the classic "beat & raise" technique. Thoughts?

Also, my additional thoughts on the Sep AGM 84m is that it includes legacy TEUM + Artilium numbers already, so quick math goes as such:
- 84 * 0.75 = 61 (80% = 67m)
- iPass 9M 2018 revenue was ~31m, full year probably ~38-40m. Assume some low growth as it gets integrated into main operations, probably get to 45m (higher than my own expectations, but for the sake of argument)
- Total = ~106 - 112m, which seems to be right in line with guidance of 105 - 115m

I actually did my own DD after reading your article on SeekingAlpha, so thanks for that. Was going to take a long position post-AAPL & AMD earnings but the stock popped the past couple of days. Waiting for the price to settle for a bit and hopefully size up before earnings.

Cheers!

Hello throwaway1,

Yes, I realize the backlog today contains iPass, but I'm not at all sure iPass backlog is significant, to be honest and I think connecting customers to their WiFi network and handoff tech is much simpler so deals don't tend to generate much backlog, but I could be wrong here.

You seem to take that $84M AGM number as revenue, and if it included Artilium you indeed end up close to guidance numbers. However:

• The $84M is a backlog number (the last time they split that out for individual years), not a revenue number (but it could be they included Artilium expected 2019 revenue here, we don't know).
  
• You could be right about the Sep AGM $84M 2019 backlog number including Artilium already but we simply don't know. Even though, we also don't know whether Artilium's backlog is significant, at first sight it doesn't seem to be. While backlog has greatly increased, for what I have seen all the increases came from PRs announcing new deals, without any unexplained jump in backlog that could be ascribed to Artilium. Of course these new announcements could contain some backlog for Artilium. iPass is too recent so I don't think it's possible they added much to backlog.
  

Doing your own DD is always appreciated!

• The 84m is a revenue (not contract) backlog, i.e. I take that as the contractual backlog they expect to turn into revenue for that year, therefore expected revenue. A point in support of this assumption is that the projected 2019 revenue for TEUM + Artilium was 74.9m from their 14A filing (Jul 2018) relating to the Artilium acquisition. So it seems very plausible that projected revenue backlog excl. iPass went up to 84m by Sep 2018. 
  
• *I do note however, that I can't seem to find the original AGM presentation with that figure from the Oil & Gas article. The presentation pdfs I found had differing numbers. But I am presuming the 84m is the correct number.
  
• As to Artilium backlog, it was ~40m added from their Q3 earnings call. 
  
• Regarding the jumps in backlog, one contributing reason is due to increased backlog from existing customers, which I personally think is better than new contractual backlog actually, since it should take a higher degree of confidence / signs of success to raise backlog of existing contracts. (End Oct 2018 backlog of 500m breakdown was as such: 276m backlog at Q2 2018, added 112m in new contracts, 72m increase from existing customers, and 40m from Artilium)
  
• iPass backlog through Mar 2019 was ~185m (adds 25 - 30% to their 615m at end 2018), the PEO mentioned it in his FY2018 earnings call. 
  

Another nugget I found was that their expected revenue backlog for 2019 seems to be around ~150m (including iPass). The 105 - 115 comes from a 75% - 80% conversion of the 150m number. Sounds reasonable to me, if 84m was attributable to TEUM excl. iPass at Sep 2018, assuming a slight increase to ~90 - 95m by end 2018. Throw in ~65 - 70m for iPass (iPass' own forecasted revenue for 2019 was 58m) and we get to that 150m number. 

For the issue around why their revenue guide went from 144m to 105- 115m, the 144m (TEUM 43.3m, Artilium 31.6m, iPass 58.1m) comes from official projections provided through their 14A filings for Artilium and iPass. However, looking at iPass projected numbers, I think its actually quite retarded. They did 53m in revenue for CY2017, 42m for CY2018, and then projected 58m for CY2019 (~35% increase), meaning they think they can re-ramp up revenues AFTER a significant decline that to me wasn't very well explained outside of the liquidity issue. While I can see the synergy between the firms, I don't see it causing a 35% jump for iPass out of nowhere.

So, to conclude, my own DD has given me decent comfort level around the topline numbers and projections. Also, to address the fraud CFO issue, from everything I can tell, the PEO seems to be firmly in control of the firm and very across all the numbers in detail, including contract backlog and revenue conversion, so its not exactly a major pain point for me. Will be looking into bottom line over the weekend, but likely not as intensively, given that my thesis is around price/sales multiple expansion as well. 

and one more thing, I believe their internal target is ~ the 140m mark for 2019 actually, given how the PEO went out of the way to highlight that their internal target is much higher than their official guidance provided, which is why I mentioned that feels like a "beat and raise" scenario to get investors pumped. Given that's its impossible to consistently maintain 100% conversion, I like the guidedown to lower expectations first.

Cheers!