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TEUM: Pareteum Enters 2018 With $200m Contract Backlog and Cash

04/02/2018
By Lisa Thompson

NYSE:TEUM

Pareteum’s (NYSE:TEUM) management achieved a successful rescue of the company in 2017 by raising much needed capital and booking significant sales deals. With over $14 million in cash, $600,000 in debt, an EBITDA positive operation, and a 36-month backlog of $200 million, the company is positioned to thrive. So far however the backlog has not yet translated into revenues but we expect those to ramp throughout 2018 and beyond. The company is projecting revenues for 2018 of at least $20 million although profitability may be a ways off. As Vodafone becomes less a percent of sales, and the company sells more cloud-based deals, we expect margins to expand and multiples to rise. This year it is expected that 20% of revenues will come from the cloud as Vodafone still accounts for over 85% of revenues.

Another reason the stock has risen considerably is that the company was reclassified by the market as a blockchain play. First investors noticed that AirFox, a private company, has been partnered with Pareteum since February 2017. Because of this partnership, AirFox’s Mobility Platform was integrated and embedded into Pareteum’s Global Mobility Cloud Platform. The partnership stipulates that service revenues, based on subscribers opting into advertising and sponsored brand content on their smartphones, is collected by Airfox and paid to Pareteum. Pareteum then pays participating mobile operators their agreed share of the revenues. Airfox’s mobile platform uses AirTokens and the Ethereum blockchain to provide the underbanked in emerging markets with much-needed access to mobile data and financial services. Then on December 26th, Pareteum announced it would offer blockchain technology to its billing and settlement services, and its customers would now be able to accept and process cryptocurrencies. The stock doubled that day to $2.80 following a trading halt.

2017 Results

Revenues for 2017 were $13.5 million versus $11.9 million a year ago, up 5.4%. 88% of revenues in 2017 came from Vodafone Spain.

Gross margins increased to 72.8% versus 71.5% a year ago. Gross margin could be down this year due to heavy investing in onboarding the large number of new customers that have been signed.

Operating expenses were $18.7 million versus $28.1 million last year and included one-time charges of $966,000 in the 2017, and $4.0 million in 2016. Ex these one-time charges, expenses were $18 million versus $21 million last year.

Interest expense was $1.7 million versus $1.2 million a year ago. In 2017, $1.4 million of the interest was paid in cash. Total other income was a loss $3.6 million in 2017. Last year other income was a loss of $12.5 million. The net loss for 2017 was $13.7 million versus a loss of $30.7 million in 2016. Currency exchange hurt the bottom line by $1.2 million.

The GAAP EPS loss was $0.84 per share versus a loss of $4.68 per share in 2016. The primary share count increased to 16.3 million shares, almost 2.5 times the 6.6 million shares average for last year. As of March 30, 2017 there are 51.0 million primary shares outstanding.

Given the company is running the business on EBITDA, investors should focus on that metric. For the adjusted EBITDA, taking out one time restructuring costs, was a positive $1.6 million, versus negative $3.9 million a year ago. During the year the company spent $722,000 on capital expenditures. The company continues to rely on stock-based compensation to pay employees and spend $4.3 million in stock-based compensation in 2017 versus $3.9 million last year with most of in in Q4 2017. There were 62 Pareteum employees as of December 31, 2017.

Forecasts

We are updating our earnings model to reflect both the December capital raises, the Q4 revenue beat, the new sales wins represented in the ever-increasing backlog, and forward guidance. The 2018 estimate is now for $20 million in revenue and a loss of $0.17 per share. For 2019 we are estimating revenues at $40 million and decreasing the loss per share to $0.08. With the large backlog ramping into revenues throughout 2018, investors await accelerating results going forward.

READ THE FULL RESEARCH REPORT HERE.

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