Notes from the Q4 2018 CC

[admin]

• The software platform shifts control as it removes the constraints of proprietary technology and policies from a single operator, and gives it a global reach.
• Customers can (and do) demand custom solutions, easy in software (even if it holds up backlog conversion a bit).
• Customers (like MVNO) their own master of their own subscribers and branding, not that of the underlying service provider (the actual mobile (or fixed) network operator).
• Super API: enable ecosystem of solution providers, increasing platform stickiness.
• Selling to a very large and growing market, powerful scaling mechanism for their business.
• MWC in Barcelona was a success, over 100 meetings, lots of opportunities
• Artilium was accretive to earnings
• iPass supplies 75 new developers, helping converting backlog, need no training, it would have been much more expensive and slower hiring and training these people, and the level is now sufficient.
• iPass SmartConnect is a powerful up-sell for their existing service provider customers for WiFi offload, and Pareteum's additional MVNO enablement and messaging capabilities selling to iPass enterprise customers.

This isn't all, we'll keep adding..

[admin]

• After closing 16 transactions including iPass SmartConnect (also when they had an strategic alliance), they have a 2019 pipeline of 29 perspective sales identified through mid-March (another $166M in backlog).
• Their global connect cloud platform was just 4% of revenue in Jan 2018, at the end of Jan 2019 it's 51%, with customers rising from 25 to 533 over the same time period.
• Including iPass, 36-month backlog now stands at $800M, up from $615M at the end of 2018 and $147M at the end of 2017.
• Dollar net expansion rate of 214%
• Adjusted EBITDA of $2.3M in Q4, adjusted EPS of $0.02, 2018 adjusted EPS was $0.09.

Not done yet, we'll keep adding..

[admin]

• Q4 revenue from Artilium was $5M, it has already met the targeted synergies.
• Pareteum organic growth in 2018 was 101%, growth including Artilium was 139%.
• Pro-forma 2018 Pareteum + Artilum revenue was $56M.
• Backlog conversion was 97% in Q4, slightly down from 100% previously. Custom made solutions for customers seem to be one thing causing some delay, but it makes the platform more valuable and sticky (hence that whopping dollar net expansion rate of 214%).
• But most of that will be done in the next 4-6 weeks and this will unleash backlog conversion.
• Revenue per employee in Q4 was $415K, up from $233K in Q4 2017, indicating strong operational leverage.
• iPass acquisition is expected to be accretive in Q2 (the first full quarter of acquisition as it closed Feb 12).
• There are $19M of cost and expense synergies from iPass, $11M of these have been achieve through headcount reductions. This can be exceeded in 2019.
• With iPass, the company has over 10M of connections.

[admin]

• Revenue guidance for 2019: $105M-$115M based on 75%-80% conversion of backlog.
• Positive EBITDA and cash flow for the year (although mostly coming from H2).
• Market is projected to grow by 50% CARG according to Gartner.
• Some gross margin reduction with the acquisitions of Artilium and iPass, from the 70s to the high 50s, low 60s as the Artilium and iPass solutions require more hands-on usage.
• Artilum cross-sell opportunity is large, they concentrated on front end customer and enterprise solutions, Pareteum mostly back-office, can sell to one another both ways.
• With the acquisitions the company is now fishing in a much larger geographical area and they doubled their sales headcount to address these opportunities.
• Business has three segments, enterprise, IoT and traditional CSPs (service providers), the latter will still be the biggest (>50% in 2019).
• The company implemented a salesforce.com system to add sales
• Management looking for smaller tuck-in acquisitions to add technical capabilities.
• Management sees 55$ growth in 2020, 40% in 2021.
• There are some implementation risks which they have so far eluded, like customers going bankrupt or taken out, or not paying. The $50M credit is for this, as well as eliminate the much more expensive $11M debt from iPass.