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Revenue growth actually slowed in Q4
Well, we thought the problem was just in the backlog numbers and we didn't think there was any evidence suggesting that revenues were affected. Perhaps that's too optimistic. Here are the quarterly revenue numbers:
  • Q1: $4M
  • Q2: $6M
  • Q3: $8M
  • Q4: $14.3M
But here is the thing, Q4 revenue contains $5M revenue from Artilium, per the Q4CC. That is, legacy Pareteum revenue in Q4 was $9.3M with sequential growth halving from 33.3% in Q3 to 16.25% in Q4. Even in dollar terms growth was less in Q4 ($1.3M) compared to Q3 ($2M). 

Not necessarily conclusive, but in the light of exploding backlog is curious that revenue growth (and revenue guidance) are moving the other way and yet another sign that investors should keep a wary eye on this one.

This could actually signal that they have reached the speed limit of connecting customers in backlog. The addition of those 75 engineers from iPass should bump that up, and the iPass revenues itself will bump up revenues considerably, even if only for something like 7 weeks in Q1.

Two fundamental questions are going to determine the fate of this stock:
  1. How much of their backlog is bogus?
  2. How much OpEx does the company need?
On the first question, there are a number of considerations:
  • The fact that they have a large margin of safety, that is, 50% of their backlog could be bogus and the company will still grow quite nicely.
  • But the fact that even with very few of their backlog customer names known, there is a significant part of these that look distinctly dodgy (per the Oil & Gas Trader Bulletin article) is a cause for concern. If that is representative, it could be worrying.
  • Worrying is as well the mere fact that they have dodgy customers, as well as the fact that revenue guidance has come down a lot when at the same time backlog has almost doubled.
  • The problem can be effectively masked when they simply connect the good customers who actually convert backlog into revenues, and given the constraints of how many they can sign up (given the long waiting times and slow ramp-up), there is simply a part of backlog that is never going to be connected. If they didn't publicize these backlog numbers nobody would have known about dodgy customers.
That is, there is very little to go on here to arrive at any definite conclusion, but given last year's performance, we expect the company to continue to grow, although probably not as fast as last year (even for core Pareteum).

The constraint on growth is much more likely to be the lack of personnel. The iPass engineers will keep things going for a while, as is a certain cumulative effect (once connected, clients generate recurring revenues so even if the speed of connection doesn't increase, revenues will keep rising). 

The question here is how much people they need to keep the growth rate close to where it is, and that will also determine how profitable their business model is. Again, there is not a whole lot to go on, although one could argue so far, so good.

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