Decreased comfort level

[admin]

I don't have a lot of the investment knowledge as many on this site so perhaps I may be wrong because my understanding may not be as strong as some. The stock was at 3.91 on March 12th the day before earnings peaked on March 18th at 5.93 and now is at 4.35 which isn't much above when we got last audited numbers. I have concerns like others but the price isn't much higher than at last earnings so to me it appears most if not all the concerns are already baked into the price.
I can understand some profit taking on the concerns from those who have a lot of profit already. I also understand SHU's concerns as he has written a number of positive articles about the stock so I see why he would want to express both positives and negatives he sees.
I'm staying Long TEUM at this time.

Appreciated Coach. By the way, we still have a long position, albeit half the previous one.

[Mrebs]

Sorry to hear you sold half your position but a profit is a profit! IMO you might have been taken advantage of. Short interest went from 8.5M to 11.8M in 2 weeks and it looks like an additional 1M shares were borrowed today to help drive it down, and that just so happened to line up with a SA article that was based on opinions. I am sure Q1 numbers will be strong which is why I am still holding all mine, but they are over the 1 year threshold for the tax break. We will see soon if it was the right move.

[admin]

Sorry to hear you sold half your position but a profit is a profit! IMO you might have been taken advantage of.  Short interest went from 8.5M to 11.8M in 2 weeks and it looks like an additional 1M shares were borrowed today to help drive it down, and that just so happened to line up with a SA article that was based on opinions.  I am sure Q1 numbers will be strong which is why I am still holding all mine, but they are over the 1 year threshold for the tax break.  We will see soon if it was the right move.

Yea, shorts apart, the simple reason we bailed out of half our SHU position is that I can't answer the issues mentioned earlier in this thread and the fact that the shares didn't rally on this mornings news. Since we have close to 11K followers on SA we felt compelled to announce that this was moving a little out of our comfort zone. We suspect that the conversion rate might very well come down quite a bit, could be well below 50% even. 

In fact, that in itself wouldn't be a disaster but it points to aggressive promotion of the backlog, which now seems to stand at a colossal $938M or so. If they're overly aggressive reporting backlog, they might well be aggressive with other things. There is no indication of that as far as I know, but it reduces the comfort zone, to be honest.

[stpioc]

Here's an idea. The company should simply dispose of these silly backlog figures altogether. 
Problem solved.

Revenue wise they're doing pretty well, moving from $4M in Q1 to $9.2M or so in Q4 2018. Just guide revenues and forget about that backlog.

I mean, that stands at what, $900M+ or so? Does anyone actually think that in two years they're going to monetize 55% of that (and what is added in the meantime)? 

Backlog is what's creating all these issues with credibility, animating the shorts and pulling even some longs out of their comfort zones. 

Just report revenues, steady growth, guide conservatively, and beat. Rinse repeat, that's how you build credibility. 

Or if they won't do that, perhaps investors should simply ignore the backlog figures, and focus on revenue growth, cash flow, you know, the basic stuff..

[admin]

Interesting I found this on twitter. Seems the guy who wrote the article bringing TEUM down today wrote a similar article in 2016 about another company. Hopefully he is equally wrong about TEUM.
https://twitter.com/philipcarl3/status/1...96352?s=20

Not sure that says much, Coach. Everybody can be wrong. It's not hard to find articles were we have been wrong either. Even Buffet is wrong occasionally. 

What I think is important is to build in the possibility one might be wrong. Too often I've seen people getting emotionally attached to a stock and reasoning criticism away. One should be open to counterarguments and facts..

[admin]

Here's an idea. The company should simply dispose of these silly backlog figures altogether. 
Problem solved.

Revenue wise they're doing pretty well, moving from $4M in Q1 to $9.2M or so in Q4 2018. Just guide revenues and forget about that backlog.

I mean, that stands at what, $900M+ or so? Does anyone actually think that in two years they're going to monetize 55% of that (and what is added in the meantime)? 

Backlog is what's creating all these issues with credibility, animating the shorts and pulling even some longs out of their comfort zones. 

Just report revenues, steady growth, guide conservatively, and beat. Rinse repeat, that's how you build credibility. 

Or if they won't do that, perhaps investors should simply ignore the backlog figures, and focus on revenue growth, cash flow, you know, the basic stuff..

Actually, ignoring backlog is a pretty good idea.

[stpioc]

Here is something else that is somewhat vexing. iPass was a declining, loss-making business before the acquisition (not necessarily a problem in itself). However:

• Cost synergies of $15M (per iPass acquisition presentation) would take a good chunk out of their personnel as most of this is through more or less immediate redundancies.
  
• Another good chunk, those 75 engineers are going to help converting the Pareteum backlog.
  
• iPass business is going to be revised under Pareteum now that customers are less scared of bankruptcy. Indeed, they signed up a couple of deals already, like Citrix.
  
• More business, much less people, unless iPass had many employees doing basically nothing (which would be very odd for a company in financial difficulties).
  

[admin]

From the little we know about the backlog, the available evidence points uncomfortably towards a significant overstatement:

• In an August 2018 presentation, backlog for 2019 was $84M, since overall backlog has doubled since then, it should be considerably higher today. Yet the company's 2019 revenue guidance ($105M-$115M) contains only $30M-$40M of revenue for legacy Pareteum (ex Artilium and iPass). Either the company is going to blow out its guidance, or the conversion rate is way lower than the 80% they've guided for this year.
  
• We know only few names of the companies that signed these contracts, but of these few, there were quite a number which really seemed way too small to generate the kind of numbers contracts routinely mention.
  
• Management itself is moving the needle down from 100% conversion to 75%-80% conversion for this year.
  

In short, there is not a whole lot of evidence in the public view, but on balance, what exist as evidence is uncomfortable. It's likely that backlog is significantly overstated. 

That in itself might not be all that bad, even at 50% conversion the company still has a significant growth path in front of it (as backlog stands at a whopping $938M), but it opens up other, more problematic possibilities:

• If the company is way too aggressive with backlog, is it likely to stop just at that?
  
• For instance, in the light of this post above about iPass, is that $15M synergy number not a little aggressive too?
  

On the other hand, there is no reason to suspect that we can't trust revenue numbers, and there are two issues longs can draw comfort from:

• Organic revenue growth (ex-acquisitions) was 101% in 2018.
  
• This was waay above guidance (2018 revenue growth was guided as 50%+), no aggressiveness here, quite the contrary. 
  

But there are also some further issues:

• The CFO was fired from previous employment for cooking the books (in cohoot with the CEO, it seems).
  
• The auditor noted 'control problems' in the latest 10-K filing, although it did state that this hadn't led to unreliable figures and management listed a number of actions been taken to remedy the problem. 
  

[Mrebs]

Here is something else that is somewhat vexing. iPass was a declining, loss-making business before the acquisition (not necessarily a problem in itself). However:

• Cost synergies of $15M (per iPass acquisition presentation) would take a good chunk out of their personnel as most of this is through more or less immediate redundancies.
  
• Another good chunk, those 75 engineers are going to help converting the Pareteum backlog.
  
• iPass business is going to be revised under Pareteum now that customers are less scared of bankruptcy. Indeed, they signed up a couple of deals already, like Citrix.
  
• More business, much less people, unless iPass had many employees doing basically nothing (which would be very odd for a company in financial difficulties).
  

Also from what I was told by IR is they got rid of most IPAS management personnel who were highly paid and no longer needed.  This obviously reduced their costs as well.

[admin]

Yes, that would certainly be part of it, as well as perhaps some sales people where there is duplication.