Pareteum Corporation
Q2 2019 Earnings Call Transcript

Published: 7 Aug 2019

[Operator:]

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

[Michael Bloom:]

Thank you, and good afternoon, everyone. Thank you for joining us for Pareteum Corporation's second quarter ended June 30, 2019, earnings results, analyst and investor conference call. With us today are Hal Turner, Pareteum's Founder, Chairman and Chief Executive Officer; Denis McCarthy, Chief Operating Officer; Ted O'Donnell, Chief Financial Officer; Vic Bozzo, Co-Founder and Chief Commercial Officer; Rob Mumby, Chief Sales Officer and Christine Braelow, Vice President, Global Enterprise.Earlier today, Pareteum released financial results for the quarter ended June 30, 2019. If you have not received Pareteum's earnings release, please visit Pareteum's investor 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 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 earnings, revenues, cash, or other statements relating to the company's future financial results. It also includes any statements about plans, strategies or objectives of management for future operations. Any statement concerning proposed new products, any statements regarding anticipated new relationships or agreements, any statements regarding expectations for success of the company's products 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.These 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 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.With that, I would like to turn the call over to Pareteum’s Founder, Chairman and Principal Executive Officer, Mr. Hal Turner. Hal?

[Hal Turner:]

Mike, thank you very much and I'd also like to thank those listening in from across the world, who are taking their time to hear our quarterly analysts update and our vision for Pareteum.Simply stated, we have had a superb quarter in Q2. This was achieved by executing our ambitious growth strategies. We've materially exceeded consensus analyst expectations by some distance in many cases and we've achieved very important milestones. We crossed the $1 billion revenue under contract backlog threshold. In Q2, we have delivered standalone revenues of $34.1 million which have exceeded our full year 2018 revenues of only $32.4 million. This was accomplished in just six short months and yet in our perspective, we're really just beginning. In these early days for Pareteum, we've already changed global communications. Our results are driven by Experience Cloud, this is our core platform. And it is globally connected by our Smart Network. This is after all an age of digital transformation. Experience Cloud gives both form and function to digital transformation. We do this by importantly shifting control of communications and software into the hands of our customers, affordably and dependably. And most importantly we've shifted control of communications and software into the hands of the engineering and development teams of our customers.They are the users of our enabling software platform and capabilities for things like services innovation, creation of connected applications and all of this that have full command and control capability in the deployments of their applications. Our transformative solutions create new brands new use cases, and are Pareteum powered by our software and super APIs. They're used daily by the thousands of engineering and development teams of our customers.By our mission connecting every person in everything, we are transforming the communications of the world with software and the ease of which our customers and developers use it. However, we haven't declared any victory laps yet. We still have much hard work and heavy lifting to do in fully achieving all of our aims and all of our aspirations. Our teammates get up each day with a clear focus on customers, their needs, and continuously improving everything. We expect to continue doing that, which has worked so well for us.The largest and most material milestones achieved during Q2 and for the six months ended June 30, 2019 are this Pareteum has produced EBITDA of $3.4 million for Q2. And also EBITDA of $900,000 for the six months ended June 30. We achieved these material profitability indicators a full quarter prior to previous analyst expectations because of our disciplined execution and results focus.I've already noted that our revenue for the quarter was $34.1 million. This is up $28.1 million from the prior year's quarter. This is a sequential quarter-over-quarter increase of 48% and is our Q2 to year-over-year increase of 468%. And as noted Pareteum’s Q2 revenue performance of $34.1 million exceeds our full year 2018 revenue results of $32.9 million, that's significant to us. We delivered adjusted EBITDA of $6.1 million up from just under $1.3 million a year ago. That's a 369% increase materially exceeding our previous guidance. Already mentioned we delivered actual EBITDA of $3.41 million and that's a significant 466% increase from a year ago.Based upon these exceptional results for the first half of 2019 the excitement and commitments we are seeing from global customers and the visibility that's inherent to our business model and expected results, we are raising our full year guidance, which I will communicate to you momentarily.These strong financial results reflect the core capabilities of Pareteum Experience Cloud and the communication services, which is our Smart Network. These are intersecting with strong customer demand, all of which are expected to continue accelerating Pareteum’s expansion. This is how we provide great experiences to our approximate 1,100 customers worldwide.Q2 also resulted in two additional major milestones for the company. The first was our inclusion in the Russell 2000 and 3000 Indices. Inclusion in the Russell Indices reflects the progress that Pareteum has made and raises our profile among the institutional investment community. The second was the commercial launch of Pareteum Experience Cloud. We previewed this at our Pareteum Power Analyst Day held at Nasdaq on May 28.Our Experience Cloud represents the successful integration of recent acquisitions into the Pareteum family under one unified brand and platform. The Pareteum Experience Cloud provides a powerful mix of mobility, customer engagement, analytics, and intelligence services to customers through a SaaS based recurring revenue model. The richness and flexibility of this platform and its API and software-based services support significant cross-sell and up-sell opportunities through our customer base. This combination gives us strong visibility in our business and a clear path to achieving significant revenue growth and long-term earnings power.We now occupy a unique position in the market offering a single unified software platform that provides limitless scale and control over value added communication services. This is accomplished through our APIs and leveraging our owned which is now one of the world's largest unified global networks.Customers are choosing the Pareteum Experience Cloud precisely because it represents the integrated service layer that has been missing in the marketplace. With their brands, and by this I mean the Pareteum customers delivering a totally fully integrated solution, managed and controlled by our customers to provide services and experiences to their direct customers end-users. Control has demonstrably shifted to our customers. This is digital transformation at its best.Smart Cities, one of our fastest growing segments illustrates this point well. A Smart City for us is a fabric of connected devices built to serve discreet applications. Our Experience Cloud brings these applications together and enables each of these unique services to be managed by one Pareteum delivered platform and control application. The single control application management enables Smart City administrators to simplify their operations while creating new value revenue streams.For example, we have a planned community in Florida, in the U.S. that has added control management and connectivity through Experience Cloud to every streetlight. The streetlight itself ensures the lights are on and functioning efficiently while providing Wi-Fi connectivity, which provides dynamic connectivity for the screens for advertising and events postings and also monitors water levels on the streets.Another example in Brazil following the deployment of our Experience Cloud and Smart Network, our customers using these enablement capabilities in managing IoT devices for smart water meters, street parking systems, waste collection and many more apps are planned for this particular deployment. We have clearly helped this municipality improve their services, reduce their costs, and we've contributed beneficially to their ongoing environmental management initiatives. This is a clear win for our customers – eyes of citizens. It is a win for the community and a growth win for Pareteum. This is Pareteum Power doing good things.In an Asian Smart City, our Experience Cloud was deployed with Smart Network providing citizens with Wi-Fi and connectivity services. This implementation based on a community advertising model in enabling citizens to maintain their connectivity through the train and the bus systems and infrastructure. These are very compelling solutions and enable us to propel businesses forward, assisting customers in their strategic and operational target attainment. This is why at Pareteum Power Analyst Day, our customers such as the City of Kyiv in the Ukraine, Deutsche Telekom, Vodafone, ACN, McKinsey and others, agreed to share their specific insights into their successful deployments of our Experience Cloud and Smart Network.Initial reception of Pareteum Experience Cloud has been extremely positive and we are encouraged by the accelerating momentum and increasing rates of customer adoption. Pareteum’s customers and their participation and support in evangelizing Pareteum’s vision is a testament to the power of our platform and our excellent working relationship with our global customers. All of our teammates work diligently daily to make each customer's journey with Pareteum a happy and successful one and to do good things always. We believe the strong reception further validates our strategy of powering the future of cloud communications on a single unified platform and shifting control to the customers.Continuing now with the strength of our customer relationships, I'm pleased to share with you some of the things that are driving visibility to demonstrable growth through our sales efforts. Here's some of our key Q2 success wins. The largest Internet search and advertising company in the world will use our Experience Cloud and Smart Network Wi-Fi for its MVNO brand, enabling expanded coverage and secure connections for its subscribers. A U.S. global fintech company will use Pareteum Experience Cloud and Smart Network for global connectivity, serving as the Wi-Fi backbone for their solution and their sister company, which is an MVNO, will use Experience Cloud’s Smart Network to launch service in the U.S.A leading European CRM and loyalty company will deploy Experience Cloud to create more meaningful customer experiences at retail locations. In this instance, it's using IoT Connectivity and location presence alerts, so the company will assist its customers in providing personalized offers and discounts to shoppers upon entry into their stores. Throughout Asia, M1 a very significant Tier 1 mobile network operator will deploy Experience Cloud to enable its partner brands to launch mobility services targeting consumer, IoT and enterprise markets. M1 is initially focusing on Singapore before extending to other Asia-Pacific markets.Moving on, as discussed in our last earnings call, we acquired Devicescape in the second quarter. Devicescape brings a highly attractive IP portfolio including 33 granted patents, strong complimentary software solutions and a high caliber set of executives and product leadership. From an operational standpoint, our integration plans are well ahead of schedule. Additionally, Devicescape’s former CEO, Dave Fraser now serves as Pareteum’s Chief Product Officer. Dave and his team including John Gordon, our Chief Architect, offer excellent executive and product leadership for our Experience Cloud platform and portfolio.Now I'm going to shift to and discuss several operational metrics that are important drivers in our business. We've discussed our 36 month contractual revenue backlog, which is simply the value of new sales, orders intake and the revenue under contract are simply called backlog. And we – as we've discussed this – which, it is as a non-GAAP indicative number. We began using this metric in 2016 to provide a view of the magnitude, sales growth and its conversion to billable revenues. This has been a specially important as we transform the company and needed a barometer that looked beyond the methodical building up of monthly recurring revenue.I'm pleased to inform you that at the end of Q2, the 36 month revenue under contract backlog stood at over $1,270 million, $1.27 billion. This milestone demonstrates the strong demand we have referenced from our customers, it's also a very strong leap forward from our Q1 number, when we ended the quarter at $938 million. Putting this quarterly backlogging crease into vivid perspective, our sales executives executed on average one new sales contract per business day for the whole quarter. We're very proud of our teammates and their sales performance. This metric has also been a very useful way to help stakeholders understand the magnitude of our opportunity and the commitments that we've secured from customers, particularly as we started to transform the company in 2016.However, new sales order 36 month backlog metric will now be replaced as an external metric. It has served its purpose and now provides us significant internal transparency into new sales orders and their conversion into billable revenues. We can now see clearly the strength in our revenues and their expected growth. Therefore, it is our reported quarterly results and the annual guidance provided which are the strongest indicators of our expected growth and continued financial successes in the coming periods. We will therefore formerly retire backlog as a key performance indicator and no longer report it after Q3 of this year.Now, we will focus on providing operational metrics as leading indicators of our business performance. These metrics demonstrate how we manage the business day-by-day and providing more direct indication of our performance. These may include our net dollar expansion rate, total connections, quarterly adds to connections, total customers and churn. We may from time-to-time include other metrics when they may be meaningful to the quarter and our business. Our Q2 net dollar expansion rate was 151% year-over-year, this is reflecting our laser light focus on up-selling and cross-selling services with our existing customer base.Our total connections, which is our term for connected subscribers and devices and their usage increased to 13.03 million devices at the end of Q2, this is a net addition of over 1 million connected devices in the quarter and up from 2.7 million in the second quarter of 2018, this is a year-over-year increase of 380% on connections. Our customer churn is pleasingly low, it's less than 2.5% annually and that's across all service segments and all sources of revenue in the business. Our low churn paired with our high net dollar expansion rate, highlights the value of the services we provide to our customers and it demonstrates our ability to scale the business.In summary, we are very delighted with Pareteum’s performance. The executive management and leadership team are very optimistic about now about our future. We're bullish about ongoing results based upon our customers and our sales.Now, I will yield to Denis McCarthy for his review of our financial performance, and then we'll come back in a few moments to discuss the guidance followed by Q&A. Denis, if you will, please.

[Denis McCarthy:]

Thank you, Hal, and thank you everyone for joining the call today. As Hal mentioned we're very pleased to report that we've achieved revenue for the second quarter of $34.1 million, along with gross margins of 55%. However, the largest milestone achieved during both the quarter and for the six months ended June 30, 2019 is Pareteum produced EBITDA $3.4 million and $0.9 million respectively as of those dates. This is a result of our consummate execution as a completed full quarter prior – and it has been completed a full quarter prior to previous analysts expectations.Additionally for the three months ended June 30th, we have income from operations of $0.2 million and $0.03 of non-GAAP earnings per common share. We have achieved organic growth of 48% over the prior quarter from the combined Pareteum and Artilium businesses. The Artilium acquisition was not only accretive, but as we intended it accelerated our organic growth as well. These revenues and gross margins drove an adjusted EBITDA of $6.1 million or 18% of total revenue. Adjustments to EBITDA include stock-based compensation of $2 million and acquisition and restructuring costs of approximately $0.4 million. Much of that is related to the closing of the iPass acquisition, and majority of these adjustments are nonrecurring in nature.G&A as a percentage of our revenue was 26%, versus 37% for 2018, we continue to see our general and administrative expenses growing at a rate much slower than our revenue and we expect this trend to continue over the next several reporting periods. We generated non-GAAP earnings of $3.9 million or $0.03 per share over the second quarter. A reflection of our strength of our core business as well as stability of our business and sales team's ability to generate new opportunities and our service delivery team’s ability to continue to get those customers installed and in service.We are EBITDA positive for the quarter and we continue to have a relatively strong balance sheet, with the additional capability to draw funds from our credit facilities. Appropriate leverage and we do not feel that we need to add to the balance sheet for business as usual activities. Our need to access capital and our credit facilities will be based on acceleration of our organic growth and/or to pursue inorganic growth opportunities. As stated previously connections are a leading indicator for our growth. As of today and as Hal mentioned, we now stand at 13 million – approximately 13 million connections and just under 1,100 customers.As a point of comparison only 21 months ago we had single-digit customers and less than 3 million connections. Our balance sheet and accounts receivable reflect this revenue growth and we will continue to grow that revenue for quarters to come. As discussed previously, we closed the acquisition of iPass on February 12th, making this second quarter the first full quarter inclusive of iPass. During 2019 iPass has added 15 new customers, three of which have reached over 1 million of annual revenue run rate on the Pareteum platform as of June 30th. And we are seeing an increased need for the augmenting of the legacy products alongside the Pareteum experience platform, which has been newly introduced into this customer base.Pareteum has exceeded consensus and analysts expectations in several areas. Our revenue of $34.1 million exceeds analysts’ expectations of $26.5 million, the consensus estimate for non-GAAP was breakeven. We achieved EPS of $0.03 per share for the quarter, over achieving those estimates. The consensus, analyst view was that Pareteum would be EBITDA positive sometime in the second half of 2019. The company outperformed those expectations and has achieved positive EBITDA results for three and six months ended June 30th, 2019 of EBITDA $4 million and $0.9 million respectively. Additionally adjusted EBITDA of $6.1 million exceeded consensus estimates of $4.1 million by over $2 million.Our key performance indicator of connections, which is our term for subscribers devices and their network usage is indicated over 13 million for the end of the second quarter, which includes the impact of the iPass acquisition. During the first quarter of 2019, we engaged RSM to bolster our internal audit function and improve our internal control processes. They will partner with us since Squar Milner guiding us as we enter the next chapter of our development and expected substantial equipment. To conclude, we are pleased with our strong financial results for the second quarter. These results provide us with a strong financial foundation to support the long-term vision of the company.With that, I'll yield back to Hal to conclude the call.

[Hal Turner:]

Denis, thank you very much. Based upon our exceptional results, including exceeding the analyst consensus estimates for our performance in Q2 and the strong momentum we're seeing in the market, we're raising our full year guidance. Our updated guidance for 2019 is that follows

[Operator:]

Thank you. [Operator Instructions] And we'll take our first question from Tim Horan with Oppenheimer.

[Tim Horan:]

Thanks guys, a great quarter. Two questions from me. Denis, the new search company using you for Wi-Fi offload, is that – I am assuming that's a brand new contract, and I'm assuming they must have been trialing to connect the technology for awhile and they're pretty happy with the handles and the quality. But maybe you can give us some more color around that. And maybe –how large of a contract can that be? And can they use you for international roaming or other products and services?And then Ted, can you just comment on the accounts receivable, that seem to grow again pretty substantially? What caused that and what the trend might look like for the rest of the year? Thank you.

[Denis McCarthy:]

Denis here, yes short-term quickly I would say that the company has done work with before – us before. We do expect that it can grow quite substantially, but I’d yield to Christine to give us a – give you a little more color on that customer, is that has come out of her enterprise sales team.

[Hal Turner:]

Christine?

[Christine Braelow:]

Thanks Denis, yes, so happy to do so. So the initial review in where we're focusing is currently with the Wi-Fi smart network, this is terrestrial and it is available on a global basis and so as Denis had indicated it has a tremendous growth possibility as we look at what else we can bring from the experience cloud for the enterprise. They also are an enterprise customer that is using our service and has for a number of years with their own employee base. So we have a long and rich history with this enterprise.

[Ted O'Donnell:]

Sorry.

[Tim Horan:]

Go ahead.

[Ted O'Donnell:]

We could invest on that search company, I think they also might have an MVNO brand of it. So I have you won the – offload, the MVNO also.

[Tim Horan:]

Okay, great.

[Christine Braelow:]

Correct, yes. So we're offloading Wi-Fi with the MVNO, as well as have a relationship with our own employee base, so it is both.

[Tim Horan:]

MVNO offload, that’s brand new and it – was that in the quarter at all or is that kind of…

[Christine Braelow:]

Correct. Yes, that’s in the quarter and it is brand new.

[Operator:]

Okay. Tim, should we move to the IR question or is that enough on that, you…

[Tim Horan:]

Yes. I guess just a last – did you win that contract based on the quality of the handoffs? I mean, how long did they trial that for on the connected technology to do the handle from LTE to Wi-Fi? Thanks.

[Christine Braelow:]

Sure. So yes, it was definitely won on quality, so they were looking for improved quality of experience for their user base. And the trial was over about three months plus minus timeframe.

[Tim Horan:]

Congratulation. Yes, and then Ted on the accounts receivable any color would be great.

[Ted O'Donnell:]

If we just look for the AR to increase a little bit then probably plateau and then start to come down with collection in the third and fourth quarters of this year, and then continue that process of coming down in Q1 of 2020. So we're very vigilantly going ahead and looking at this and – but we go ahead and feel very comfortable that the sales that we're going ahead were generating, will go ahead and lead to strong collections going into the second half of this year and the first quarter of next year.

[Denis McCarthy:]

And it just - sorry Tim.

[Tim Horan:]

Denis, would you want to share the comment that our auditor made with us on this as we ask about this and where we are in levels? I thought it was quite elucidating.

[Denis McCarthy:]

Yes. I think it was effectively how that – with the rapid revenue growth over the last nine months growing from $6 million to $34 million, they were comfortable with where the overall receivables had grown to and really reflects the health and growth of the company and comparable to companies that they have in the space and that they're continuing to look at our internal processes which they feel are strong and reflects what Ted had mentioned that we will see that Plateau a late third quarter and then continue to come down over the fourth and – fourth quarter of this year and first quarter of next year.

[Tim Horan:]

Right. And just lastly on that, as that debt expense have been relatively stable or it’s an increase or decline?

[Ted O'Donnell:]

We did go ahead and increase a little bit in this last quarter and this going ahead and falling normal debt procedures on that and then depending upon the timing of certain collections, we're going to go and continue to look out in the future, but it was relatively flat, we're basically in the same range in the first and the second quarter, we went from $1.3 million for allowance that debt to like $1.4 million in this current quarter of it right now.

[Tim Horan:]

Thank you.

[Ted O'Donnell:]

Pleasure.

[Operator:]

Next we’ll hear from George Sutton with Craig-Hallum.

[George Sutton:]

Thank you, nice results guys. So one of the challenges obviously with winning all the business you are, is you need to implement it and I know that's one of the reasons the DSOs have gone up. So can you talk about what you're doing to ramp up the team on the implementation side? And are you doing anything yet with any key partners?

[Hal Turner:]

Denis, you want to address that since the service deployment in product fall to you and then I'd like Vic to comment on it from the account management and customer advocacy standpoint.

[Denis McCarthy:]

Yes. Sure, Hal, and thanks for the question, George. We have brought in a very senior person on the operation side Conor Carroll who has delved in over the last two and a half to three months and accelerated our deployments along with, as Hal mentioned Dave Fraser and John Gordon, who joined us from Devicescape. Bringing to bear technology improvements that did improve our time to market with the software cloud platform, particularly as we enter into new markets in Latin America and Asia. So we've seen accelerated growth and our ability to deploy, we still do have add as a major challenge ahead of us over the next I would say six to nine months, as we keep pace with the rapid sales and what Vic will coin, I'll let him speak to it a bit. But we're now receiving a lot more inbound calls on the demand for our platform as we continue to see the growth in the marketplace.

[Vic Bozzo:]

Yes. So, thanks, Denis. So in addition to the service delivery build down, we're investing heavily in what we call a customer advocacy function. And that's both in account management for cross-sell, up-sell, but it's also working hand-in-hand with sales from the moment the prospect is identified through service delivery, which is coming into the equation as the contract is being negotiated. And so, generally our customer advocacy, we envision to be growing as large as our sales force. So most of our new investment in the sales side and the commercial side is really in customer advocacy account management, and candidly with close to 1,100 accounts, we have strong opportunity to farm cross-sell and up-sell in our customer base. In particular, we see the merging of several of our services from messaging to Wi-Fi to all being brought together through the Experience Cloud.And we see that's unleashing already new up-sell and cross-sell opportunities. But the key is our customer advocacy team is growing, and it is growing globally and it's focused on helping from the minute the sales process begins through the service delivery and then forward into the future.

[George Sutton:]

Super. Hal, I thought your example of the Florida Smart City was very tangible, very clear in terms of what you will be doing to help enhance that. Can you talk about the addressable market overall for Smart Cities?

[Hal Turner:]

Yes, I can. And when we look at our total addressable market of over the course of about three years of 270 billion out of a total market of 463 billion, if you take the IoT portion down into that, it is approximately 200 billion. If you start weaving that down to where we are, the segments that we're in, we think that clearly we can address at least the 25 billion range in the next two years. So we only have to capture a fraction to really have a huge upside. I will tell you that we're working more demonstrably on this to better understand how our control platform will work with partners who have discreet applications, let's say, water meter reading as an example, which could change the profile of the opportunity. So what I've just given you has to do with way we look at the Smart Cities, but as we look at it with the individual applications, it actually may grow is my view. I'd like to turn to Vic on that and is Cynthia on the call Vic?

[Vic Bozzo:]

Yes, Cynthia is on the call, and just to echo what Hal said, if you recall as we described it, we described it as a fabric of discreet, connections and opportunities. And so what Hal is describing is that there is an overall market, but within each of that – of those segments and if you take that streetlamp, there are multiple applications within that lamp, it's been within that light post and it's being run in many cases by different – not just discreet applications, but discreet groups who sell those products. So we see the opportunity to really give one single control mechanism to that. And so I think that the accessible market grows, but it's pretty large as it is, as Hal mentioned.

[Hal Turner:]

And Cynthia, any comments on the market size that might better reflect the things that Vic and I've said.

[Cynthia Lawton:]

No, I don't think I have anything to add.

[Hal Turner:]

Okay.

[George Sutton:]

One other quick one, if I could seek it in the – and I know backlog is going to go away as a public indicator, but it was a significant increase quarter-over-quarter. And I'm just curious if you could give us a sense of within that, how many are significant deals in size relative to smaller opportunities that you signed?

[Hal Turner:]

Yes, we can. And I'm going to turn to Rob Mumby for that, since he drives the vast majority of it. Remember that we have three segments, communication service providers, enterprises and IoT. So Rob can give you a flavor of how that was spread out, Rob?

[Rob Mumby:]

Yes, sure. Hi, well in general, I would just say that we have – we didn't have one large deal a month and then we have several medium and even some smaller ones. So from a risk standpoint, we're very diversified, we're not counting on just one large customer signing, but by all means, we want large customers and so it's a mix of both. And we're interested in enabling mobile destruction with all sizes of businesses because, you look at it at some point WhatsApp was a small shop in a garage and you never know where the next game changer is coming from. So does that help?

[George Sutton:]

That's perfect.

[Hal Turner:]

Thank you very much George for your question.

[Vic Bozzo:]

George, I just want to add one thing to what Rob just said. If you take this down to what I mentioned that we're on average selling about a transaction a day for the whole quarter, that means somewhere in the 22 to 27 sales – discrete sales. A lot of these do fall into the $3 million to $5 million range, but we consider that very, very good, because that's really what Rob is talking about in terms of the kinds of customers that are going to have significant growth potential and really the real upside.On our website, we talked about a company in New York called Wing and it's a great example of a small company, that’s got a potential to be really big, really quick. So we're looking for those kinds of transactions.

[George Sutton:]

Perfect. Thanks guys.

[Vic Bozzo:]

Welcome.

[Operator:]

Next we will hear from Mike Latimore with Northland Capital Market.

[Mike Latimore:]

Great. Thanks. Yes, very great results Turner. I guess on the sequential growth in the second quarter, can you just give a little more color there? Maybe, which regions were particularly strong or was it broad based, and then are there a couple of big customers really ramping here or is it kind of more diverse? Just a little more color on the sequential growth you are at.

[Hal Turner:]

Okay. Denis, you want to dig into that from the financial standpoint?

[Denis McCarthy:]

Yes, we do continue to see nice strength in Europe and particularly in the United Kingdom, but to dig into some specifics, it is very broad based in that growth, they implemented roughly 23 new customers in the second quarter. And of those customers we also saw growth from the existing data I referenced in my prepared notes, the three customers are from the legacy iPass sales team that have grown up to over $1 million revenue run rate. And our first, very significant contract in Africa deployed during the quarter.So, I would say that Asia and Africa are prepared are poised for significant growth. Europe still maintain strong and out of the iPass phase, we are with the cross sell of the new enterprise Experience platform, we're seeing strength in U.S. as well, but a pretty broad based growth.

[Mike Latimore:]

And on the AI growth, how much of that is sort of service implementation fees versus subscription versus something else? Just a little color on that would be great?

[Ted O'Donnell:]

Well, let me go ahead – go ahead.

[Hal Turner:]

Go ahead Ted.

[Ted O'Donnell:]

When we go ahead and look at the implementation, most of that work is in our path, vast majority of it is for folks that are going ahead and ramping up services with us or going ahead and adding-on new services with us as well.

[Mike Latimore:]

And then just to be clear on the – you talked about sort of plateauing in 3Q and then responding in 4Q. Is that – should we think of it then going up a little bit in third quarter and then down a little bit in the fourth quarter? Is that what you comfy there?

[Hal Turner:]

Actually, it would be like a gradual ramp up and then probably coming back right into the same level that we're in right now as we start to go ahead and see a good amount of questions coming to the end of this upcoming – this quarter that we're in right now, in the third quarter, then ramping up in the fourth quarter as well as into the first quarter of next year, so especially as we go on ahead and see few more active deployments that are starting to ramp for us.

[Mike Latimore:]

Okay. And just on – the Experience Cloud into the iPads based, can you – I know it's still early, but like what should we think about in terms of sort of an average sales cycle other? I know you haven't really kind of gone through too many yet, what's kind of a good ballpark on that sort of thing?

[Hal Turner:]

Christine, can you take that please?

[Christine Braelow:]

Sure. Happy too. So, remember where we're really getting the most traction are with multinationals. So decision making time frame in a larger organization takes a little bit of time. So at this point, the way that we're seeing a track is anywhere from six months and likely up to a year. And I think on the short-term, so we were in a discussion right now where I think in the next two months or so, we'll actually run a POC and then see a decision towards the end of Q4. That's about the time frame that we're seeing.It's very exciting – it's an exciting conversation to have. We're bringing a lot more value, as Hal had pointed out it's the single point of contact and there's a tremendous level of interest from the enterprise side. So as those conversations mature and we start to see wins, I expect those sales cycles to tighten up a little bit because we will have some proof. But overall, it's just a very exciting conversation that we're having and we're seeing good reception.

[Mike Latimore:]

Yes. Sounds like great. Thanks a lot.

[Hal Turner:]

Thanks Mike.

[Operator:]

[Operator Instructions] We will now hear from Bruce Goldfarb with Lake Street Capital Markets.

[Bruce Goldfarb:]

Hi Guys. Everybody, Hal, Denis, Ted, congrats on the great quarter and all the progress you guys have made, just a couple of questions. Most – in terms of revenue under contract, a lot of revenue – most of the revenue under contract is with your largest customers. Do you see that changing over the next 18 to 24 months?

[Hal Turner:]

Yes. Bruce, actually as we look at this pretty closely, the large customers really are going to represent much less than 20% of the total revenue that is under contract. And I believe, Dennis, if I'm not mistaken, our largest customer now is under 20%. Is that correct?

[Denis McCarthy:]

Absolutely, Hal. And continue to trend in that direction while growing as an overall customer. We see 10% to 15% growth in our largest customer and that drops from the 19% range to likely the 12% range in 2020. And as alluded earlier these $2 million and $3 million contracts, which have become the norm of the closing in the last, let's call it 60 days, as those get implemented, they continue to become a larger part of our base and I think it speaks to that the 1,100 customers now have a great diversification in our customer base.

[Bruce Goldfarb:]

Great. Thank you. And then just one last question, it sounded like you guys are seeing some real strength in Europe, but just given the macro weakness are you seeing any deal push out in Europe or any kind of delays?

[Hal Turner:]

Vic, can you address that? I can tell you I don't see any but you might be a little closer to one or two of the deals.

[Vic Bozzo:]

Yes, I haven't seen really that affect on our deal structure. I will say that we have quite a bit of disruptive new entrants coming into our funnel as well. And so that could, clearly be an indicator that, that disruption is part of what's going on in Europe right now. But we're not seeing any slowdown in the deal flow based on the macro economics. In fact, it feels like there's more opportunity because, there's increasing competitive landscape, which seems to work in our favor.

[Bruce Goldfarb:]

Great. That's all I've got. Congrats on your results.

[Hal Turner:]

Bruce, thank you so much. Thank you. Ted, do you think we have time for one more question?

[Ted O'Donnell:]

One more.

[Operator:]

I've got the final question of the day will come from Allen Klee with Maxim Group.

[Allen Klee:]

Short and sweet, can you tell us what your – how much your total debt was at the end of the quarter.

[Hal Turner:]

I have to turn to Denis for that, but I'll let Denis give you an exact number.

[Denis McCarthy:]

Sure. $25 million on the balance sheet as of June 30.

[Allen Klee:]

Okay. Thank you so much.

[Hal Turner:]

Thanks Allen. Well, with that we'll conclude the call. I want to thank everyone for joining and we look forward to seeing you in due course and thank you all very much. Denis, Vic, Christine, Rob, Ted, Mike, thank you all so much. Bye-bye, now,

[Operator:]

This does conclude today's conference call. Thank you for your participation. You may now disconnect.