Pareteum Corporation
Q3 2016 Earnings Call Transcript

Published: 15 Nov 2016

[Operator:]

Please standby. Good day, everyone. And welcome to the Pareteum Corporation Third Quarter ended September 30, 2016 Quarterly Conference Call Update. Today’s call is being recorded. For opening remarks and introductions, I will turn the conference over to Mr. Steve Gersten, Director of Shareholder Relations. Please go ahead, sir.

[Steve Gersten:]

Thank you, Debbie, and good morning to everyone. Thank you for joining us today for Pareteum Corporation third quarter ended September 30, 2016 analyst conference call. With us today are Hal Turner, Executive Chairman; Vic Bozzo, Chief Executive Officer; and Gary Brandt, Chief Restructuring Officer; and other members of the Pareteum team. Yesterday evening, November 14, 2016, Pareteum released financial results and filed its Form 10-Q for the quarter ended September 30, 2016. 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 open to all. 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 earnings, revenues, cash or other statements relating to the company’s future financial results. Any statements about plans, strategies or objectives or management for future operations, any statements concerning proposed new products, any statements regarding anticipated new relationships or agreement, any statements regarding expectations for the success of the company's products in the U.S. and international markets, any statements regarding future economic conditions or performance, statements or 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 yesterday’s press release titled Forward-Looking Statements and the public periodic reports that company files with 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’d like to turn the call over to Mr. Hal Turner, Executive Chairman of the company.

[Hal Turner:]

Thank you, Steve, and good morning, everyone. I can't tell you how pleased I am that this is the first call that we have had under our name Pareteum Corporation, and in many ways this is the founding of our company and you will hear more about that, and we appreciate you are being with us today for our Q3 earnings call. I am joined today for the very first time by Vic Bozzo. He is our newly appointed Chief Executive Officer and in just a few minutes you are going to hear few remarks from Vic. And hopefully, you will hear why we are so encouraged about what is before us in 2017. Also Gary Brandt, our Chief Restructuring Officer is joining today and you're going to hear some remarks from Gary concerning the vivid transformation of this company through the restructuring process. And both Vic and Gary will join me for the Q&A session and remarks. We do have a few others on our team on standby in the event if there are more detailed questions that Gary, or Vic, or I need some help on. So I would like to just review a few things now about our progress that we have made since the last call and actually through the restructuring process. Most importantly, Pareteum Corporation was born. We trade under the symbol TEUM and we pronounce it internally as team. And the word Pareteum derives from the Pareto Principle, which is referring to the 80/20 rule where the greatest results come from the fewest items addressed. We also realized that you can accomplish very much in life or in a company unless you have the right team, and it’s a team that’s comprised of those who understand and adopt an entrepreneurial mindset and realize that we are all in sales and that we are all in completely committed to the mission of the business, because at the end of the day it’s our revenue, it’s our growth and it’s the results that matter and you are going to hear more on that momentarily. We have a very strong focus internally and externally on the things that matter and we can produce the greatest shareholder return. Therefore, I am really considering that November 1, 2016, is the true founding date of our company Pareteum and really it’s a start-up from that day forward. But it’s a very valuable start-up, because not many people can start-up with more than a million subscribers and a base of revenue that is poised to grow in 2017. November the 1st was also a milestone date for us, because it set that time that in addition to the founding that we named our first CEO, Vic Bozzo, and Vic and I’ve known each other for quite awhile. He brings 20 plus years of experience in the communications arena and he has been very successful experience sales and operations. I can simply say to you that there were many great executives that I and the board could have chosen from in making the CEO selection. Vic distinguished himself in almost every way. I won’t regale you and go through the details of his long list of accomplishments and achievements, but I’ll simply say for me Vic always does what he says he will do and he does it when he says he will do it. And from a commitment standpoint I have never known Vic anything other than 100% all-in all the time. So we hired Vic to partner with me on the growth of the business and we think it’s going to be dramatic growth over time. So we’ll let our results speak for ourselves and then we will see how it goes, and hopefully, well beyond our current preliminary guidance you’ll see that there is a significant growth opportunity in our business. Our report card to-date, beyond the fact that we are raising funds and that we are building our sales pipeline, and that we’ve got real deals. The most important thing of our report card is that we reached the positive EBITDA for -- at the end of Q3 September 30th and for all of Q4 we expect to be pro forma EBITDA positive. I think you all know that we sold ValidSoft for $3 million cash and note, and doing that we eliminated negative EBITDA of over $2 million just from ValidSoft annualized basis. We decreased the full-time employee equivalents in this business from around just under 300, I think, the number was about 278 or so to 75 people and we eliminated $10 million of annualized cost and that since Q4 of 2015. We took tough hard steps in many cases to close business units that were no longer core to the operations, we reduced suppliers, we decreased vendors and we decreased our service costs. And if you ever wanted to challenge, think about trying to raise money in the circumstances like that, yet, we raised over $6 million, $3.5 million from a PIPE in March and $2.5 million from the preferred share offering in the last 60 days just an equity capital. Additionally, we borrowed $1.2 million and paid back $2 million to our senior secured lender. We have maintained our New York Stock Exchange listing compliance. We filed an S-3 registration statement. We got good news yesterday regarding this effectiveness. We are very pleased. We built our liquidity it’s -- liquidity strength is growing and that’s evidence by payroll, making it and making it with comfort and operations liquidity being able to pay our bills from the operating resources of our sales. Our PIPE unitholders, a conversion process is underway and this is going to help us very much as it relates to our stockholders equity. We continue to think about the future not only from the organic sales but through mergers and acquisitions, and a consideration is active and we’re focusing on things that can bring us new products, things that can bring us new markets and in some case both. We’ve established new channels, a partnership during the period that I’ve mentioned and each of these are really a deep precursor to revenue growth, one that was announced by name was Expeto, that’s a channel partnership, it’s got several projects underway and there’s going to be more to come and particularly with Vic’s leadership, you are going to see these accelerate. We did signed a branded MVNO relationship and that was actually came to us through Expeto, things are going very, very well with that and we will see some of the first test phones in this month, and certainly, the ramping of that will occur in very early 2017. We’re very excited about this, because for the first time this -- moves this into a different kind of revenue model. We signed on a named basis, a channel partner Cleartech in Brazil. We’ve got initial projects that are underway and we think that many more are going to come. The Brazilian marketplace is a very vibrant marketplace and we will be part of that marketplace. Creation of new and productive channel partnerships, such as these, really focus clearly on things that we can expect in 2017. From a straight commercial standpoint, we've had six straight months of subscriber growth in our European operations, and all of this is a precursor and is a base to be expected, minimally expected revenue growth for 2017. We have done this all while by enhancing service quality, improving the transformation of the company and the transition of our company, and our team has stepped up in a big. And when you start taking numbers of people out and realize that the work has to get done, the people that are committed step up and we've seen that in every case. We have also harden our network and our protection of our intellectual property recognizing that as we grow and operate in international markets, it’s becomes more and more of a concern, and we are feeling very good about these steps we have taken in that regard. We have dramatically improved our pipeline with quality deals, deals that where we understand what the pain of the customer is or the opportunity of the customer, we understand the budget, we understand the decision process and you are going to hear more on this from Vic coming up momentarily. Finally, before I yield over to Vic for comments from him, I just like to say that we believe that we are leading what we are referring to and as referred to in many times in the press that uberization of mobile networks. And that quite simply is where we take our software platform, the software that’s been developed over the many years and we are putting this into our mobility cloud platform. And this becomes a direct access point. It’s a plug-in point and it’s a direct access to direct networks, it’s a direct access to applications and it’s a direct access to the capabilities to use our exchange and it’s an exchange that becomes an enabler platform for mobile carriers, but not just for mobile carriers but for enterprises, and also to enable the information needs of the information or the Internet of Things that we know is coming. So, with that context and backdrop, I'd like to turn over to Vic Bozzo for his thoughts and comments. And Vic, I can't tell you, how happy I am to welcome you as the Chief Executive Officer of Pareteum. Vic?

[Vic Bozzo:]

Thank you, Hal. Thanks for that warm introduction. And as you mentioned, I have spent the last 20 plus years selling into this very carrier services and enterprise market that Pareteum is servicing. Most recently building the market leader, Telarix in the internet, interconnect, routing and billing market, where we sold many of the same customers. I think it’s time for fundamental transformation in the service provider business. As the challenge for who will own the subscriber between its additional service provider now the incumbent wireless provider and the application providers some time referred to as the OTT contents, both of them like clients of their subscriber. Most notably, we recently have seen companies who have risen and entered in the public markets to bring more application providers into the messaging, voice and data business. This has resulted in most unique opportunity for Pareteum. I chose to join the company because we have the technology to proper position as the mobile virtual network enabler -- enablement. This is the new category that I call MVNE-E. And as an MVNO aggregator, and more importantly, a provider of an aggregation platform for the wireless, subscriber of the future, which will be made up of these very devices known as the Internet of Everything. Today we met to our customers by SIM, but ultimately those SIMs represent subscribers and wireless devices, and just a current existing customers’ alone represent millions of incremental subscribers to be converted on to our platforms. Our new feature can be measured by subscriber aggregation and our strategy is to participate in that whole universe of opportunity by providing the platform and service bureau for any and all of those various devices. We have already identified an industry connected sale and marketing team, and they have already begun to join the race. As a result, we have identified a series of new MVNE-E opportunity, carriers are looking partner to create this hub, MVNOs who need a turnkey system from someone like us today, the brand marketing mobile virtual networks and carriers are looking for us to help them bridge using that cloud into the future of their subscriber book. Thanks everybody. Thank you, Hal, for that introduction. I am looking forward to the future of our company, and I think, it’s going to be a very positive and exciting ride. I will now turn the call over to Gary.

[Gary Brandt:]

Thank you, Vic, and Hal, and Steve. We have successfully completed a three-phased restructuring plan including actions, which we deemed the vital to improving our business. May I remind you, in November of 2015, we had 265 employees, as of March 31, 2016 we had reduced our headcount by 69 people to 195 and by another 41 heads to finish the second quarter with 154 full-time employee equivalent. During the third quarter, we further reduced the headcount by 72, ending the quarter with 82 full-time employee equivalent for total reduction of approximately 70% or 183 persons. Cumulatively speaking, 59 of these departures were voluntary. As we have previously disclosed revenue per employee is a key metric we are now monitoring closely. At the end of the third quarter 2015 revenue per employee was $47,000. At the end of the second quarter 2016 revenue per employ was approximately $87,000 and we closed the third quarter with revenue per employee of $146,000. Headcount bottomed down in early October at approximately 66 full-time employee equivalent and we will now begin decline as we add resources in line with revenue growth and new initiative. We are well on our way to the target of $200,000 of revenue per employee, which will ensure future sustainability. For the 10-month period from November 30, 2015 to September 30, 2016, total workforce reduction expenses totaled $2.7 million. These restructuring activities yield pro forma cumulative operational expense savings of $10 million on an annualized basis from payroll and consultants fee foregone alone. Turning our attention to the third quarter results for the period ended September 30, 2016, revenue for the third quarter and nine months year-to-date totaled $3.2 million and $9.7 million, respectively, compared with $3.5 million and $27.7 million for the same period the year prior, respectively. The decrease for the quarter was attributable to a decline in non-core revenues as the company tightened its market focus during restructuring. The decrease for nine months year-to-date was primarily attributable to the loss of the Iusacell contract in 2015. Excluding the impact of Iusacell for 2015, third quarter and nine-month year-to-date revenues declined 9% and 13% year-over-year from $3.5 million to $3.2 million and $11.2 million to $9.7 million, respectively. Cost of service for the third quarter 2016 totaled $0.9 million, compared with $1.4 million for the same period the prior year, yielding improved margin. General and administrative expenses, product development and sales and marketing cumulatively for the third quarter 2016 totaled $4.2 million, compared with $4.2 million for the same period the prior year. Excluding non-recurring workforce reduction cost of $0.6 million in the third quarter 2016 and taking into consideration the reduction of capitalized expenses of $1.2 million combined operating expenses and capital expenditures declined year-over-year 31%. Net loss for the third quarter 2016 totaled $13 million, compared with a net loss of $4.2 million for the same period the year prior. The increase in net loss was driven primarily by the impairment of goodwill and other assets, the loss on the sale of ValidSoft, interest expense related to debt discount and conversation features and restructuring costs. Looking forward, with a much simpler balance sheet and sustainable cost structure, the company is poised to deliver on its promise of profitable growth. Vic’s arrival signals the change in focus from restructure to growth and the company will seek the appropriate capital to support this growth initiative, knowing that the cost structure has been fully aligned with current business level. The New York Stock Exchange compliance we received too, deficiency notifications for the NYSE over the course of last six months in relation to shareholders equity among our other things. The NYSE has been extremely supportive. It is monitoring the company’s remediation plan and we are on track. I’d like to turn the call back to Hal.

[Hal Turner:]

Gary, thank you very much. It is greatly appreciated. And before Vic, Gary and I address your question, I just like to highlight a few key elements of our go-forward vision. As Vic and others have mentioned, the telecom industry has been divided among communication service providers that own their networks, subscribers and application providers, who use the network. Pareteum holds a very unique software and apply technology position to be able to drive value for customers from each of these approaches, and that’s where communication service providers and enterprises alike benefit from our platform and we see this is a way of turning competitors into partners. So our vision is to enable and secure communications, transactions that go with communications and applications for the connected world through our globally deployed cloud services. Our value proposition is very straightforward, mobile virtual network enablement that’s the MVNE-E that Vic’s spoke about and operating the service bureau where we are providing domestic and international network services for turnkey mobile virtual network operators, enterprise and IoT services to plug-in and be able to make their businesses work. Our mission is therefore to open up to the enterprises and the retail world for mobile application enabling services and create value on-demand and create it with trustful and reliable communications, turning communications into self-service, on-demand mobile services and applications through your devices without being locked to a single carrier. We now become a very mission driven business. Over the next 90 days our priorities certainly our number one sales and profitable topline revenue growth, second priority is executing our capital gain plans for growth and equity, the balance sheet strengthening and delivering on the new promises of predictable and sustainable customer and channel partner wins, and as we move to the cloud that becomes much more available to us as we take the upfront cost down in doing business with Pareteum. With this in mind, I’d like to issue our preliminary and I stress preliminary 2017 guidance. And this is the guidance that I want to clarify that includes really the focus on our current business as usual, our current customers. You heard mentioned that we have been experienced six straight months of growth and it is this growth of our current customers without the benefit of any material new business that forms the basis of what I'm about to tell you. This is a forward-looking statement and it is primarily based upon the anticipated subscriber growth as I have just explained. The company is expecting at least a revenue growth of 25% for 2017 over the annualized fourth quarter 2016 projected revenues of $3 million. This is given with its current cost structure that we have talked about through the restructuring, the post-restructuring and the divestiture of ValidSoft, and recognizing that we have achieved positive EBITDA, which is projected for the full year. What we expect as I move into the next quarter and update this preliminary guidance is to be able to reflect the forecast as we see it growing based upon the new sales, many of which are in works now and are very near a conclusion state, but I would be remiss if I added those to the forecast until we have got to sign document. These are new sales that will also layer on to potential very big deals, some RFPs that we continue to work in major locations that’s around the Middle East throughout our South and Latin America, as well as small deals that will become much more repetitive based upon our cloud platform, smaller deals that are able to generate revenue quicker and don’t fall into the longtime issue of having 12 months or 18 months sales cycles, we are talking three months sales cycles in some cases in our viewpoint and these are the things that will be updated as we go into future quarters. So I can't tell you how pleased I am that we can see today at least the 25% increase and I suspect that we are going to see some much larger numbers and as we really look at the potential for merger and acquisition, and these are things that really will focus on, as I said, product or market or both, we think that there is a very, very bright future particularly in 2017. So this concludes our remarks, this concludes my remarks and so, operator, Debbie, I’ll please ask you to open the call to questions and what we will do is I’ll hear the question and among our team we will address it to the best of our ability. So, operator, over to you please.

[Operator:]

Thank you, sir. [Operator Instructions] We will take our first question from Lisa Thompson with Zacks Investment Research.

[Lisa Thompson:]

Good morning.

[Hal Turner:]

Hello, Lisa. How are you today?

[Lisa Thompson:]

Good. I see we had a kitchen think quarter here. Hopefully that would it. Is it going to be a little bit more restructuring the next quarter?

[Hal Turner:]

There is some refinement underway for sure. But the categorization of kitchen think is really reflective of us trying to get everything cleaned up by the end of the third quarter and we don't anticipate any material additional restructuring charges. Let me turn to Gary for any further comment or clarification on that. Gary?

[Gary Brandt:]

Hal, that’s correct. Lisa the headcount reduction, yeah, we close the quarter with 82, but we really started third quarter given the divestiture of ValidSoft with 66 heads. So, pretty much all of the headcount reductions are on the equation in the third quarter. There may be some small tail on with some severance costs in the fourth quarter, but it’s not material relative to the fourth quarter and with Vic’s arrival this is all about growth going forward.

[Lisa Thompson:]

Okay. I wanted to ask you about the overall strategy and where you are going with it. It seems to me that what you do for Vodafone is different from what you are going to do for the Brazil customer, which is different than Expeto or Expeto every day. What -- where are you focusing, what you think your product is going to be going forward?

[Hal Turner:]

Good question. So what we do for the large European customer is currently seeing as a managed services platform that's providing outsourced technical services to that one customer of this uniquely one customer built platform. We will continue to do that in selected cases as the larger deals come forth, but that is not the primary element of our strategy going forward. Those kinds of deals that I have just referenced take anywhere from 12 months to 18 months for -- going to the full sale cycle and RFP cycle, as well as implementation. But we will not turn our backs toward that when we think we can compete and win. But the focus of the strategy is taking that very, very robust software that we have developed for the large European customer and put to work very, very successfully and bring that into the cloud. And by bringing that into the cloud we are able to take down the price points by which we start business and the timeframe by which we can get customers up and running. So it is the cloud mobility platform, which will -- which does include all of the capabilities that we provide on an outsourced basis, billing, subscriber, customer supports, products, new product evolution and development, all of that is embedded in our cloud. And we will take that cloud with network connectivity through our directly negotiated carrier network agreements and allow smaller carriers to plug into that and use it as a point by providing immediate mobile services. We will also bring this to the enterprise and allow them to plug in for the immediate benefit of their mobility needs, and finally, using this as an exchange platform for the Internet of Things where the devices that we have referred to need connectivity, they need communication of the data and they need a score keeper to determine who gets paid for what. Now let me pause and turn to Vic for his comments on the strategy, because its Vic that will refine this, it’s Vic and team that he is referred to that will execute this and I am going to help them, but Vic’s the leader on this. Vic?

[Vic Bozzo:]

Yeah. So, I think, it’s a great question. I see it this way. Today we and I phrase that category that new category of mobile virtual network enabler -- enablement and so I see that we are an enabler for Vodafone today. We give them the software, the technology platform that enables them to bring up -- bring us and bring up MVNOs and bring up other retailers into their environment. So as we provided that technology, we analyze that, we look at it and said, we too could be a service provider in other parts of the world or another points-of-presence for those types of services or marketing companies that don’t -- either don’t have a network or need turnkey type solutions and that’s where we point the phrase service bureau. So we will have three flavors. We will begin by continuing to sell our software technology and software as a service technology to other customers and other carriers around the world, who want, as Brazil as an example of that. We will also continue to invest in our own points-of-presence where we know there are -- there is aggregation opportunities for other MVNOs, IoTs and enterprise providers. And once we have that kind of let’s call beach heads around the world we are also investing in a technology that allows us to connect all of our points-of-presence together through software, whether through the cloud, whether they are our customers points-of-presence or our service bureau points-of-presence, and that allows us then to effectively enable people to take that carriers, IoTs and enterprises to take advantage of our network effect around the world and potentially bring up those connections anywhere in the world where we might have connectivity and partner with our customers as well.

[Lisa Thompson:]

Okay. So near-term can you kind of give us an example of a customer and what they are kind of do and what they are going to do with their platform or whatever they are doing with you, just hypostatical?

[Hal Turner:]

Vic, why don’t you take that one and I am -- I can’t get more than one.

[Vic Bozzo:]

Yes. So that’s part of the advantage of having come out of this faith and sold to all of these areas around the world previously. We are -- I am very familiar with where a lot of these opportunities are. But let’s take an example of one that we actually service today. Zain in the Middle East. So Zain is conglomerate that owns many -- many carriers throughout the Middle East and they have one point-of-presence with us today where they buy our software and we do a similar solution to, as an example to Vodafone. In that case, we are providing -- we are enabling them to bring other MVNOs on to their network. But we also run a point-of-presence in the Netherlands where we actually manage that and we are managing that specifically for some MVNOs. As a result of that we have seen at least, I would say, between five and 10 opportunities that have come to us recently, where their marketing companies at heart, they are running MVNOs, they have a subscriber base but they don’t have a place to effectively put all of that solution and that doesn’t just include voice or SMS or MMS, it also includes their payment models and the things they are doing on the phones beside just voice and text, including their ability to transact payments. So our software provides them the ability to do all of that. And so we are seeing an uptick in those types of opportunities and what we are saying is if it doesn’t -- if they are not suitable or they are not sizable enough for the likes of Vodafone to invest in, they can use one of our service bureau pops and we can add their SIMs, their subscribers to our growing list of subscribers.

[Lisa Thompson:]

So being a customer that want to add more capabilities on to just plane or telephone is that basically…

[Vic Bozzo:]

Yes. But we are also seeing marketing companies, for example, we have an example of, without getting too much into, we have an example of a global congregation in that, global congregation is accessing lot’s of information, and frankly, want you to both use technology, voice, SMS, they also want to use payment plans and things like that. And so the leaders of that congregation decided that it would best just to have -- just to issue both mobile phones for them around the world. So we provide two things, we provide all the technology, but we also provide the capability or the control or the visibility for the marketing companies. So that seems to be a very growth oriented space.

[Lisa Thompson:]

Okay. Now that makes more sense. So and where -- when we see some revenues coming in from these new projects? How long it will take?

[Vic Bozzo:]

So I can, without getting too deep into them, I believe that the service bureau model is much faster than cloud model, much faster than, first of all, the sales cycle is faster, turn up is faster, and frankly, the move to revenue is faster. Can we accelerate that by as much as maybe 60% or 70% from where it has been, yes, I absolutely believe we can.

[Gary Brandt:]

Lisa, this is Gary. If you recall in August when we hit the wall with our financing and we secured some additional debt funding and we spoke about this I think on our second quarter call. We had reaffirmation from our largest customer of the value of our platform. So there is absolutely no question with over a million subscribers, there are platform tells the huge voice in the marketplace and it’s from this date that we have the confident and the strength in terms of us being able to deliver value. What Vic bring is a tremendous portfolio of context where we can go in with a warm and confident in introduction to bring forth this value proposition. In the past this is what was lacking in the old Elephant Talk is we didn’t have that confident ontrai with this platform but there is no question that the Elephant Talk platform has been a superb and superior platform for operating these enabling solutions in the past. It just -- we just did not have the ontrai.

[Operator:]

[Operator Instructions] We’ll go next to Bryan Kobel with Laidlaw.

[Bryan Kobel:]

Good morning, guys. And thank you Steve for introducing me the story. I just had a quick question. You mentioned revenue per employee as -- is the key metric that you look at. Is that the metric we should use going forward to measure or define the success of this sort of new platform focus or are there other metrics you guys look at internally that we should be following?

[Hal Turner:]

Bryan as we go forward revenue per employee is a key metric. SIM cards that we support and subscribers that we support and we will, while we use those terms interchangeably now, we will begin to define it more as subscribers going forward, because of the service bureau aspects and in some cases there won’t be a SIM cards specifically associated with the subscriber. But its revenue per employee exposed two elements, it will be revenue growth, it will be EBITDA, it will be series of factors but clearly look at our cash flow on a pro forma and operating basis. Many of these are internal but we believe that the revenue per employee is the single best barometer of what’s going on in the organization. Also, internally, we continue to look at the cost of acquiring a subscriber, the cost of supporting a SIM card, and therefore, the margins that are associated with each piece of the business, be it software platform, be it the service bureau. So those are all things that we focus on very, very clearly. Gary, would you like to add to that?

[Gary Brandt:]

Yeah. The revenue per employee was obviously very, very critical based on where we started and where we knew we needed to be, $200,000 of revenue per employee is a base for being sustainable. You can run the numbers all different types of ways but $200,000 of revenue per employee is a critical number to ensure sustainability. If you look at the companies like Google out there that have $1 million of revenue per employee. There is clearly room for us to move up as we do and expand our services in the cloud. And so we’re going to continue to push at that number, but it’s -- there’s no reason why there isn’t still some upside growth on that day.

[Bryan Kobel:]

Great. And as sort of being to the story this might be an educating question. With Vic’s appointment is that to focus on effectively, I guess, a warmer sales cycle, the introductions, his experience, to sort of open doors in a more effective manner. Is that how we should use the sales cycle, I guess, what’s that process like for you guys?

[Hal Turner:]

Well, first of all, it signals that we actually have a sales organization and the sales cycle. And quite frankly, as Gary and I linked arms and partnered with others in the organization, there was not as much focus on sales, because we simply didn’t have the people or the experiences to do that beyond the large bid RFP response. So what this signals is not only the warmth of coming from relationships and the warmth that comes from relationships that the people we’re bringing in-house with customers, it signals that we actually have sales process and are rigidly going to execute on that sales process. So I am very pleased with that. Vic, do you want to add to that?

[Vic Bozzo:]

I think it pretty sums it up pretty well. But, generally, with my experience that there are opportunities out there right now for this particular type of business and we know that there are people in the API business right now who done pretty success, who have been pretty successful lately, who are not necessarily servicing this part of the market. And so there is -- I think, it’s really about starting the conversations, getting lower shorter terms sales cycles from the cloud business, from the service bureau business, while we are hunting the larger kind of more lumpy sales cycle of MVNE-E. So, I think, we are going to -- we are looking to smooth the lumpiness of the kind of long sales cycle with lots of service bureau opportunities, and frankly, some of those service bureau opportunities we believe may turn into, when they get to a certain growth size, they probably will turn into MVNE-Es as well.

[Bryan Kobel:]

Great. Thank you.

[Operator:]

We’ll take our next question from Brian McCarren with Ameriprise Financial.

[Brian McCarren:]

Hi. Your long-term shareholder here. You guys touched on saying a little bit, I wondered if you might give us a little more of an update as to the status of getting some of the licenses and what not in Saudi Arabia, just something we have been talking about for about three years? And then also maybe you could tell us a little bit about the partnership with Hewlett-Packard. I know, for example, we were pursuing something in the U.K. with them and also Verizon? Thank you.

[Hal Turner:]

Okay. Brian, I am going to go to Vic for most of this, but I just want to comment on Hewlett-Packard Enterprises. One of the things that comes with Vic is one of the sales executives that we will bring in. We’ll in fact focus on these channel partnerships such as Hewlett-Packard Enterprises, and certainly, we have aspirations for more and you can imagine the usual list of suspects that are included there. So that is a real focus for us. And as also mentioned, we do view Expeto and we view Cleartech as channel partner relationships. So it’s a clear area of growth, but we certainly want to grow with people like Hewlett-Packard. Vic actually had a long conversation this morning with our Middle East colleagues and the client. So, Vic, would you take the question about the Zain.

[Vic Bozzo:]

Sure. So, I think, there are multiple opportunities there and it’s important to note that Zain operates in 12 to 14 countries and it operates -- these operations are somewhat independent. So if you look at Zain versus Vodafone. Vodafone’s operate in 23 countries and with these independent networks. So we believed two things, one, we have opportunity to become in these types of conglomerates with the facto standard for what they use to bring up their wireless subscribers. So we -- so that was a lot of what we talked about this morning. But, generally, there’s been some pent-up growth there beyond certain licenses within certainly organizations. So they have their own MVNO and they have their own MVNE. In the MVNE they have been waiting for some licensing and that’s been a real blockade for the growth sector. But it turns out in their MVNO, they are growing pretty rapidly. And so that’s also an areas where just we -- we just have the opportunity because of the focus on Vodafone to really go after. And so we unlocked that opportunity this week. And that kind of goes back to the point of, I believe there are -- there is unlocked potential -- there is potential within our existing customer base that we haven’t necessarily gone after and we do have a license to hunt in these accounts. So we are finding that those opportunities are coming and sometimes those are faster sales cycle because they are already up and running and integrated. So, I think, we’ll see some growth not just in our -- back to Hal’s comments earlier, we’ll see some growth in our existing customer base, which will also give us an opportunity and some fuel for the next phase of this blockade for specifically for going out and getting additional customers, but also for leveraging us into further and deeper into our existing accounts and allowing them to take us other operating companies within their organizations.

[Hal Turner:]

And Vic the Verizon portion of the question?

[Vic Bozzo:]

Yes. The Verizon, I think, is a unique situation just because Verizon themselves are struggling to determine whether they will allow other people to provide their network or the brand will be exclusively Verizon. I have been telling to Verizon for about 15 years and I have spoken to some of the folks there, and I think, that’s struggle continues. But, I think, at least the way we are perceiving the opportunities going to open up, where Verizon will probably let other companies like ours enable them to specific partition their networks. So, I think, there’s more to come on that, haven’t -- after I think 10 days, I haven’t had a full chance to leverage into Verizon. But, I think, the opportunities in U.S. are actually very, very strong.

[Operator:]

We’ll go next to Greg Randall, U.S. Brokerage.

[Greg Randall:]

Sorry gentlemen my question was answered. Thank you.

[Hal Turner:]

Thank you.

[Operator:]

And we’ll go next to [ph] Nick Travis (50

[Unidentified Analyst:]

Hey, guys. How are you doing? I hope everything is well with you.

[Hal Turner:]

Thank you, Nick.

[Unidentified Analyst:]

Couple quick questions, you mentioned merger and acquisitions. I was wondering if you can kind of expand on that a little bit, maybe give us, an example, what you see there and also the, where comes to the $13 million loss, is that primarily -- because of ValidSoft, is there more involve that, is it tax reasons, are we going to see a decrease in that in the quarters to come, just pretty much it.

[Hal Turner:]

Okay. So, Nick, I am going to take the questions, but I am first going to let Gary answer the loss part of the question and then we’ll come back to you the other pieces, okay. Gary?

[Unidentified Analyst:]

Okay. Sure.

[Gary Brandt:]

Thanks, Hal and Nick. So the loss in the quarter is primarily driven by the divestiture of ValidSoft, not just from the loss of the sale, but from the decision to them write-off some of the goodwill and other intangibles that were on the balance sheet. So those are the primary drivers of the loss for the quarter. There were clearly some restructuring costs that still came through in the quarter and there was some balance sheet charges related to the reprising of -- some of the instruments stuff like that. So you’ll see that separately identified in the same as well. But it’s primarily driven by the divestiture of ValidSoft, correct and that’s not recurring.

[Hal Turner:]

And Nick, regarding the M&A questioning, I can give you a couple examples. In the U.S., Vic and I are discussing several small platforms, which exist, which we know of, we know the developers on very well and we believe that we can bring those platforms and integrate more quickly than we can develop internally and these are platforms that bring additional capability that relates to the service bureau and the ability to connect with points-of-presence around the world. So that’s one focus of products M&A that we are definitely looking at and considering. The second area is, we are very interested in Europe and expanding our presence in Europe, and we certainly believe that there are several candidates in Europe that could easily combine with us and provide a much bigger scale, much better scope and that the technologies are not mutually exclusive, in other words our platform could be useful to their platform and vice versa, and they have sales and marketing and distribution in areas that we don’t. We are exploring those opportunities, and certainly, I expect that Q1 and Q2 will show some progress in those areas. Finally, we believe that the MVNO portion of this marketplace quite fractured and we believe that with our service bureau concept that we are talking about and the ability to quickly deliver products there. There is a consolidation bolt-on and rollup opportunity, which in many ways would give a level of vertical integration to the company that has not experienced in the past. So we are exploring some of those. And as we think about that and a banking relationship M&A advisory that can assist us that certainly one of the targets that I have is to have such an advisory relationship in 2017 that can get some -- help us produce some real results. So M&A has three flavors to it and I believe, Gary, has addressed the loss situation. Nick, does that address the question?

[Unidentified Analyst:]

Yes. It does. I really appreciate you guys seems to have put together really good team and I hope that together you guys can reach this companies true potential and I just want to say keep up the good work.

[Hal Turner:]

Thank you very much. We intend to. We appreciate you support and that of all our shareholders.

[Unidentified Analyst:]

Okay.

[Operator:]

And with no other questions at this time, Mr. Turner, I will turn it back to you for closing remarks.

[Hal Turner:]

Debbie, thank you so much. It’s much appreciated. So as we conclude today -- I just simply like to say it’s my thorough hope that all of our shareholders, all of our stakeholders take away from the call today that we have done what we think is phenomenal hard work to get the achievements of the restructuring and the transformation of the Elephant Talk old and to create Pareteum, we are very, very pleased with the progress there. Pareteum is founded as a strong and very well-conceived stable organization. We have got renewed vigor with people coming on board. We've got renewed vigor with employees who have stayed with us, seen the vision and understanding that this is a good place to work. We see a market-leading capability with a very disruptive technology and innovative solutions. We have got a growing base of eager partners we have spoken about some of them. We have got satisfied clients who may must as their platform of choice and are growing with us. We will have new customers added to those. We have got a vision for the future that we believe will bring the real true value of Pareteum to bear in our valuation that is commensurate with our fundamentals and that includes sales growth and it includes sales growth that will accelerate in our opinion. So ladies and gentlemen and our partners and our shareholders, I want you to know that our team is ready, everybody on this call and who has been part of this restructuring and are go forward is all in. I think we've shown everyone and demonstrated in the periods from November 15 board that we know how to scale this business. We know how to fix things that were broken and we've actually done it. We hope that you're ready to embark on this new journey with us and that you will take the ride with us. So on behalf of the whole and entire Pareteum management team, employees and organizations, I just want to thank you and I want to thank everyone for joining us on today's call and a very, very big thank you and call out, shout out, to our long-term shareholders for their patience, their commitment and their support, stay with us. We look forward to providing additional updates on our future developments and providing you beyond this preliminary guidance I have given today as we cure this forecast, what we think is really a big, big future that’s ahead of us. So, I thank you. I hope you have a great day. Operator Debbie back to you.

[Operator:]

Ladies and gentlemen, thank you for your participation. This does conclude today's conference and you may now disconnect.