Pareteum Corporation
Q1 2019 Earnings Call Transcript

Published: 8 May 2019

[Operator:]

Good day, and welcome to the Pareteum Corporation First Quarter 2019 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael Bloom, Investor Relations. Please go ahead, sir.

[Michael Bloom:]

Thank you, and good afternoon, everyone. Thank you for joining us for Pareteum Corporation's first quarter ended March 31, 2019 earnings results, analyst and investor conference call. With us today are Hal Turner, Pareteum's Founder, Chairman and Principal Executive Officer; Vic Bozzo, Co-Founder and Chief Executive Officer, Americas and Asia; Bart Weijermars, Chief Executive Officer of Europe Middle East; Denis McCarthy, President; Ted O'Donnell, Chief Financial Officer; Rob Mumby, Chief Revenue Officer; Christine Braelow, Vice President Global Enterprise. Earlier today, Pareteum released financial results for the quarter ended March 31, 2019. If you've not received Pareteum's earnings release, please visit Pareteum's Investors page at www.pareteum.com. Following management's discussion, there will be a Q&A session. During the course of this conference call, the company will be making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. The company cautions you that any statement that is not a statement of historical fact is a forward-looking statement. This includes any projections of earning, revenues, cash or other statements relating to the company's future financial results. It also include any statements about plans, strategies or objectives of management for future operations; any statements concerning proposed new product; any statements regarding anticipated new relationships or agreements; any statements regarding expectations for success of the company's product in the U.S. and international markets; any statements regarding future economic conditions or performance, statements of belief and any statements of assumptions underlying any of the foregoing. The forward-looking statements are based on expectations and assumptions as of the date of this conference call and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those described today. Some of these risks are described in the section of today's press release titled Forward-Looking Statements, and in the public periodic reports on Forms 10-K and Form 10-Q that the company files with the Securities and Exchange Commission. Investors or potential investors should read these risks. Pareteum assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so except and as required by law. With that, I'd like to turn the call over to Pareteum Founder, Chairman, Principal Executive Officer, Mr. Hal Turner.

[Hal Turner:]

Thank you, Mike. We welcome you to our Pareteum family and in your new role as Corporate Development and IR. I'd also like to provide a very warm welcome to everyone joining us today. And that includes our newest teammates from iPass, which followed our February 12th close of that acquisition. Your collective partnering along with our Artilium teammates paves our way for what we think is a very bright team future. Thank you all. Now, to our business at hand. Pareteum is performing extremely well. Without taking too much of Dennis's thunder from his results review coming shortly, we recorded a 460% Q1 2019 over Q1 2018 revenue increase. More from Dennis on that shortly. However, we are on target with our products delivered, those being developed, our market served and those that we will expand to. Our customers who are on-boarding now even more efficiently and our people matching the very best resources to address every opportunity we have. In every sense, this company has re-imagined the future of communications and we're delivering on it today. Our mission of connecting every person and everything is also on track. We're on plan financially, and we're well above our expectations and sales results. We're raising the quality of customer experiences every day. And we're raising our results and performance expectations with operational transparency. As a growth company, we're expanding in a financially responsible manner. Pareteum's extraordinary business transformation began in Q4 2015. It's now expanded to include the acquisitions of Artilium and iPass. Our operational combinations are now materially completed, and our planned synergies have been almost wholly captured. Today, Pareteum is fast growing operationally profitable software-as-a-service and communications platform services provider. We have over 1,000 active customers using our expanding product portfolio and doing business with us worldwide via our global experience cloud and our smart network. This encompasses communications and software solutions. It is also a very compelling and attractively accessed easily from the efficiencies of our robust software defined cloud platform. Our growth rates and financial results prove the point of our growth and success, and really say all that needs to be said. Key customers help drive our outstanding revenue performance, including long-term relationships such as Vodafone, Telenet and Proximus. We're also very energized with our expanded strategic relationships as a sales relationship with companies like Citrix. During Q1, we announced a phased solution rollout migrating Citrix's employees to Pereteum's iPass smart connect solution. This was via our experienced cloud and smart network. Further, we've deepened our commitment to product development and innovation. This has been done through the accretive acquisitions where we have invested approximately $160 million in research and development through product acquired and operational improvements, including IoT capabilities and smart network access, extended geographical reach. We've also added highly qualified and domain experienced employees. This gives us the confidence in our ability to convert our massively growing new sales order that enter our sold contracted revenue cycle as backlog. We acquired Artilium closing that transaction in October of 2018. We followed our acquisition of iPass closing in mid-February of 2019. Today's financial results, by the way, include about six weeks of iPass results. Now very importantly today, I'm pleased to announce to you that we have acquired Devicescape. It's based in San Francisco, California. It's our next technology development investment. And it's an evolutionary step as we create the greatest experience platform now available in the market. And notably, our experienced cloud is being continually developed and will evolve as market needs and technology trends change. Devicescape has a software based pure rated mobile virtual network access, we call it a CVN or curated virtual network, and it has over 500 million global Wi-Fi access points. Devicescape is strongly positioned in the enterprise and communication service provider market segments. And by coming on-board, Devicescape provides us with a highly attractive IP portfolio, 33 granted patents and excellent executive and product leadership. Devicescape team is led by Dave Fraser and John Gordon, both will join Pareteum. We welcome our newest teammates. And today, we're honored that Dave will join us during our Q&A should you have any questions about Devicescape. And both Dave and John will join us for our May 28th Analysts Day, which we called Pareteum Power. It is these two factors being the IP technology and the people that solidified our decision in our buy versus build assessment of Devicescape technology opportunity. We chose to very attractively buy. And we closed the acquisition on May the 1st. Immediately, Pareteum has gained new levels of communication and connectivity reach for our smart network. We now see this as one network, millions of places and limitless opportunities for our company. Dave and John joined Bart Weijermars' Global Product and Service Delivery team. Dave is now our senior-most product officer, serving as Senior Vice President of Product Management. John has become our senior most software and product architect. Transaction highlights are; it's structured as an asset purchase; it has an implied purchase price comprised of both cash and stock valued at less than $4 million; this is not being material to our overall financial position. Our acquisition of Devicescape is immediately financially accretive, although, I have to tell you that's not why we acquired it. We acquired Devicescape for its technology and its people. We add important accounts with significant cross-selling opportunities also with device gate. Those include Virgin Mobile, Liberty, which is already a customer through our Artilium and C Spire. They will happily address questions during our Q&A about Devicescape. I'd now like to spend just a couple of minutes on how we manage our business. And I'd like to share a few comments and perspectives on how Pareteum operates this business on a daily basis. And in doing this, I will address how we are delivering our extraordinary sales growth and GAAP revenue results. Pareteum's expectations for revenues are based upon these constantly changing factors, first is our robust sales pipeline. This is comprised of our targeted opportunities generating qualified leads for our sales executives. We expect these qualified leads to convert into newly executed subcontracts. We call this our new sales order intake, and it becomes part of our growing revenue under contract, which is also called backlog. Conversion of new sales orders into services that are live in production, fully deployed and billing, yields GAAP revenues to Pareteum, we call this process backlog conversion. We use account management to grow our active 1,000 plus client customer base with new services and expansion of existing services. These 1,000 plus accounts are under contract, same as our newly signed sales order intake. It is a combination of new sales orders and their active agreements firmly in place with our existing customers that form our backlog of contractually scheduled revenue. We do review these sales and their revenue under contract on a snapshot basis at any given point in time, and we look at it for the following 36 months and that gives us a view of revenues under contract. We call this our 36 month contract revenue backlog. 36 month contract revenue backlog or contracted sales orders for services which are then converted, deployed and build based upon the agreements executed by the customers. Our 36 month backlog grows over time as new customers join and existing customers renew, expand services and grow their own businesses. Please note and this is very important. Our agreements are automatically renewed beyond their initial terms and monthly revenues continue billing. Our website, which you will hopefully visit, you may see a selection of the companies that are accounted among our 1,000 plus customer base, and including some very well known brands that are later stage customers and in many cases, longstanding clients. We also actively seek and serve early stage entrepreneurial businesses. These are companies that are creating new services and new products, and operating with innovative business models. These customers are powered by the Pareteum platform. We expect to significantly grow with all of our later stage and well developed companies like Vodafone, Telenet and Proximus in large part, thanks to the excellence of our account management teams. However, it is these early stage companies and even individual developers that form our greatest opportunity pool and will fuel the largest sustained growth rates of our business. We certainly expect that future Fortune Global 500 caliber companies may emerge from these early stage clients. We are working hard to ensure that it is the Pareteum experience cloud and smart network that fuels their businesses. When our customers win Pareteum wins. To complete the 36 month contract revenue backlog topic, the most important phase for Pareteum is to convert these contracts to billable revenues. This means new sales orders placed into live production based upon their contracted schedules for service, invoices rendered, being billed and revenues collected. Our backlog conversion metrics show this story and we're doing very well in this regard. I'd like to share a couple of details with you. From the inception of tracking the services deployed during the period of January 1, 2017 through March 31, 2019 that's a 27 month period, we converted revenues in the backlog as they were scheduled at 101%. We converted connections, which is our word for subscribers, at 122%. This means that taking each contract and comparing what was contractually scheduled by the customers, in both revenue and connections, we've over attained and outperformed what had been expected. We're very pleased with this growth performance. But I must tell you we're even more pleased with what I'm about to say to you. We have consistently said that we expect 15% of each 36-month contract revenue backlog agreement to build in year one. We set 30% in year two and 55% in year three. Well, the scorecard is into the 27-month period January 1, 2017 through March 31, 2019; we expected year one at 15%, we actually converted and billed at 20%; we expected year two at 30%, we actually billed at 43%; we expected year three at 55%, we actually billed at 89%. That means with an expectation of a three-year revenue tail of 100% on each agreement in the 36-month contract revenue backlog, we have so far build 152%. This great experience and results from Pareteum demonstrate that our long tail of the backlog is being realized. It is very real as evidenced by the more than 52% exceeding expectations in gap recognized revenue. Here's some details regarding those underlying contracts, which I know that if I were sitting in your shoes hearing what I'm saying, I would want to know about. During the period, January 1 of '17 through March 31, we signed 112 newly signed agreements in place in our backlog. Of those 112 agreements contracts, 53 are fully converted with services deployed ramping connections and billing revenues to Pareteum. Of those 53 customers, 38 have been in service 12 months or less. So I think you can see clearly the coming 24 months has a lot to offer us in growth, expansion and clear revenue visibility. However, on top of that, there are 59 agreements signed and scheduled by customers for deployment. As we fully convert and deploy these services through the balance of the year and early 2020, there will be a corresponding positive revenue impact and increase in our monthly recurring revenue. Also, we have over 1,050 live and in service contracted customers accumulated via our acquisitions that was, Pareteum plus Artilium, plus iPass and now Devicescape. And it looks like this; 500 of those are enterprise customers in the Fortune 1000; 450 are messaging customers largely spread out through communications service providers; and 100 our communication service providers themselves. It's also worth noting again, our contracts automatically renew following their initial terms. We continue generating monthly recurring revenue, no matter of what the initial original term of the agreement. Many of these customers continue their projected business growth and will buy more services and new services from us. An important point regarding our ability to handle this growth without adding what some would consider an army of people is this. We are scaling the business by using our own software and systems, plus other organizational behavioral efficiency improvements. And this assures us that we do not have to extraordinarily add people to convert the backlog and grow our business. And because of the 75 engineering and support staff teams that came with our iPass acquisition, we see no real obstacle to growing. And this means converting the backlog and adding ever-increasing new customers to our rosters and doing this in a responsible, financially appropriate manner. Also, we have an ongoing margin enhancement program underway to ensure that our delivery of maximum customer values available to them through a cost benefit ratio while Pareteum experiences improving financials. Denis will soon address with the financial measures including margins. To this end, however, the revenue per employee, which is another great measure and good indicator of our efficiency and ability to grow our revenue and maintain highly attractive margins, has improved. For the quarter ending March 31, revenue per employee is $390,000, that's 55% higher than the same period last year and it's more than 8 times to $47,000 per employee when I joined the company in Q4 of 2015. Now, as we point to this very pleasing fact, I would like to inform you that our customers are buying more from us. Our net dollar expansion rate is 144%, that's Q1 2019 versus to Q1 of 2018. Moreover, our sellers continue to sell. They're very good at it, which is expected to generate even more net increases in build revenues and they continue to sell so well every day. And this now includes the enterprise team that joined us from iPass and it certainly includes a team that is coming from Devicescape. Note that going forward we will continue to comment on the magnitude of our 36 month contract backlog but we'll do it quarterly. Our Q1 number, which has already been reported at $938 million, we have a very high continuing pace as our sellers are closing new sales. Our transactions demonstrate the robustness that we have expected in our 36 month contractual backlog, and it's continued expecting to grow. Our 36 month contractual backlog has a contributing factor in our sales and our revenue planning along with our pipeline, and along with our account management growth of existing customers, and along with existing customers buying more and new services being introduced in cross-selling. We're a growth company, which is what we think you should be seeking if you're an investor in Pareteum. We're driving forward, expecting to create long term equity and appreciation by growing our top line revenues. We can intend to continue this growth. I'm now going to yield to Denis for his review of our financial performance. And then we'll come back in a few moments, and I'm going to give you our guidance. And then we'll do Q&A. Denis?

[Denis McCarthy:]

Thank you, Hal and hello to everybody attending. We're very pleased to report that we've achieved revenue for the first quarter of $23 million, as well as margin of 56%. That margin reflects the impact on margins from the iPass business, which had a greater data usage component. 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. We have achieved organic growth of 32% over the prior quarter from the combined Pareteum and Artilium business. The Artilium acquisition was not only accretive but has accelerated our organic growth. These revenues and gross margins drove adjusted EBITDA of $5.2 million or 23% of revenue. Adjustments to EBITDA include stock based compensation of $3.7 million and acquisition and restructuring related costs and $3.1 million, much of that is related to the closing of the iPass acquisition. And the majority of these adjustments are non-recurring in nature. G&A as a percentage of revenue was 33% versus 56% for 2018, a decrease of 23%. Net of stock based compensation, G&A as a percentage of revenues was 17% for Q1 of 2019 and 30% for the first quarter of 2018, a reduction of 13% year-over-year. This is a reflection of getting to scale. Quite simply, our G&A is growing at a slower rate than our revenue. We expect this trend to continue for the next several reporting periods. While we may make additional hires on an opportunity basis, we believe most of our key staffing positions have been filled. We do not foresee a large increase in general and administrative headcount in the near future. We generated non-GAAP earnings of $2.7 million or $0.02 per share per weighted average share for the first quarter, a reflection of the strength of our core business, as well as the ability of our sales team to generate new opportunities. And our product teams' continued ability to get those customers installed and in surface. As Tom mentioned, we closed the acquisition of iPass on February 12th. We're able to identify material cost synergies of approximately $19 million, of which $14.5 million have been achieved to-date. This made the transaction accretive in the first quarter, net of transaction fees and restructuring charges, despite not having a full quarter of financial results. Q2 will be the first quarter in which we reflect the full impact of the iPass transaction on the company results. And hopefully, you'll tune in to see the impact that's made. Pareteum has exceeded consensus and analysts expectations in a number of areas. Our revenue of $23 million exceeded analyst expectations of $18.5 million to $19 million by approximately 22%. The consensus estimate for non-GAAP EPS was a negative $0.01 per share. We achieved EPS of $0.02 per share for the quarter, overachieving analyst estimates by approximately 300%. Our adjusted EBITDA of $5.2 million exceeded consensus estimate of $2 million by $3.2 million or 160% over the consensus estimate. Our Q2 performance indicator of connections, which is our term for subscribers, devices and their network usage, have grown to over 12 million devices at the end of the first quarter, including the impact of the iPass acquisition. As Hal mentioned, our 36 month contractual revenue backlog now stands at $938 million. These executed customer contracts will provide a basis for our future revenue growth. During the acquisitions of Artilium and iPass, we underwent diligence on our deployed and un-deployed customer contracts as these set of shareholders was taking a large portion of their consideration in stock. We also reviewed these contracts during our diligence with Post Road Group with whom we closed our debt facility in Q1. While implementations continue to have their risks, we remain confident through these reviews that backlog is indicative of our future growth opportunity. Annualized revenue per employee was 390,000 at the end of the quarter, which is 54% higher than the 253,000 in the first quarter of 2018. We expect to continue to exceed the industry averages for annualized revenue per employee on a go forward basis. As discussed on our year end call, we established a new $50 million credit facility with Post Road Group and retired the more extensive debt -- extensive debt acquired in the iPass acquisition. The facility also provides us with significant available liquidity going forward should we need it. While we currently have no plans for additional capital to operate our business, it gives us additional security and flexibility. I want to reinforce Hal's comments about the remarkable transformation that Pareteum has achieved. Along with this rapid growth and transformation, we have experienced some challenges, including those related to our internal controls, primarily as a result of M&A integration. During the first quarter of 2019, we implemented new controls of our Information Technology access to address the identified and now remediated weakness in that area. To help us move into the next phase of our development, we have engaged in the top six public accounting firms, RSM, endorsed by our auditors Squar Milner to bolster our internal audit function and improve our internal control processes. They will partner with us, and Squar Milner is guiding us as we enter our next chapter of development and the expected substantial growth. I'd now like to yield back the call Hal Turner to close.

[Hal Turner:]

Denis, thank you very much. It has been a remarkable transformation. You've led the charge on many of these critical strategic initiatives and transactions that have been formative and highly impactful to our company as we continue on its growth and scaling journey. For that, I thank you, Denis. I also thank all of our teammates and our executive team and leadership teams who contribute every single day to the success of our company. Turning back to our outlook for 2019, I'm pleased to issue our updated and expanded guidance for the year as follows. Full year 2019 revenues are expected between $115 million to $125 million, which would equate to an expected growth rate of 255% to 285% year-over-year. We expect continued strong growth in revenues, adjusted EBITDA, adjusted operating cash flows and non-GAAP income, as well as non-GAAP earnings per share. Our adjusted EBITDA and operating cash flow, net of restructuring and acquisition costs, are expected to continue strong growth throughout 2019, not accounting for any further strategic activity. We are confident in our guidance and the underlying visibility we have into the business supporting our guidance. As noted earlier, significantly this guidance in growth in our opinion outpaces the markets' growth by more than 4x, and that's the number we derive when we compare to Gartner's analysis, which projects a 50% compounded annual growth rate in CPaaS market between 2016 and 2021. Our growth is on a steep trajectory. Before we move to the Q&A, we encourage you to look at our recent analyst coverage or upgraded coverage from Northland, Lake Street, Maxim, Craig-Hallum and now Oppenheimer. We're pleased that our story of Pareteum is being heard and broadening. The messages of Pareteum and its extraordinary opportunity are getting out there. It is very early days in the Pareteum success story in our opinion. Now, we want to move to the Q&A where Denis, Ted, Vic, Bart, Dave Frazier, Rob and Christine, and I will take your questions. Ted, over to you.

[Operator:]

[Operator Instructions] We'll now take the first question from the line of Mike Latimore with Northland Capital Markets. Please go ahead.

[Mike Latimore:]

Great results sequentially and year-over-year, it looks great. Just to be clear on the 33%, you said organic growth sequentially, that was combined Pareteum and Artilium grew 33% sequentially combined, right?

[Hal Turner:]

No, that's actually the core Pareteum. We extracted out of that Artilium and anything from any of the acquisitions, that's pure all Pareteum.

[Mike Latimore:]

And so that was a considerable acceleration. I guess what was going -- or what caused that was deployments, more people to deploy, was it a few customers, the subscribers grew really quickly, what was the cause there?

[Hal Turner:]

It's a combination that, first of all, it was deployments accelerating, and that certainly has been a focus of the company for sure. Secondly, it is some of our UK based mobility and traveling mobility customers that have added more connections and usage than had initially been anticipated. Those are principal drivers. Vic, I'd like for you to add to that, if you will, please.

[Vic Bozzo:]

We've taken a pretty conservative approach and we've seen growth numbers higher, particularly in subscribers than we were expecting. Also, we saw -- yes, we deployed faster. But there's just so many new opportunities that we're seeing out there and really driving our conversion faster through the use of software. Our software is efficient and it's getting more efficient with our development every day. And that allows us to deploy faster, but also to deploy in a very standard way.

[Mike Latimore:]

And iPass, I guess does that contribution come in line with your expectations, and can you share what that was in the quarter?

[Hal Turner:]

Denis, can you be more explicit on the contribution, and then I'd like to turn to Christine for some comments. Denis, first on the contribution level.

[Denis McCarthy:]

Just under $5 million for the quarter -- for the half of the quarter, Mike. And in terms of expectations, right about where we expected to be, particularly as we mentioned also from the actual slight positive impact on EBITDA or adjusted EBITDA, I should say.

[Hal Turner:]

And Mike, I want to bring up Christine for just a second to answer the other part of your question. And some of you may have heard me in the past use the term that says we're on fire. Well, I got to tell you. Christine and her team and the global enterprise group are absolutely really out there, and it shows in successes like Citrix. Christine, would you like to talk about how you guys, as you came into the Pareteum family, were able to contribute actually more than have been expected?

[Christine Braelow:]

We are scrappy but determined team. Thanks for your question, Mike. So I'd say it's critical for us has been and an increased engagement with the customer base. We're actually coming to the table and talking about an enhanced product set. So it's more than just Wi-Fi. And when we went to Citrix, I think what was really important is they looked at the value in terms of how do we align with Citrix's cloud based strategy, and so that was a win for us there. And importantly, we're also helping to drive productivity. So as we're talking about the breath of the premium cloud offering, it was really focusing how we are addressing productivity and their ever growing mobile workforce and allowing for not only cost effective but secure connection. So how are we bringing a secure, seamless, flexible, mobile connectivity to that critical part of their work force. And of course, it doesn't stop just with Citrix with 600 plus of the Fortune 1000, this is really a compelling story to that customer base.

[Mike Latimore:]

And then I guess my last question is just around the acquisition you announced on the call today. I guess, Hal, you said there was $500 million access points. Can you just elaborate on that a little bit versus I think iPass at $68 million. And then, I guess for Dave, going forward. What do you view as the biggest task ahead in terms of just product development?

[Hal Turner:]

So I'm going to actually turn to Dave for all pieces of this, because he is clearly our subject matter expert. But I can tell you that we're looking for Dave to blend our smart experience cloud with our smart network, and take our product forward. Dave, could you address Mike's questions regarding the number of access points and product development initiatives.

[Dave Fraser:]

Sure thing, Hal, and hello everyone and thanks for your question, Mike. First of all, I want to say I'm thrilled to be part of Pareteum. Devicescape has been a strategic partner for iPass for four years, and we're a leader in this whole area of virtual Wi-Fi networking. But more important, we are excited because we're true believers and Pareteum vision of connecting every person and everything. So a little bit about the $500 million and what that means. Wi-Fi it goes without saying that selling Wi-Fi on a standalone basis is an increasingly hard thing to do, lots of different competing approaches, such as free Wi-Fi, as well as just mobile data. The thing about the Pareteum strategy that is so exciting is because we are uniquely talking about a unified network of both Wi-Fi and cellular, maybe other technologies too. But that network is simply the engine that allows us to form the foundation of a platform that's capable of delivering many different forms of service. So rather than simply Wi-Fi connecting people, we're elevating it to a value proposition that's really defined around the customer experience. The $500 millions is just evidence of the tremendous proliferation of Wi-Fi. And in this specific case, we want to use Wi-Fi as a network of beacon. If you can see a beacon, you can work out who a person is or a device is. And even better the beacon has been deployed in billions of locations. So we are just getting started when we talk about $500 millions. So what we want to do is use this unified network to be able to power the Pareteum expedience cloud. The way that we're going to go about this in product directions and I would caution everybody that I am new to the company but there are tremendous moves in the market today. 5G is starting to take hold regarding not only the investments people are making, but the new applications that are going to be available and going to be conceived of. And we certainly want to be a major player in enabling our customers to form the customer experience they want around 5G. Similarly, in Christine's area in enterprise, we see an extension beyond Enterprise Mobility and enterprises really taking control of the complete communications experience and Pareteum is very well positioned there. In our third major segment that we talk about IoT that segment is exploding. But we're going to see new types of applications that we've never even dreamed of in IoT. And in this area, the experience cloud and the unified smart network of Pareteum really shows its flexibility. It's going to be able to be deployed to match the needs and the innovation that's coming out of these brand new markets. So probably a long answer for your question but you did asked a big question, Mike.

[Operator:]

We'll now take our next question from the line of Allen Klee with Maxim Group. Please go ahead.

[Allen Klee:]

I had a question on backlog conversion. You said it came in at 101%. When you started the year, I think you were saying, think about 75% to 80%. So clearly, you've outperformed. Maybe if you could talk about why you outperformed and your assumptions for the rest of the year, are they still at that 75% to 80% or are they higher? Thank you.

[Hal Turner:]

So first of all, we always manage to what the contract says, and nothing less than 100% will ever satisfy us. The numbers that are less than 100% are de-risking factors that we looked at in the high, the middle and the low of our business plans and expected revenue production. And that is the variance that's associated with some unknowns in terms of well just how many connections maybe put in place in the period that they're scheduled for. And it's like a government contract, the GSA contract. Once you get the schedule in place, you still have to work with the departments and the users that schedule to make the revenue flow through it. So there is some variance in there and that's where the lower numbers come in. So we protect ourselves on the downside of our own business planning in terms of people and staff on those downside numbers, but make absolutely certain we manage to the higher number. Denis, would you like to further comment on that?

[Denis McCarthy:]

I would just add, Hal and Allen that we have certainly some risks and implementation and our biggest risk getting to-date has been our willingness to go above and beyond for the customer, which tends to take a little bit longer in terms of the implementation. And as we mature, I think our ability to; A, charge for those events; and B, be a little more willing to force Go-Lives in a quicker basis based on those technological implementations become stronger and stronger. And as does our pricing off across the board and our ability to price the projects higher -- become stronger and stronger. So I think from that perspective, I would reinforce Hal's statement about the connections growing and then those implementations as the two biggest risks why we "de-risk" the revenue we expect.

[Operator:]

We'll now move on to the next question from the line of John Nobile with Taglich Brothers. Please go ahead.

[John Nobile:]

Good afternoon, and thanks again for taking my call and once again, very impressed with very impressive results. I was hoping you provide what the blended gross margins would be if we assume the full quarter of iPass, because I know it really only contributed to about half of this quarter. So what do you feel this would have been with the full quarter of iPass?

[Hal Turner:]

Denis, you want to take that please.

[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.

[Hal Turner:]

And Denis, I would just add to that the software margins on the platform itself continue to run above 70%. And we are certainly targeting getting back into the low -- first, into the low 60s and certainly hoping to normalize above that number over the course of our margin improvement program.

[John Nobile:]

And I was hoping that you might -- I know you said that iPass in the quarter contributed. Was it little under $5 million for this quarter, which is really half a quarter for iPass? Could you include what our Artilium was also in the quarter?

[Hal Turner:]

Denis, do you have that breakout?

[Denis McCarthy:]

My recollection is it's just under $6 million for the quarter. And Ted, do you want to chime in there as well?

[Ted O'Donnell:]

It's just under four, that'll be for the second half of the year, so it's just under $3.5 million…

[John Nobile:]

So for this quarter, it was under $3.5 million. Well thank you for that. And I have just a general question to get an idea of the synergies with Artilium and iPass. Since those acquisitions, where there any new customers that you were able to acquire that were not previously customers?

[Rob Mumby:]

Yes, just to clarify that. We talked about on one of those slides, is that what you mean or from the...

[John Nobile:]

The synergies that the acquisitions of Artilium and iPass might have contributed to new customers coming aboard. I mean even before these acquisitions, brand new customers that were not there for any of the three companies, if I could say it that way. Yes.

[Rob Mumby:]

Yes, absolutely. There are brand new customers that the legacy Pareteum team has been able to win based on acquisition of both of those companies. And conversely those sales folks were able to win opportunities in the market with what Pareteum brought to the table. And so we're leveraging synergies on all fronts and have brought everything together that we're going to market as one Pareteum and winning.

[John Nobile:]

I just have one quick question here. You mentioned that you acquired Devicescape for less than $4 million I believe, cash in stock transaction. Could you break out what the cash and stock components were?

[Denis McCarthy:]

Yes, just about 50% for both, roughly $2 million in cash and slightly under 2 million in stock, John.

[Operator:]

[Operator Instructions] We'll now take the next question from the line of Eric Martinuzzi with Lake Street. Please go ahead.

[Eric Martinuzzi:]

Yes, congrats on the good results from Q1 and the lift to 2019. I was curious to know, is there a revenue contribution from Devicescape in your revised 2019 guidance?

[Hal Turner:]

We have not lifted the guidance based upon Devicescape, although there is revenue from Devicescape, what we want to do is examine that more closely with the enterprise accounts and the communication service provider accounts. And if we think it's going to be material, it'll be reflected as we do our Q2 call in August and updated guidance at that point.

[Eric Martinuzzi:]

And then as far as the implementation success you've been having, it sounds like, Vic was talking about some, you basically got better implementation not only the personnel but the tool to do it. Has there been any lessons learned that you could share with us, just we used to do it this way and now we do it that way, something that we can think our teeth into with how we get these -- how the big backlog that you have comes into revenue?

[Hal Turner:]

Yes, I'm going to given an overarching answer then I'll turn to Bart and Vic for more details. But the overarching answer, lesson learned is sell what can be deployed immediately and stop selling tailored or custom contracts. That's the overall lesson learned and it's a lesson that is sometimes painful when you have to start fulfilling things that were weren't as defined as they should have been. But we've learned that lesson very well. I'd like to turn first to Bart for his comments on that and then Vic to clean it up. Bart?

[Bart Weijermars:]

Yes, thank you. Well I think maybe to mention here as well is that, obviously yes we are expanding our service delivery more globally, expanding in new territories brings us challenges when it's done for the first time. Once we are, let's say well developed in a territory, it's much easier to deploy new customers afterwards. So there is a learning and geographic expansion and by our expansion we're actually also accelerating to follow-up. So I think that's also one of the learnings on our side. And that will help us manage faster implementations going forward.

[Hal Turner:]

Vic, anything to add?

[Vic Bozzo:]

Yes, the only -- and thanks Bart. The only comment I would make there is, we are also really focused on common interfaces and ensuring in ensuring that the specifications for those interfaces are very clear and the requirements are very clear for the customer. So whether it's IoT or CSP or an enterprise, common interface really is the answer. So our mantra has become configuration versus customization. I think that's really helped and we're going to just continue on that path.

[Hal Turner:]

And Vic, I'd like to add to that for Eric. That is part and parcel to better process documentation and just better follow-up by our project management team. So those are the lessons that have been learned. And it's now being reflected in the more accelerated backlog conversion.

[Eric Martinuzzi:]

One last question for a housekeeping item for me, given the transaction with Devicescape. Where are we as far as cash and debt on a pro forma basis, because I'm looking at $10.7 million in cash, I'm assuming there's $25 million of debt. And then the cash declined by about $2 million with the Devicescape. Are there any other puts and takes in my pro forma calculation for cash and debt?

[Hal Turner:]

Denis and Ted, you want to address that? Denis please.

[Denis McCarthy:]

Alright, Eric could you say one more time the pro forma for cash in debt relative to...

[Eric Martinuzzi:]

Yes, I have your March 31 cash balance at $10.7 million and then I assume there's a debt balance of $25 million from the Post Road take down. And then you spent $2 million on Devicescape. I was trying to get, if those were the three elements that would take me to my like a pro forma cash of $8.7 million and debt of $25 million. Is that a good assumption?

[Denis McCarthy:]

Yes, I mean as you look at the GAAP balance sheet, debt will be a little less because of the discount. But those two are generally in the right ballpark.

[Operator:]

And we have time for one last question which will come from the line of George Sutton with Craig-Hallum. Please go ahead.

[George Sutton:]

Hal, you mentioned there were no obstacles to your growth that you saw in your prepared comments. And I'm curious if I can ask it a different way, what are the gating factors to your growth, do you see it, it seems to have been implementation capacity in the past. I'm not sure I could identify the gating factor today.

[Hal Turner:]

I would think the top gating factor for us is market coverage and that is very much having us focus on channels and true channels of distribution both on the enterprise side and working with partners on the communication service provider side, particularly at the smaller end. So that's the number one element that I would identify. I would say that we have no real identifiable obstacles as long as we continue to configure, put the processes in place for the backlog conversion. That's the way I see it. I also see that clearly making sure that culturally, we continue to bring the teams from diverse parts of the world together in terms of our mission and how we work together and communicate certainly will be an accelerator to our growth. Those are the things that come to my mind. Vic, I'd like to turn to you for your comments on that.

[Vic Bozzo:]

I think largely as Hal said, market coverage is a big factor and we don't necessarily want to have to hire more direct sales people, so we've been working on some channel strategies that will get us there faster and also allow us to grow in territories where we can take advantage of larger sales forces through distribution. So I think to me that's the biggest gating factor. And as I always say there's no shortage of opportunity, it's ensuring that it's properly vetted and properly addressed and we've created a lead qualification and generation program specifically for that. So we can get it into the funnel in the in the most efficient manner.

[George Sutton:]

Perfect got it. Just one more question, you identified last quarter your pipeline opportunity, I'm just curious if you can give us any sort of an update there?

[Hal Turner:]

Are you referring to the -- any one in particular. I'm sorry I've forgotten George, which one...

[George Sutton:]

You gave a number last quarter of $166 million of an identified pipeline opportunity. I was just curious if we can get an update.

[Hal Turner:]

I believe that we were talking about in the communication service provider space the things that were known at that point in time. I think I looked at the last report that came about and I believe that number is actually climbing very close to $1 billion in backlog -- not backlog but pipeline identified that I saw. Is that the way you're looking at it, Vic and Rob?

[Vic Bozzo:]

Yes, absolutely. I'll give Rob and Christine, opportunity to speak on it. But our pipeline continues to grow. And it's I would say pretty exponential in that opportunity. The key is to make sure that we're qualifying every sale before or sales opportunity. So we've got a pretty rigid system there for qualification. Christine or Rob?

[Christine Braelow:]

I'm willing, I can jump in. And so looking at our are the remainder of 2019, we're looking at about $110 million in our pipe right now. Now remember we're really on a momentum right now and I expect that to grow quite a bit. We look for always a 4x pipeline against our delivery quota. So as we start to really gain synergies around the broader premium offering, we expect that to grow in the coming months.

[George Sutton:]

And that's just enterprise segment...

[Christine Braelow:]

Correct, yes.

[George Sutton:]

That's great.

[Rob Mumby:]

Yes, Just a quick comment on the CSP side, $160 million you just cited, I can think of just two deals from last quarter that would cover that amount. So with a very strong first quarter and I see the pipeline building on all fronts, so we're very optimistic, we know there's a lot of opportunity the market wants, what Pareteum does and enables and powers. And so we're very optimistic about the next quarter and the rest of the year as well.

[Operator:]

I'd now like to turn the call back over to Mr. Hal Turner for any additional comments or closing remarks.

[Hal Turner:]

Thank you very much. We are very appreciative of everyone joining us today. This is a Company that clearly is in its business transformation that has been almost unbelievable but it is believable. We're creating Pareteum Power, this is the connecting people and things. We're becoming very much a cloud-first and mobile-first Company, any device, anywhere anytime. We're investing in our innovation and our future growth. Customers win and succeed, Pareteum wins and succeeds. Our teammates the people that drive this business are very battle tough. They're confident. They're fully in charge of their jobs. And together we believe that we can accomplish almost anything you want. If the job gets done with the honesty, integrity, humility, transparency, respectfulness and huge sense of urgency that we bring everyday to the table; it is a competitive world out there; it's competitive for customers; it's competitive for long holding investors and shareholders who support the long-term growth and equity appreciation of our Company. We know that potentially getting knocked down is a constant occupational hazard. The skill, the grit, the perseverance that we see is found in knowing how to get up once you've been knocked down and how to keep going, some learn, others not so much. This quote was shared with me recently by a Marine friend of mine who is an executive officer. It is being ready is not what matters, what matters is winning after you get there. These words were spoken by Lieutenant General Victor H. Krulak. Well I can tell you today that Pareteum is ready. We were ready as we radically transform this Company over the last 3.5 years. We are ready to continue our aggressive growth and to report our rock solid and very real financial results. We are winning in all respects, no matter what, be it spoken or be it written. And we intend to keep on winning. We do not play this in a not to lose fashion. We play it to win in a very big way. So I thank you for joining us today. This concludes our call. Thank you very much. Bye-bye.

[Operator:]

Ladies and gentlemen, this does conclude today's conference call. Thanks for your participation and you may now disconnect your lines.