Pareteum Corporation
Q4 2020 Earnings Call Transcript

Published: 17 Jun 2021

[Operator:]

Good day, ladies and gentlemen. And welcome to the Pareteum Corporation 2020 Financial Results Conference Call. As a reminder, this conference call and webcast is being recorded. Following the company’s prepared remarks, members of Pareteum’s management team will address questions . I would now like to turn the conference over to Alexander Korff, Group Corporate Secretary. You may begin.

[Alexander Korff:]

Thank you. And welcome to Pareteum Corporation's 2020 financial results conference call. We’re delighted to speak with you today. We’ll be discussing results announcing our press release issued after market close today and in our Annual Reports on Form 10-K filed with the U.S. Securities and Exchange Commission.

[Bart Weijermars:]

Thank you, Alex, and thank you all for joining us today. I'm pleased to share our 2020 results and why we are excited about reaching at this juncture. With today's reporting of 2020 results and the prior completion of our 2018 and 2019 full year financial results, we are up to date with our required annual financial filings, which were critical steps to accomplish. We greatly appreciate the support and patience of our customers, shareholders, vendors and employees through this period. As I mentioned, in our Business Update call in May, while we work through rectifying the legacy issues and financial restatements to get to this point, we have not been idle on the corporate and business fronts. Over the past 18 months, Pareteum has focused on repositioning itself, including new Board leadership, new management, re-establishing a culture of integrity, emphasizing our customer-centric business model, and focusing the business for future growth. With this in mind, let me take a moment to re-introduce Pareteum, what we do and why we are excited about the opportunities we see ahead. On Slide 4, Pareteum is a cloud software communications platform company, with a vision to connect every person and everything. This really translates into a day-to-day mission to empower our business customers to simply create and control their wireless communication products and experiences through our powerful cloud platform and global connectivity.

[Laura Thomas:]

Thank you, Bart. We're delighted to review our 2020 financial results with you today. But before we jump into the results, I'd like to take a moment to explain the delayed reporting. As we were preparing to announce our 2020 financials mid-May, we discovered a technical accounting matter that precluded filing as planned. The matter related to the accounting treatment of the preferred series stock. It was complex and took time to accurately reflect. Without going into the technicalities of the issue, the revised exchange agreements for the preferred Series C with the associated conversion features and mandatory redemption drove an extinguishment of the debt and the need to modify the instrument to the mezzanine level on the balance sheet. That is the level right below liabilities, but above the equity. Our financials as filed today are correct. With these 2020 results, along with the prior filings of our 2018 and 2019 full year results, we are now up to date, with our required annual filings, which are both critical and comprehensive. We now turn our attention to completing the remaining outstanding quarterly filings for the third quarter of 2019 as well as the first, second and third quarters for 2020, and finally, the first quarter of 2021. These quarters and their filings will bring us current with our SEC reporting and enable us to return to a normal cadence of quarterly reporting and regular business updates going forward.

[A - Alexander Korff:]

Thank you very much, Laura. And thanks to everyone who's reached out to ask questions and are submitting those online today. So the first question that has come in, which Laura, I'll invite you to answer is, what was the problem that delayed 2020 reporting? And why was that the case?

[Laura Thomas:]

Thanks, Alex. After we had announced our intended reporting date, a technical accounting manner was identified that precluded us from filing the 10-K on the planned timeline. The matter again, related to the accounting treatment of our preferred Series C. It was a non-cash item did not impact revenues or EBITDA. The matter was complex and took time to ensure accuracy. Without again, going into the technicalities of the issue, the revised exchange agreements for the preferred Series C, with conversion features and mandatory redemption drove the extinguishment of debt and the modification of the instrument to the mezzanine level on the balance sheet. This was really the only issue delaying the 10-K. Again, highly complex.

[Alexander Korff:]

Thank you, Laura. Another question for you is, why did the financial restatements take so long?

[Laura Thomas:]

It's a great question. And it did take a long time. And I want to reiterate, we appreciate the patience of our shareholders, employees, customers and vendors during this period. The restatement for the fiscal year 2018 and the first two quarters of 2019 followed a detail internal and independent investigation. So in other words, we had to complete that first. It took time to properly complete and thoroughly scrutinize the financial statements and other disclosures that we now have in the three years of 2018, 2019 and 2020.

[Alexander Korff:]

Thank you, Laura. The next question, I think also for you, and then asking what is the plan for relisting onto an exchange.

[Laura Thomas:]

Okay, thanks, Alex. The trading of our common stock on NASDAQ was suspended in November of 2020. Today, our common stock is quoted on the OTC Pink Sheets with an annotation of no information. With the filing of the 2020 10-K today, we believe this annotation will be updated to limited information. And upon reporting, the first quarter of 2021 updated to current information. This journey and the pathway to improve our OTC progression to the OTCQX will position Pareteum to apply for an uplifting to a senior exchange. Again, we hope to achieve that status, probably in 2022, Alex.

[Alexander Korff:]

Thanks, Laura. I guess a related question also for you. Will there be a reverse stock split to list on an exchange?

[Laura Thomas:]

Alex, and whoever asked the question, no determination has been made yet in that regard to any potential reverse stock split. It's the company's preference not to do so. But let's all remember that there are multiple listing requirements to be met for listing on an exchange and the share price is only one of those requirements. We intend to file for the uplisting to a major exchange later this year, with the potential for achieving that listing sometime in 2022.

[Alexander Korff:]

Thank you, Laura. The next question we've been asked is why do you think Pareteum can grow the business and capture additional market share? Bart, can I ask you to answer this question, please?

[Bart Weijermars:]

Certainly, Alex. We believe that we are actually well positioned for significant growth in the coming years. And that's the key competitive differentiators for Pareteum in the near term are based on really four elements in our business. And if I would have to point those out, then I would start with the skill and international reach of our productivity, really a global business. Comprehensiveness of our platform offerings and the different customers we have on those. The ease of deployment and implementation, as we've seen in the last year. And really the scalability or reliability of our service. And those are, I think really significant drivers for growth in the coming years, as well.

[Alexander Korff:]

Thank you, Bart. And I think this question is also probably for you. And the question is, can you discuss revenue diversity across different geographies of Pareteum?

[Bart Weijermars:]

Definitely. So we have built a global presence in the last years with operations and customers in multi-geographies , North America, Latin America, Europe, Middle East, and Africa, as well as Asia-Pac. And last year, we affected expansions in Brazil, in Colombia, as well as Tunisia. And our non-U.S. based customer -- our non-U.S. based customer base, grew substantially in 2019 with our acquisitions and that customer growth continued last year. And we really expected globally diversified revenue stream to be an important part of our strategy and business going forward. So yes, we have a very strong revenue diversity. And we expect that to continue going forward as well.

[Alexander Korff:]

Thank you, Bart. The next question I have asks, what do you see as the biggest opportunity for Pareteum? Bart, would you like to answer that one as well?

[Bart Weijermars:]

Yes, definitely. So I think that, we are well positioned with the global footprint that we have to address a massive global opportunity. The telecommunication services industry is undergoing a massive transformation. And if you look at this year, the expectation is that the spend in the industry is expected to amount to $1.45 trillion, which is really an increase of 35% from last year. And with what we see as tremendous demands, we believe that we are really well positioned with our platform and service offerings to drive that significant growth in our core business, while at the same time, actually also expanding investments in the IoT segment or the Internet of Things segment.

[Alexander Korff:]

Thank you. The next question we have asked, why was revenue growth so much stronger in 2019 compared to 2020? Bart, could you answer that one, too, please?

[Bart Weijermars:]

Yes, well 2019 definitely saw a significant growth of approximately 205% , which was in large measure driven by the acquisitions made in that year. Now, if you look at last year, 2020, revenue grew 12%, which was almost all organic across our business to $69.6 million, which is an increase of $7.6 million over 2019. And that is the case, despite the impact that we saw from the COVID pandemic of approximately $7 million, which was primarily in the airline and hospitality verticals.

[Alexander Korff:]

Thank you, Bart. The next question asks, does Pareteum have a sufficient cash runway, i.e. can Pareteum confirm there's no need for additional capital increases? Laura, could you answer that one, please?

[Laura Thomas:]

Thanks, Alex. We've worked very hard to address the corporate legacy issues and financial restatements. And significant capital has gone towards those efforts, and not towards the strategic investments required to accelerate growth. As we become current, and announce our first quarter 2021 results, we expect to provide further insight into our cash position. I will say that we'll continue to be opportunistic. And when we have the ability to do so and can raise additional capital to support our growth, we will.

[Alexander Korff:]

Thank you, Laura. The next question is, do you anticipate revenue growth in 2021? Bart, can I hand the question to you?

[Bart Weijermars:]

Definitely. Well, the simple answer to that is, yes. We do expect continued revenue growth, also this year. And if I look at the MVNE, and MVNO markets, they are growing steadily. And they're approaching a global market of over $25 billion, with a focus on Latin America and Asia-Pacific. At the same time, we also see that the Internet of Things segment is experiencing explosive growth really, with high compounded annual growth rates across all geographic regions. And that is approaching a global market opportunity of almost $98 billion. So definitely, there's plenty of opportunity out there and we expect to grow this year as well.

[Alexander Korff:]

Thanks, Bart. The next question we've received says, when do you anticipate filing first quarter 2021 results? Laura, can I hand that one to you?

[Laura Thomas:]

Absolutely. Thanks. Well, we're not providing a date at this point. But we do expect to file the first quarter 2021 results in the near future. Let's keep in mind that the 10-K reports really is a fully audited year. And while the quarters in include reviewed financials, it takes a lot less time. So for the quarters of third quarter, 2019, and the first three quarters of 2020, those annual numbers have been audited. So it's just a matter of updating that and having it be reviewed. The same thing with the first quarter of 2020. It really is review and not an audit. So we expect we will bring those current in the near future.

[Alexander Korff:]

Thanks Laura. The next question we've had and asks us, do you see strong revenue growth opportunities from increasing penetration within the existing customer base? Bart, can you answer that question, please?

[Bart Weijermars:]

Yes, and, again, I think the answer is yes. If you look at last year, we added more than 50 new customers, bringing us to over 1,100 customers globally. And the strong customer base really provides significant opportunities for additional business. And we did also expand our sales team trainings, specifically on product cross selling. So we can actually capitalize on the opportunity that is there within our own customer base. So the answer to the question is, definitely yes.

[Alexander Korff:]

Thanks, Bart. And another sort of market trend question, which I think is also for you, and asks a number of recent articles have projected significant consolidation in the EU telecom market. Do you see that trend impacting on Pareteum?

[Bart Weijermars:]

Generally speaking, I would say culturalization creates space for new challenges in the market, and also for new commercial strategies by players that are consolidating. And if we look at reasons, the key reasons why customers choose our solutions, it is really the ability to address the market in a new and innovative way. So, consolidation in itself does create those opportunities for Pareteum. And actually, I think there will be additional consolidation globally as well, which provides again, additional opportunities for Pareteum and particularly in the IoT segment where we intend to expand our focus as well.

[Alexander Korff:]

Thank you, Bart. And I think this will be the last Q&A question. I think this one's for Laura. And the question asks, when will the company be able to provide forward-looking projections and insight into future growth?

[Laura Thomas:]

Thanks, Alex. At this point in time, since we're not current with our financial reporting, we're really not able to provide detailed guidance. As we return to being current with our financials, we do expect to provide guidance on both business and financial metrics. With our focus being really execution for the long-term and the associated growth, we anticipate potential future guidance will be really emphasized on an annual basis. So I wouldn't expect quarterly guidance to begin with. Thanks, Alex.

[Alexander Korff:]

Thank you, Laura. And I think we've now reached the end of the time set aside for Q&A. So what I'd like to do next, is turn the call over to Bart for any closing remarks. Bart?

[Bart Weijermars:]

Thank you, Alex. And thank you to everyone listening and participating and asking questions. We greatly appreciate your time and interest in Pareteum. We have implemented the best practices and corporate governance model and are developing an enhanced and expanded corporate strategy, focused on reigniting growth and delivering shareholder value. Our strategy emphasizes growing our core business, while expanding the company's focus within the high growth, IoT or Internet of Things segments. We will provide more details on the developing strategy over the next several months. As you see again, on our last slide, Slide 17 we really believe we have a strong value proposition for customers and investors. With our differentiated cloud technology platform and our diversified customer base, together with our global footprint, we really believe we're well positioned to address these large, rapidly growing global markets that are providing significant opportunity for the company and our shareholders. We look forward to updating you throughout the remainder of 2021 as we continue building Pareteum into a growing profitable, global cloud communication company. We thank all of our investors and Pareteum team members for their commitment to this call. Thank you all for joining us today.

[Operator:]

Thank you, ladies and gentlemen, this concludes today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.