Pareteum Corporation
Q2 2018 Earnings Call Transcript

Published: 7 Aug 2018

[Operator:]

Good day and welcome to the Pareteum Second Quarter 2018 Earnings Results Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Stephen Hart, Investor Relations. Please go ahead sir.

[Stephen Hart:]

Thank you very much, and good afternoon everyone. Thank you for joining us today for Pareteum Corporation's second quarter ended June 30, 2018 earnings results analyst and investor conference call. With us today are Hal Turner, Pareteum's Founder, Executive Chairman and Principle Executive Officer; Vic Bozzo, Chief Executive Officer; Denis McCarthy, Senior VP of Corporate Development; Ted O'Donnell, Chief Financial Officer; Rob Mumby, Chief Revenue Officer; Ali Davachi, Chief Technology Officer and COO; and Bart Weijermars, Chief Executive Officer of Artilium. Earlier today, Pareteum released financial results for the quarter ended June 30, 2018. If you have not yet received Pareteum's earnings release, please visit our website on Investors page at 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 statements 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. Any statements about plans, strategies or objectives of management for future operations, any statements concerning proposed new products, any statements regarding anticipated new relationships or agreements, any statements regarding expectations for the success of the company's products in the U.S. and international markets, any statements regarding the future economic conditions or performance, statements of belief and any statements of assumptions underlying any of the foregoing. These 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 in the forward-looking statements. Some of these risks are described in the section of today's press release titled Forward-Looking Statements and in the public periodic reports 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 do not intend to do so. With that, I would like to turn the call over to Mr. Hal Turner, Pareteum's Principle Executive Officer.

[Robert Turner:]

Stephen, thank you very much, and greetings to everyone who's joining us from wherever you might be around the world today. As you might expect, we're very excited to discuss our record second quarter results, and to provide you with an update on our business progress. We have had a most successful first half of 2018, and we continue to do what we said we would do and we will continue doing that. We're pleased to have outperformed analyst consensus expectations by 22% on their expectation of revenue coming in at $4.9 by generating positive EPS of $0.03 a share versus analyst expectations of minus $0.02 to $0.03 per share. This is the first incident by the way of positive EPS in the Company's history. More is coming momentarily on these important topline and bottom line second quarter 2018 performance results, but suffice it to say, our whole team is excited about these results, and better yet, we're very excited about what's coming because we see - we see the pipelines, we see the future, we see the vision. So, let's review a little bit more about the 2018 second quarter in a little bit more detail. Our team has reported record quarterly revenue at slightly over $6 million. This is by far our best performance to date. This is topline revenue growth of approximately 50% from the previous quarterly revenue run rate ranges, which were in the $3 million to $4 million range and we've been operating in that range during the past two years of the heavy-duty turnaround work and setting the stage for the sales growth. We are reporting our first ever quarterly positive net income of a $1,656 million versus net loss of $1.3 million in Q2 of 2017. This milestone achievement reflects the significant and enormous team effort on all fronts. And that includes, finding new customers and sales contracts, there are lots and lots of them, there are more coming. This includes, billing and collecting revenues from backlog conversion, and that's ramping and is going to get even more robust. And it includes the daily rigorous expense management that we undertake in this business to make sure that we're operating profitably. We have positive cash generated from operations hence net of restructuring and acquisition related expenditures coming in at $564,000 for the six months ended June 30. This is another material milestone in our turnaround and our growth story. Our team continues to be laser focused on converting the 36 month contractual revenue backlog into live production, billable, and collective revenues, all the while where we serve the client needs and selling into new geographic markets, and building long-term shareholder value with accretive growth. And we are a growth Company. Growth for Pareteum comes in two forms. The first is the sales growth, and that's from the efforts of our team, and we are highly successful in driving sales, lots and lots of contracts. Growth through strategic initiatives, and this is driven by our buyer build analysis of GAAPs, and of needs and of opportunities. And M&A is a key element of our ongoing growth strategy. We announced on June 7, 2018, our acquisition of Artilium, and that's expected to close later this year following our shareholder's approval, and we've begun already the proxy solicitation process. We began commercially with Artilium and the framework for strategic alliance in late 2017. The successful strategic alliance has now progressed to be accretive acquisition, and that is our model going forward. And it is a key element of the strategy for dramatic growth. Bart Weijermars, is on this call today and will have a few words to say later on and will certainly be available in our Q&A session also. Following my brief remarks today, we invite you to participate in our Q&A, where I'll be joined by Vic Bozzo, Denis McCarthy, Ted O'Donnell, Rob Mumby, Ali Davachi, and of course Bart. There, we will all have additional comments as we answer your questions, and in those comments the guys will talk about the progress in their areas and where we're going. I'm very confident that you will hear and feel the passion that they have for our business every bit as much as I think and hope that you hear it from me, because it's real. Hopefully you've all had that opportunity to see the earnings release. So, I'm not going to read that to you but rather focus on a few of these key highlights. First, with our $6 million in Q2 revenues, I'm proud to announce that we achieved record revenue growth for the second quarter of 2018. We've now recorded five consecutive quarters of growth. We've been operating at fully positive adjusted EBITDA since Q2 of 2017. We generated positive EBITDA of $597,000. This quarter marks our second consecutive quarter of positive cash generated from operations, which came in at $564,000 through June 30, and again, that's net of the restructuring and acquisition related charges. And perhaps most importantly, Q2 marks our first quarter positive net income generation, and that came in at $1.6 or the EPS of $0.03. If you hear shouts of hooray in the background, that's the people who've worked very hard to make this happen, enjoying a brief victory lap while we have this call. Key performance indicators help us guide and facilitate any needed course corrections during the weeks and days and months that we're always RFM in this business. Pareteum's important KPIs are connections, and that's industry speak for subscribers, devices, and their connectivity usage. And it's also referring to the volume of connections in their corresponding revenues, plus the growth that of churn. Another key KPI for us is backlog conversion, that's turning the 36 month contractual revenue backlog into live, in production, services deployed, build revenues, and collected revenues. And the other important KPI for us is revenue per employee. I'm very pleased to tell you that all of our KPIs continue positive forward motion, and yes, that is with relentless forward motion in our speak internally. The positive direction and the accelerating improvements in our KPIs, provide us confidence in our overall strategy and the business the execution that we're undertaking. I would ask you to please review the KPI slide in the company overview that appears on our website, for additional details. And you're certainly free to call Stephen Hart or our corporate team, at any time, for further details on that. Simply stated for each of you, our plans are working. Our end of Q2, 36 month contractual revenue backlog stood at $276 million as of June 30. By the way, I think you all know that that has subsequently grown to $300 million at the end of July. And if we were to report something today, it would be even higher. So we are seeing a significant uptake in the contracts, and that's because the customers like what we do and they're buying more and more. The end of Q2 at $276 million includes 13 new contracts which added $55 million to our 36 month contractual revenue backlog in Q2. That was reported on June 28. And just thinking back, that compares very favorably to our incredible 2017, when we were awarded 26 new contracts totaling $118 million for the entire year. I can tell you the pace has picked up and is picking up even more. Q2's 36 month contract revenue backlog of $276 million also included the addition of $21 million, which came about as we examined the organic growth of the customers and the contracts who were adding more subscribers and more connections than originally scheduled, and having more variable usage. This is a very, very good sign for the health of our business. And you'll recall that some of our agreements also extend for 60 and 84 months, so this is picking up some of that business as we segue into a new 36 month window. Our teammates have had tremendous sales successes resulting in creating this backlog and they continue to execute on a very torrid sales pace. You might have heard me say, and some time use, that we're on fire. And we are. We're on fire with relentless forward motion, and everybody on this TEUM and in this Company has a deep passion for our customers in meeting their global service needs. Overall our 36 month contract revenue backlog is up 820% since we began tracking this in late 2016. We're very, very pleased with this. It's an outstanding performance and it's led by Rob Mumby and his teammates, who participate throughout the Company in multiple ways. We're very pleased. Pareteum is also well positioned for outstanding sales and customer service excellence for the remainder of 2018 and certainly into 2019. Also very importantly with our continued thoughtful corporate development planning and execution coupled with the virtually flawless services deployment and development that's being undertaken, and the customer engagements, we expect many years of accretive growth and value creation in this business. This position of strength is also evidenced by our balance sheet, which is now substantially improved with $19 million in cash, and no senior secured debt. With access to the resources that we believe we need to further prime Pareteum's future organic sales growth, and then to fuel our continued RFM march forward to a global software defined cloud, where mobility and applications are freely available. And using this as a business disruption model, that is expected to help foster in the industry consolidation, which we expect to be a material player in. In the second quarter of 2018 as a growth company, we continue to invest in software product development. We licensed some software also and we have sales and marketing expansion that we invested in. This enabled us to be very well positioned for growth, with superior services, margins, connections, and customer experiences. Because that's what it's all about, the customer experience. We've structured our global software defined cloud and our operating systems, which utilize our highly productive and efficient teammates to economically scale our business forward, as we dramatically grow these revenues and the connections and manage, what will be, a tsunami of data that traverses our network and services platform. Translated, this simply means that we don't have to go out and hire hundreds of new service deployment personnel to convert the backlog. And we don't have to hire more and more people in the hundreds like were formally on board to support our customer base. We use our own software, as it was always intended to be used. It is the customer first engagement focus with strong relationships established in place that will impact, fuel the increase of revenue from existing connections, maintaining a low attrition in churn rate of those connections and subscribers. We've also initiated a new metric and we -- that's called a dollar based net expansion rate. That simply looks at the existing customers or the cohort customers from the period in the past, and in this case, it's the second quarter of 2017 compared to the second quarter of 2018, the embedded base if you will, and that has grown at an amazing rate of 161% for those contracts that were added in 2017. This is a key measure. It's kind of the converse measure of churn. It is -- are you growing, are people spending more money with you? And the answer is, yes. Not only are we adding more subscribers and customers, but those that we have are spending more money. That's the key of satisfaction. This customer growth focus is also the reason for being the daily routine of Ali Davachi, in his COO role. And his fine team is located in Spain and soon to be in Belgium and Germany, and later Asia. As we continue to grow into other parts of the globe, these initiatives will significantly extend our geographic reach and as well allow us to more deeply penetrate markets where we already have presence. It is our software defined cloud that has enabled solutions that literally span the globe and converge Omni-channel marketing, e-commerce, contact centers, media, content, and conductivity. This is a powerful, powerful weapon. The simplicity of our super APIs, underpins and continues our relentless focus to remove barriers. And it's removing these barriers that enables our customers and the developers and our customers to easily iterate the software and test new ideas. It is from capabilities such as this that we have come to great brands that we all know, and company names that we all know. In a perfect paying homage tribute view, you could call this the uberisation of software and communications. Recently when a customer said to us, it is time for telecom and communications to change, we clearly agreed. The super API and our adaptive fabric of the software defined cloud is how we do it. Ali will be happy to answer questions on that when we get to the Q&A. The super API enables rapid integration with any platform through intuitive interfaces and focused on the desired application of the company, the customer, or the developer, and the commercial outcomes they want to achieve. When a customer, that is for us, a mobile network operator, it could be a service provider, it could be an enterprise, or it could be a developer. But when they engage with TEUM's software platform and the SuperAPI, they see new opportunities. It's a very intuitive, it's a creative brainstorming platform, and it is our platform of innovation and creation that creates the limitless outcomes that we see happening. Our software defined cloud platform also continues to deliver on the vision of connectivity and access, that's anywhere, anytime, and any device. You may have heard me say that it's great to have a cloud but if can't communicate it's nothing more than servers in the data center. We have solved that problem, and we solved it in a way that does not tie the connection of the subscriber to a single network, that's the beauty of what we do. Our business is accelerating and expected to continue to do so. Our reputation and positioning in the market is expanding and improving, and that's our direct thanks to - direct thanks to Rob Mumby, and the whole sales team, and is creating more opportunities for Pareteum. Our Company culture is a sales culture. We are all in sales. The sales culture is facilitated by a combination of our software and our solutions, delivering this great value. It's a combination of the software and solutions along with our sales executives who were recruited because of their deep domain expertise and the relationships that they have, and it is also a sales culture that is bundled with --we expect sales in this Company to come from everyone. No exceptions, myself included. There's not a day goes by announced in the leader referral to somebody. And we expect everyone to do that, including the operations team, including the development team, and everybody does. That's why we're a cohesive team that works well together. We are also increasingly receiving more social media and search engine optimization inbound requests that have led to sales. We're particularly excited and we expect those inbound inquiries to dramatically increase as we fully integrate with Artilium and IBM, and the several prior acquisitions that have been executed on by Bart and his fine team. Bart, Andreas Felke, Christine Felke, and their marketing colleagues have shown themselves to be, what I consider to be marketing wizards. That energetic creativity will expand and it's going to exponentially increase as they now began to perform the same functions for the combined entities, the whole global company. We're very happy about this. The driving rationale for initially undertaking the alliance with Artilium and now the acquisition, wasn't as based upon sales and marketing synergies. And that's well over and above the cost and the expense synergies which are evident. And it is those sales and marketing strategies that have proven out. The market for software defined enablement services is growing dramatically. We have a revolutionary industry disrupter cloud doing just that, disrupting and changing communications for the betterment of our customers, and they're buying more of it. Also our teams are very good and effective at what we do. We are sales professionals in every sense of the word, and we're proud of that. Another byproduct of our relentless forward motion is simply getting more unsolicited sales opportunities coming to us, and this is not the search engine or the social media. This is the direct referrals that are coming from our customers, who want to share what we're doing with their friends and other businesses. This is a real opportunity that Vic, Rob, and whole team focuses on. And be assured that our focus is on that growth. The incredible accomplishments of increasing our 36 month contractual backlog by 826% comes from this hard work of the whole Company and is led by rob Mumby, who's our Chief Revenue Officer, and who we refer to as our consummate road warrior. Rob, we thank you for that. Rob and his team, including, Nick Wolfram, Dave, Sergei, Paulo, Eduardo, Mark, Mehul, Paul, and Chris, have accomplished this with the support and the fearless sales and operational leadership coming from Vic, who is our road warrior CEO. Thank you, Vic, and our sales executive team mates. Our team will soon be joined by Bart Weijermars, Andreas Felke, Christine, and others from Artilium and IDM, along with the several acquisitions that Bart's already made, bringing many new colleagues. And this will make a powerful new team of highly skilled and singularly motivated colleagues, all of whom - will be welcomed as TEUM mates. That's a high honor to be a TEUM mate. By the way, I want to especially acknowledge the diligence of Laura Thomas, in leading the integration of this acquisition. It is no small chore to add one plus one, particularly when you have the finance background that Laura does, and have it equal 10. But she's done that. And she expects to continue doing that as we look for the cost savings and the advantages of bringing together. That's what Laura is doing with Dennis, and Ted, and Ali, and Barton, Andreas, and the whole team. So, we thank you for that Laura. And we know that we're in good hands with this integration, and hopefully more to come. Leadership in our service platforms and solutions is coming from Ali Davachi, our chief operating officer. And simply stated, without Ali and his focus on software and new services development, services deployment and the ongoing service quality and customer support, we would not have converted the backlog as efficiently as we did, and that is a real tribute, Ali, thank you for that. So, I also want to say in the same thank you to Ali, thank you to the teams in Sant Feliu, and Barcelona, and Madrid. Our strategic alliance with iPass, is bringing us access to 64 million global WiFi hotspots. This indeed for us is the wireless last mile for the devices and their connectivity. And it's a very important element in our strategy for open mobility, open applications, and networks, and the offering of a fully integrated service offering applications and solutions through our global software defined cloud. The iPass alliance has quickly led to revenue. We made a sale shortly after signing the alliance, $2 million supplemental agreement for WiFi services to one of the existing contracts that we have sold, actually in the U.S. it's a wireless internet service provider. That customer is very, very pleased and we see a lot of potential for this relationship, and we're working hard to make sure that that alliance grows for everyone. By the way, I want to thank Denis McCarthy for his drive in all of our strategic initiatives, especially in helping us get Artilium over the line and the establishment of the iPass relationship, which was first initiated from a sales conversation with Rob and Vic. The WiFi technology that we have licensed will soon be fully embedded at the -- in our software stack at the code level. That will serve to make these solutions for Pareteum products, a greatly improved margins versus reselling and co-marketing, as is the case in our alliance agreement currently. These Wi-Fi capabilities also facilitate our working in tandem with mobile and cellular access actually for any access for that matter, and it provides secure wireless services in areas where connectivity options have previously been very limited and unreliable. During Q2 we also published a very well received predictive analytics and machine learning by paper. It describes how we are using data science technology to increase customer engagement and satisfaction for our enterprise and our applications platform. Our TEUM's productivity is increasing. We have inked new agreements in Q2 spanning the globe from the U.K., U.S., Pan-Europe, Africa, Asia, Mexico, India, and Eastern Europe, with smart city, Internet of Things, mobile virtual networks, gaming, over-the-top, and social media applications. It is these applications and solutions that are the sweet spot for our growing opportunities using our global software defined cloud. Some of the new contracts I'd like to highlight, again, thanks Rob, and Vic, and the team, and all the support coming from Ali, include a $10 million, three year managed services platform that is serving IoT, and MVNO, in the Pacific Asia region. That's going quite well and that implementation is well underway. We also did an $8 million, three year contract with an MVNO in the U.S. We're very pleased with that and you’re going to hear more because that's one is going to grow, we believe a lot bigger than $8 million. The value of these customers will be impactful in our future quarters, and you'll hear about it in the backlog conversion ratios and the rate at which our quarterly revenue increases. Another key to our growth has been the continued ability to convert that backlog. Since April 1st, we've had a number of customers go live as we talk about it, into commercial production. That's generating monthly recurring revenues as scheduled in their 36 month contractual revenue backlog contracts. Some of those goliath contracts that have converted to monthly recurring revenue, includes, managed services platforms, in china. There's an MVNO who's focusing on travel services, they're using our software cloud, they're using managed services platform, connectivity, Wi-Fi, global travel, tracker, and whole lot of other things. They're using our full suite. is what it boils down to. We also have gone live with a global software defined cloud customer on the social media platform, providing -- enabling smart phone services, an established Russian Operator who has established a marketing platform company, and using messaging, and they're helping their retail enterprises target customers and the needs of – location. We also see rapid expansion of the Internet of Things from that same customer. So things are going quite well not only on the sales but the implementation side. Make no mistake about our success. It is a team driven outcome, but you should know that Vic Bozzo has his hand on the levers, ensuring that our Company meets, and in most cases, well exceeds revenue and sales plans while keeping his watchful eye on the checkbook. I've heard friends of Vic, tell me, that Vic claims to have his first communion money. And I think that's true, based upon the way I see Vic working with our financial team to manage the cash flow of this business with us. Thank you, Vic. Well done on that. Now I'd like to provide a quick update on the Artilium acquisition, which we announced on June 7th. I want to thank Alex Korff, who was my partner beginning in working with Bart, dating back to 2016. Alex, you persevered in this what proved to be a very daunting set of things we had to do, including, getting our business straightened out, taking care of the data and getting to profitable, and forming the transaction team with Dennis and Ted along with our advisors at Jefferies. So, thank you very much Alex. Since we launched that alliance we've collaborated on at least 18 opportunities, seven are clear identifiable sales wins, more are coming, and now that acquisition has been approved by the Pareteum Board and the independent directors of Artilium. We have filed our definitive proxy with the U.S. Securities and Exchange, the SEC, on August 3, 2018, and that includes a detailed summary of our financial projections for Pareteum and Artilium on both a standalone basis and the combined projected pro forma financial statements. Some of the highlights are $4.8 million of cost expense synergies are expected in the first calendar year of the close of the acquisition, pro forma combined and calendarized by 12 month revenue of $49 million. Pro forma adjusted EBITDA with synergies of $11.9 million, and the actual 2018 GAAP recognized revenue is going to vary from the $49 million based upon what the actual close date. And right now it looks like the close date will be sometime in very late September. We're going to work hard to pull that in. But that's what we're thinking at this point. In addition to the initial 2018 pro forma views, our combined 2019 to 2022 financial projections are in that proxy. And they illustrate the attractiveness in what we consider to be the compelling financial rationale for the acquisition, which is accretive. The combined revenue is growing and ranging from $74.9 million to $175.2 million during this 2019 to 2022 period. And the combined adjusted EBITDA is growing in ranges from $17.2 million to $55.9 million respectively, before applying the impact of what we consider to be growing and recurring cost synergies. Now, turning to premium strong financial performance, I simply want to thank Ted O'Donnell, our CFO; our Controller, Stan Stefanski, and certainly the finance and corporate staff Maria, Matias, Susan, and Fiorello, the leadership that they put forward in our financial reporting is excellent. We do a lot to be a Company of just 65 people. Ted and his team financing corporate staff, I thank you for that. As I've noted already, for the second quarter, our revenues increased by 85% to $6 million. That's a noteworthy, positive trend that is coming out of this. And that noteworthy positive trend is this. Our two largest customers in the managed services platform now represent only 78% of our revenue. That's down from 85% and 97% in recent years. That is a pure testament to our cloud taking hold, and our IoT services taking hold, and that will continue to trend positively while those two largest customers continue to buy more from us. That's the best of all the worlds. We have diversified our live billing and services customers, and we're welcoming more new customers onto the global software defined cloud and our application platform. In parallel with our own growth, Pareteum's market opportunities have also continued to expand. That comes through our smart network which now covers 76 countries and that's through 53 direct mobile connected operators. It's growing and will continue to do so. This expands our addressable markets, making us more attractive to customers and partners. Artilium and IDM will add dramatically and significantly to this. Enhanced connectivity and the speed of implementation and reduced deployment cost are the most likely key differentiators for us going forward and that is the result of this smart network. Our increased smart network reach increases our 36 month contract revenue backlog wins and implementations, this also drives our connection volumes forward. Our connections have now increased to $2.7 million on June 30 this year, that's up 23% from $2.2 million at the end of the first quarter. And it's up 225% from the end of the second quarter of 2017. This is a vivid lead indicator of future revenue growth. Our contract revenue backlog conversion rate is running at 106% and this indicates how effectively we're deploying the signed agreements into monthly recurring revenue. And as you all know, MRR is our lifeblood. We do note that there may be situations where a customer delays the implementation or doesn't take the number of connections initially subscribed or even goes out of business. That hasn't been the case so far and we're working hard to make sure it's not the case. But just in case, we've de-risk that and that is reflected in our revenue outlook numbers we have provided on our revenue, and it's generally a little bit less than the 100% conversion rate. The current outlook of revenues stands at 80% or above. Although that is not how we're managing our business in executing on the processes. We're going to driver higher if at possible. Our average annualized revenue per employee stands at $377,000 and the end of Q2. That's up from $256,000 at the end of the first quarter, and that's up from $212,000 at the end of the second quarter of 2017. You may all know that I like to reference the inception, when I came on board in Q4 of 2015, and we've improved from what then was approximately $50,000 revenue per employee to $377,000. That's an improvement of 640%. Thank you TEUM for that output. Software-as-a-Service companies typically average about $225,000 per employee, and we think that upon closing the Artilium acquisition, Pareteum will have a combined head count of somewhere around 150 or so. And we fully expect to continue to exceed the industry averages with that annualized revenue per employee, and we're going to drive it as hard as we can, efficiently, and make sure that our customers are served well. The combination of our TEUM introduces new efficiencies at all support and implementation levels. And in addition the synergy of products and functionality enables additional efficiencies in service delivery and service management. These efficiencies are reflected in the workflow of our customer service and thee engagement teams, as well as the value and satisfaction that is coming at our software defined cloud, the managed services, and our IoT application developers platform. Our customers really like what we're providing them, and they're buying more of it. They're paying for use of these services and they're paying on time. Switching gears slightly, we now have over 59 million shares issued and outstanding with 10.9 million warrants outstanding, and with our stock now trading near or slightly above $3, we've got approximately $180 million market cap valuation. We've been placed on to the Russell exchange for microcap, and that happened on June 25. We're honored to be there, and we certainly hope that our continued progress will have us move up to the Russell 2000 and 3000. It's a significant milestone for Pareteum, that we have been included and we think this gives us much more shareholder and institutional visibility. I'd like to now turn to our raised outlook for 2018, as we wind this down moving to Q&A. First, I'd like to direct you to our publicly available Investor Presentation, which can be found in the Investor Relations section in our website. And there you will see on Slide 15 of our Presentation, details of our year end 2017, 36 month contractual revenue backlog, which then stood at $144 million -- $147 million it now stands at $276 million subsequent to June 30, it's grown to $300 million. On that basis, Pareteum is raising its 2018 guidance as follows. And this is under the context of a forward-looking statement ,and it's based primarily on the strength of the anticipated and scheduled connections or subscriber's and their growth that are expected to accelerate into latter part of this year, and are derived from our 36 month contractual revenue backlog. So, we're raising our outlook for revenue. We're now expecting more than 80%. I can't tell you yet how much more than, but I will soon. And I will tell you that we will update this guidance certainly at least one more time maybe two more times, and that 80% over our 2017 reported revenues. Also with our current cost structures, we are affirming our expectation of positive EBITDA and positive cash generated from operations that of acquisition and the restructuring expenditures for the full year 2018 .And we will update all of this guidance during our next quarterly report, which will be in November but maybe even before, depending on how things track. As I noted when I began my remarks, we're pleased to outperform by 22% the analyst consensus on $4.9 million of revenue by coming in at $6 million in revenue and EPS at 3%. That well beat all of the analyst consensus. Now, where do we go for the remainder of 2018. We're going globally again. We're going to new and larger contracts which will be acquired. And you will see in our proxy solicitation meetings, there'll be a discussion of a very large sales opportunity in there. We look forward to bring in more detail then but make no mistake we're working hard on that. Where we're 2018, these new sales are going to be expected to rely on our adaptive fabric cloud enable in the platform. This is inherent in our core intelligent network software that's embedded with our mobile network operators. This is what we call our global software defined cloud. These are the sources of our highly disrupt software, SuperAPIs application solutions all working with our smart connectivity access. There is laser focus on improving this and expanding it even more. The rest of this year we'll have a successful integrating with Artilium including IDM, and that's an excellent marketing company. I'm just very, very pleased with everything we see there and we can't wait to have them in the boat with us. And we will look at completing a converged software applications and solutions roadmap for the whole Company. It is the software services roadmap which will fuel accelerated sales and new results for the new Pareteum. We'll be bringing on even more efficiencies from our 36 month contractual revenue backlog conversions by using very ecosystem, and that means sometimes we'll use best-of-breed third-party software. And we'll be using strategic alliances to convert these things even faster than we have today. So acceleration of our strategic plans will continue to be a key part in creating more alliances and expanding – ecosystem. That's the heart of our buy versus build strategy. So now it's time to hear from you, our shareholders, our loyal shareholders, our investors, our supporters. And we want to hear your questions and this will also be a time for Bart's, for Vic, Dennis, Ted, Robin, Ali, to comment on why we're going to the places that I just mentioned, and how we will get there. They will make their comments as we address your questions. So, Stephen, back to you, and open for Q&A.

[Operator:]

[Operator Instructions] We'll take our first question from John Nobile with Taglich Brothers.

[John Nobile:]

Very impressive numbers there and I just have a question in regard to - actually the impressive growth, the tremendous growth in backlog most recently attaining $300 million, 36 month backlog. I'm curious if there'll be any issues regarding the manpower needed to satisfy this backlog?

[Robert Turner:]

I'm going to yield over to the combination of Vic, Ali, and Rob Mumby, to answer that question. Vic, I'll go to your first, please.

[Vic Bozzo:]

We've been increasing the people in the back office that are required for some of this - for some of these opportunities. But I would say the biggest change is that our software has become really fully automated. So, much of this deployment is becoming cookie-cutter for us and I think that's really a testament to Ali and the software team, but I will also let Ali comment on that as well.

[Ali Davachi:]

Yes, definitely to build on that, John, one of the things that's really important to understand is that by putting the close in our customers hands, it doesn't require us to do a whole lot to them to get online and start leveraging the platform. So, one of the things that our SuperAPI does, which I'll allude it to is it provides these workflow-based capabilities that they can understand right away and get the developers working on right away. So, similar if any type of cyber based business that doesn't require a large headcount growth to facilitate that in a multitenant fashion.

[Robert Turner:]

John, I would just like to add one point. As we bring the companies together, Artilium and Pareteum, as I noted we'll have about 150 employees. Those are people that - they're people there who are already doing similar things. So the combination of those staffs will have greater bandwidth. So we're very comfortable with our ability to support the backlog, its implementation, and its growth.

[John Nobile:]

So, no issues really with that level of backlog, if anything - this fully automated software could handle even more growth at this level without really cutting into expenses?

[Robert Turner:]

We're planning on it. Yes, absolutely. And that's what we refer to as the scaling piece.

[Rob Mumby:]

This is Rob Mumby. I just want to add that, that's the beauty of having a technology in the cloud, is that it set up a established and customers can effectively check up on the menu what they would like, and be integrated within that service. And of the 22 deals or agreements that were closed in the second quarter, 18 of those were cloud based solutions. So, we happen to leverage them.

[Operator:]

We'll move to our next question from Bob Wasserman with Dawson James Securities.

[Bob Wasserman:]

Just one question, and it's related to capital expenditures. Perhaps you can give some guidance on what it looks like next year or after the acquisition is completed? I know you have some good cash and good EBITDA forecast for next year, but just wondering what your plans are for capital expenditure you’re seeing upfront and some of your system starting when the acquisition is complete.

[Robert Turner:]

I'll just briefly tell you that we do intend to continue to spend on software development, as well as in some cases licensing, which we will characterize as a capital expenditure. So, we have budgeted for that. Let me turn to Denis McCarthy, for a little more flavor context on the CapEx budget, not only for the remainder of this year but for next year particularly with the combined companies. Dennis?

[Denis McCarthy:]

Generally as Hal mentioned those are the areas that we spend on and in addition to that we also spend on the - some CapEx for the implementations, particularly in the larger as, well I would say the MSP deals, which we do have three or four of those that have been sold this year. So, we'll have some in that area. In general, the number is roughly $250,000 a quarter from a kind of standalone basis. And as we bring the companies together, that'll increase to about $400,000 per quarter that we expect in the capital expenditures, and then perhaps an additional $100,000 to $150,000 on annual basis for additional licensing. So, $1.7 million $1.750 million for - on an ongoing basis.

[Robert Turner:]

Denis you may also want to emphasis that in some of the larger deals we have service establishment fees, which serve to offset the cost of CapEx.

[Denis McCarthy:]

Absolutely correct, Hal. Thanks for clarifying that, that is correct. So in the backroom already we are covering or at least the amount of the capital expenditure if not actually embedding some profit into that portion of the deal as well.

[Bob Wasserman:]

Okay. So, you're kind of reimbursed some of these fees, is that what you're saying?

[Robert Turner:]

Yes, correct.

[Operator:]

We'll take our next question from Ed Woo with Ascendiant Capital.

[Ed Woo:]

My question is on the competition, it looks like you guys are just knocking out all parts of everybody. Who's your competition? Are there competitors out there for you guys winning all these contracts again?

[Robert Turner:]

Those are very good question. I'd like to go first to Rob Mumby, and then I think we all might have some comments additionally. Rob, would you take that please?

[Rob Mumby:]

In general the companies that are providing mobile service today are the mobile network operators. So, they're main competitor for us. And the reason why the company Pareteum is growing so quickly, is we’re bringing a solution to the market that hasn't seen before. And it's something that the market wants, right. So, we're enabling our customers to provide the services and the service bundles to end-users, the way that those end-users want to consume service. And what our software enables us to do is to pack a job, the mobile network connectivity in a way, in a flexible manner so that we can deliver services to the market the way the market wants. So I'll see if any of my peers here would like to comment and layer on top of what I just shared.

[Robert Turner:]

Rob, actually what I'd like to do is turn to Bart to get that same perspective from Europe and from Artilium. Bart, the question is, who do we see as competition and who are we winning all these contracts from? And you've certainly won your share.

[Bart Weijermars:]

The comment that Rob made was very true. Mobile operators are still our main competition. But I think customers also want independence from specific operators because they don't want to be dependent on a specific operator in a specific country or region. On top of that, I think some of the larger more traditional equipments such as Huawei, and Ericsson's are potential competitors as well. Although we see that they really like the flexibility and the innovation really to drive these contracts to a successful win. So, I think those from my perspective are important competition there.

[Operator:]

That concludes today's question-and-answer session. Mr. Turner, at this time I will turn the conference back to you for any…

[Robert Turner:]

Actually operator, before you disconnect, I want to turn to Bart for just a few quick comments on the acquisition of coming together and how this is impacting Artilium and IDM. Bart, any summary comments on that please?

[Bart Weijermars:]

Yes, I will. Thank you Hal. First of all, I'm very excited about joining this wonderful TEUM, and congratulations obviously on the results as well. And we've been working together in the last months already when we started the strategic alliance and we have had the opportunity to work on many new customer opportunities together. And what I see is that bringing these two companies together is actually accelerating our commercial success, which is broadening our portfolio of products and services. And as we bring these services as a global cloud software solution, I'm sure many more exciting opportunities will materialize in the periods to come as well. So, I'm really looking forward to work, to join the TEUM and to accelerate the joint company going forward. And I'm very excited about the opportunities that we've already seen there.

[Robert Turner:]

Thanks Bart. Operator?

[Operator:]

I'll turn the conference back to you for any additional or closing remarks.

[Robert Turner:]

Thank you very much. We appreciate all the shareholders being on the call. And I just like to conclude by saying that the only thing that we can absolutely promise you is that change is going to be constant. There's nothing we can do about the past, but the one thing we can do is working together is to shape our future. And that's exactly what we intend to do.

[Operator:]

This concludes today's call. Thank you for your participation. You may now disconnect.