TEUM Earnings

Investment Analysis Clubs Saul’s Investing Discussions
1

Parateum TEUM in the CPaaS space like TWLO just had earnings that reflect results of organic and aquisitions. Stock price seems flat in initial after-hour trading:

NEW YORK, May 7, 2019 /PRNewswire/ – Pareteum Corporation (Nasdaq:TEUM), a rapidly growing global cloud software communications platform company with a mission to connect every person and every(thing)™, today announced operating and financial results for the first quarter ended March 31, 2019.

“We are very pleased with our strong first quarter results, delivering 460% revenue growth in Q1 2019 compared to Q1 2018. Pareteum’s core business, pre-acquisitions, has grown 33% over the prior quarter,” commented Hal Turner, Pareteum’s Founder, Executive Chairman and Principal Executive Officer. “We are proud of the significant business transformation we have achieved over the past few years. Pareteum is a fast-growing and profitable SaaS and communications service provider. Our software and platform solutions are unique in the market, our global TEUM is executing, we are well positioned to capture the large market opportunity, and we are committed to our mission to connect every person and every(thing)™.”

https://www.prnewswire.com/news-releases/pareteum-announces-…

2

I have tracked some of their historical numbers on the NPI board.

The revenue beat is a big positive and helps support their story as the growth in backlog has seemed a bit too good. The negative is the drop in margins over the last 2 quarters (below)

I continue to hold a small position but likely will start growing it.

Q1 2019 earnings beat expectations, $23M vs estimate of around $19M.
Q1 revenue of “core business, pre-acquisitions, has grown 33% over the prior quarter”
Raised 2019 Reve guidance from 105-115M range to 115-125M range

2017: $13.6M
2018: $32.4M 139% growth
2019: projected $115M - $125M 255%-285% growth

The one downside was the drop of Margins to 56% which trended down the last 2Q’s from the 70% range (trend below)

Their backlog is always started as a 36-month backlog. From the last call transcripts, the backlog is typically recognized: 15% Year1, 30% year2, 55% year3 (from Q4 Conference call)

Backlog growth:

Q1 2018 over q4 2017: 36%
Q2 2018 over q1 2018: 38%
Q3 2018 over q2 2018: 46%
Q4 2018 over Q3 2018: 53%
Q1 2019 over Q4 2018: 53%

Total Backlog


YEAR	Q1	                       Q2               	Q3              	Q4
2017	 $42,500,000.00 	 $60,000,000.00 	 $114,000,000.00 	 $147,000,000.00 
2018	 $200,000,000.00 	 $276,000,000.00 	 $403,000,000.00 	 $615,000,000.00 
2019	 $938,000,000.00

Quarterly Revenue:


YEAR	Q1	               Q2           	Q3       	Q4	Total
2016	 $3,274,000.00 	 $3,267,000.00 	 $3,200,000.00 	 $3,144,000.00 	 $12,887,016.00 
2017	 $2,795,000.00 	 $3,239,000.00 	 $3,499,000.00 	 $4,015,000.00 	 $13,550,017.00 
2018	 $4,113,000.00 	 $6,003,000.00 	 $8,008,000.00 	 $14,312,000.00	 $32,438,018.00 
2019	 $23,040,000.00 			 2019 Company FCST 	 $115,000,000.00 -$125,000,000

Gross Margins


YEAR	Q1	Q2	Q3	Q4
2018	71%	70%	73%	63%
2019	56%

EPS:


YEAR	Q1	Q2	Q3	Q4
2016	(0.66)	(0.43)	(1.90)	(1.90)
2017	(0.14)	(0.10)	(0.16)	(0.16)
2018	(0.04)	0.03 	(0.12)	(0.12)
2019     0.02
6 Likes
3

A few updates now that I have read the transcripts:

https://seekingalpha.com/article/4261244-pareteum-corporatio…

They purchased another company (devisescape) on 1 May though it wasn’t announced at that time, it wasn’t seen as material, roughly about a $4m purchase (50/50 equity/cash). They have some revenue but not added to their guidance at the moment.

http://www.devicescape.com/

As far as the lower margins, from the call:

Denis McCarthy

And I think maybe slightly below in the 55% range. I would note that one of the items that’s driving it down a little bit, which will phase out pretty quickly over time, was revenue that we acquired, deferred revenue, which we have to match at costs from a GAAP perspective. So that has a little bit of a depressive effect on the overall blended margin, but not significantly lower than the 56% that was reported. And then the last thing I would say is just reinforce the fact that one of our top priorities is a margin improvement plan that we spoke of during the prepared comments, and we expect that to very quickly have a positive impact on overall blended margin.

The comment from the prepared remarks:

These margins equal to or better than our competitors, but as noted by how we’ve detailed margin enhancement program underway to drive us back towards the levels we enjoyed as a solely platform software company.

I still remain skeptical of the way the describe the business and opportunity but the results were far above expectation with the Q1 revenue. They have improved their previous guidance on turning backlog to revenue which was:

Year 1 15%
Year2 30%
Year 3 55%

They mentioned Year 1 was at 20% now and that they are converting backlog at above 100%. As I understand it, having more billable connections than anticipated in the backlog.

I Still do not have a grasp on what to guess 2020 will look like but with the backlog and previous recognition guidance, I would guess at least $270M

I am likely to add a bit more to a small position at the moment.

2 Likes
4

This is one of those companies that would worry me. They’ve been around for awhile going virtually nowhere.

Then they come along and start buying a lot of similar size companies and hyping to hyptivity. They report super high growth rates due to the acquisitions meanwhile the organic growth is 33%. From a small base, they had very little organic revenue.

I still can’t figure out what they do. They have huge “revenue backlog”, whatever that is, from deals in parts of the world that I have little trust in.

I wish you luck, but I’d much rather buy more TWLO or the other high confidence stocks.

Darth

5 Likes
5

They report super high growth rates due to the acquisitions meanwhile the organic growth is 33%. From a small base, they had very little organic revenue.

That 33% organic growth is from the previous quarter, not relative to the prior year. I’d kill for that type of QoQ organic growth!

From press release: Pareteum’s core business, pre-acquisitions, has grown 33% over the prior quarter," commented Hal Turner, Pareteum’s Founder, Executive Chairman and Principal Executive Officer.

3 Likes
6

Likely final update on TEUM for a while, this article helps clarify some of the odd ways they the backlog is measured. Overall, everything about the earnings was pretty much a blow other than gross margins. But something still does not seem right in the overall story. Originally, I was considering to add a bit more to a small position. Instead, I am likely going to reduce to a tiny position but continue to follow the story.

https://seekingalpha.com/article/4261490-pareteum-strong-q1-…