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Pareteum Announces Record Second Quarter 2018 Results

Pareteum Announces Record Second Quarter 2018 Results
  • Revenues of $6 Million, up 85% Year-Over-Year
  • Net Income of $1,656,338 or EPS of $0.03 per Share
  • EBITDA of $597,263
  • Connections, a Lead Indicator of Revenue, Increased 225% over the Second Quarter of 2017 and 23% Increase Over the First Quarter of 2018
  • Raised 2018 Outlook to > 80% Revenue Growth
  • Operating Cash Flow Net of Restructuring and Acquisition Related Expenditures of $565K for the six months ended June 30, 2018
  • Dollar based net expansion rate of 161% for customers added since 2017

NEW YORK, NEW YORK – PRNewswire – August 6, 2018 – Pareteum Corporation (NYSE American: TEUM), (“Pareteum” or the “Company”), the rapidly growing Global Cloud Software company, delivering award winning mobile enablement solutions, announced today its operating and financial results for the second quarter ended June 30, 2018.

Key Financial Highlights for Second Quarter 2018 Year over Year:

  • Revenues increased by 85% to $6 million
  • Net Income of $1.7 million versus net loss of ($1.3 million) in the second quarter of 2017
  • EBITDA improved by over $898K, or 298%, to $597,263
  • Adjusted EBITDA improved by over $834K, or 180%, to $1.3 million
  • Operating loss reduced by $776K, or 66%, to $397K
  • Increase in total assets from $11.6 million to $33.1 million
  • Cash balance of $19.2 million
  • Operating cash flow adjusted for restructuring and acquisition related costs of $565 for the six months ended June 30, 2018
  • Initiated reporting on dollar based expansion rate where customers of record in 2017 have grown their revenue dollar spending by 161% in Q2 vs Q1

Key Business Highlights for Second Quarter 2018:

  • Awarded 13 contracts aggregating to $55 million in total contract value, which added $55 million to 36-month Contractual Revenue Backlog
  • Increased 36-month Contractual Revenue Backlog from $200 million at End of the first quarter of 2018 to $276 million; includes $21 million incremental from existing contracts
  • Contractual Revenue Backlog conversion rate at 106%
  • Ended the second quarter of 2018 with 2,713,600 Connections, an increase of 225% over the end of the second quarter of 2017 and 23% higher than the first quarter of 2018

“The quarter ended June 30, 2018, marks the achievement of materially significant milestones for Pareteum as it continues to evolve into a high-growth, software-based, enabling cloud services company. Our results include attainment of positive Net Income and positive EBITDA for the first time in Company history. Surpassing $6 million in revenues in the second quarter demonstrates the efficiency of our employees in converting our Contract Revenue Backlog into revenue. Today we operate with our Global Enablement Cloud, fueled by the award winning, and, customer affirmed, software applications, solutions and application programming interfaces (APIs). It is this combination that is making our services and software the developer community’s first choice for connectivity and communications. We generated positive EBITDA and Net Income, validating the efficient scalability of our business. We are continuing to grow our revenues, clearly seen in our results as we are driving financial performance and cash to the bottom line. Key performance indicators of Connections, Contract Revenue Backlog conversion, Connection values, revenue-per-employee and churn continue to all move in the right direction and give us confidence in our overall strategy and business execution. Our TEUM remains laser focused on converting backlog to revenue, servicing our clients, selling into new geographical markets and creating shareholder value,” said Hal Turner, Pareteum’s Founder, Executive Chairman and Principal Executive Officer.

Update on Proposed Artilium Acquisition:
The acquisition, announced on June 7, 2018, has been approved by the Pareteum Board of Directors and all of the independent Artilium Directors. The definitive proxy was filed with the U.S. Securities and Exchange Commission on August 3, 2018, and includes the following summary of Financial Projections with respect to Pareteum on a standalone basis:

The following table presents a summary of Financial Projections with respect to Artilium, also on a standalone basis:

The following table presents a summary of Proforma Combined Financial Projections with of Pareteum and Artilium:

The transaction remains on schedule and is expected to close in or around the end of September 2018, subject to the satisfaction of certain conditions including approval by Pareteum’s stockholders of the issuance of shares of common stock in connection with the acquisition and approval by Artilium’s shareholders of the Scheme of Arrangement transaction under English law.

An updated investor presentation relating to the transaction will also shortly be uploaded to Pareteum’s website at www.pareteum.com/investors

Raised 2018 Outlook to > 80% Revenue Growth 2018 Outlook:
Based on our 36-month Contractual Revenue Backlog of $276 million, as of June 30, 2018, and 2,713,600 connections, we have raised our 2018 outlook. The Company now expects 2018 revenue growth greater than 80% over 2017, up from the previous provided guidance of 70%. Also, with its current cost structures, Pareteum expects positive EBITDA and cash from continuing operations for the full year 2018. As we convert Contractual Revenue Backlog to Connections, our revenue will increase and for every incremental dollar of revenue, we expect contribution to our bottom line. Our target gross margins are in the range of 70-75%.

Highlight Key Performance Indicators and Trends (as of June 30, 2018):

As of the end of the second quarter of 2018, the Company has a 36-month Contractual Revenue Backlog of $276 million. Pareteum’s sales culture led by Chief Revenue Officer, Rob Mumby, continues to excel in entering new geographies and further penetrating new and existing target markets. Our sales executives were recruited because of their deep domain expertise and existing relationships with targeted customers and segments. Our software and solutions deliver great value, including creating new sources of revenue and expense reduction for our clients. We are increasingly receiving more inbound requests expanding our market opportunities. Strategic partnerships are driving more sales as proven out by the sales synergies with Artilium, which was initially an alliance and led to a strategic acquisition. The markets for our software enablement services are growing dramatically, and we have a revolutionary industry disrupter with our cloud software solutions.

Connections of 2,713,600, are up from 2,220,000 at the end of the first quarter of 2018 and 1,310,000 at the end of the year 2017; an increase of 23% over the end of the first quarter 2018, and a significant 225% increase over the end of the second quarter 2017.

Pareteum’s Contractual Revenue Backlog conversion rate to revenue stood at 106%. While our experience so far has us converting at greater than 100%, we note that there may always be situations where a customer delays, or doesn’t onboard the number of connections initially ordered, or even goes out of business. This de-risking is highlighted in the revenue outlook we have provided and is generally less than the 100% conversion rate.

Lifetime connection value of $312 is up from $277 for the first quarter of 2018 and $190 at the end of the second quarter 2017; this shows an increase of 64% versus the end of the second quarter of 2017 and 13% over the sequential first quarter of 2018.

Average annualized revenue-per-employee of $377,000, is up from $256,000 at the end of the first quarter of 2018 and $212,000 at the end of the second quarter of 2017; increased 78% versus the end of the second quarter of 2017 and 47% from the sequential first quarter of 2018; increased 702% versus the end of the fourth quarter of 2015. Software-as-a-service (SaaS) companies typically average $225,000 per employee per year. Upon closing the Artilium acquisition, Pareteum would have a combined head count of approximately 150 and fully expects to continue to exceed the $300,000 per employee per year, which is well above the industry average.

Connection Churn by month stood at an average of 0.14% for the second quarter 2018, down from 0.21% at the end of the first quarter of 2018; reducing 33% versus the end of the first quarter of 2018.

Financial Results for the Second Quarter Ended June 30, 2018:
Revenue for the second quarter ended June 30, 2018 was $6 million, an increase of $2.8 million or 85%, compared to $3.2 million for the second quarter ended June 30, 2017. This increase was attributable mainly due to the services deployment of signed sales contracts into billable revenues (Backlog conversion) and growth in volumes of connections from our existing and growing customer base; in addition to revenues from our Managed Services Platform (MSP), we benefited from Global Cloud Services (GCSP) and Application Exchange Platform (TEAX) revenues coming into service.

With GCSP and TEAX playing an increasingly predominant role in our growth, Global Cloud Services revenue represented 21% of total revenue in the second quarter of 2018, showing the acceptance of our new product offerings.

It is also significant that “Connections” (our term representing devices, subscribers and their variable usage), which are a lead indicator of revenue, rose to 2,713,600 as of June 30, 2018. These connections represent growth of 225% versus the end of the second quarter 2017 and 23% from the sequential first quarter of 2018.

Interest expense for the three months ending June 30, 2018 and 2017 were $99,708 and $406,041, respectively, a decrease of $306,333 or 75%. This decrease in interest expense is relating to debt repayment.

Gross profit for the three months ending June 30, 2018 was $4.2 million, resulting in a gross margin of 70.4%, compared to $2.3 million and 70.8% for the three months ending June 30, 2017.

Product development expenses for the three months ended June 30, 2018 and 2017 were $753,931 and $273,512, respectively, an increase of $480,419 or 176%. Product Development costs consists primarily of salaries and related expenses, including share-based expenses of employees involved in the development of the Company’s services, which are expensed as incurred. Costs such as database architecture, and Pareteum B/OSS, Core Server and SuperAPI development and testing are included in this function.

Sales and Marketing expenses for the three months ended June 30, 2018 and 2017 were $652,442 and $370,795, respectively, an increase of $281,647 or 76%. This increase is a direct result of hiring new employees and allocating resources to growing our business.

General and Administrative expenses for the three months ended June 30, 2018 and 2017 were $2,214,070 and $1,490,838 million, respectively, an increase of $723,232 or 49%.

EBITDA for the three months ended June 30, 2018, was $597K, an improvement of $898K or 298%, compared to EBITDA loss of ($301K) for the same period in 2017.

Adjusted EBITDA for the three months ended June 30, 2018, was $1.3 million, an improvement of $834K or 180%, compared to $463K for the same period in 2017.

Operating loss for the three months ended June 30, 2018, was $397K an improvement of $776K, or 66%, compared to a loss of $1.2 million for the same period in 2017.

Restructuring charges for the three months ended June 30, 2018 and 2017 were $5,592 and $458,877, a decrease of $453,285 or 99%.

Of note, the following were non-cash expenses associated with the three months ended June 30, 2018 and 2017. We recognized share-based compensation expense of $694K and $305K, respectively, an increase of $389K or 128%. Depreciation and amortization expenses for the three-month period ended June 30, 2018 was $994,318, an increase of $121,625 or 14%, compared to $872,693 for the same period in 2017. Changes in derivative liabilities for the three-month period ended June 30, 2018 was a reduction of expense of $313,733, an increase of $313,733, compared to $0 for the same period in 2017. This is due to the removal of the derivative liabilities on June 29, 2018.

Net income for the three months ended June 30, 2018, was $1.7 million, an improvement of $3 million as compared to a net loss of ($1.3) million, for the same period in 2017. We note that this is the first time in the company’s history we have achieved Net Income in a quarter. The improvement in net income was primarily due increasing contribution margins, the changes in derivative liabilities and the reversal of prior period costs resulting in a reduction in other expenses. The resulting EPS for the three months period ended June 30, 2018 was $0.03, as compared to the loss of ($0.10) for the same period in 2017.

At June 30, 2018, Pareteum had $19.2 million of cash, $0 senior secured debt and 55.7 million shares issued and outstanding. Cash used in operations was $952K, however adjusting for restructuring and acquisition expenditures we generated $565K from operations.

Financial Results for the Six Months Ended June 30, 2018:
Revenue for the six months ended June 30, 2018 was $10.1 million, an increase of $4.1 million or 68%, compared to $6 million for the six months ended June 30, 2017. This increase was attributable mainly due to the services deployment of signed sales contracts into billable revenues (Backlog conversion) and growth in volumes of connections from our existing and growing customer base; in addition to revenues from our Managed Services Platform (MSP), we benefited from Global Cloud Services (GCSP) and Application Exchange Platform (TEAX) revenues coming into service.

Interest expense for the six months ending June 30, 2018 and 2017 were $163,467 and $923,184, respectively, a decrease of $759,717 or 82%. This decrease in interest expense is relating to debt repayment.

Gross profit for the six months ending June 30, 2018 was $7.1 million, resulting in a gross margin of 70.6%, compared to $4.2 million and 70.4% for the six months ending June 30, 2017.

Product development expenses for the six months ended June 30, 2018 and 2017 were $1,480,776 and $558,206, respectively, an increase of $922,570 or 165%.

Sales and Marketing expenses for the six months ended June 30, 2018 and 2017 were $1,341,440 and $690,282, respectively, an increase of $651,158 or 94%.

General and Administrative expenses for the six months ended June 30, 2018 and 2017 were $4,510,922 and $3,856,226, respectively, an increase of $654,696 or 17%.

EBITDA for the six months ended June 30, 2018, was a loss of $271,000, an improvement of $1.2 million or 81%, compared to EBITDA loss of $1.4 million for the same period in 2017.

Adjusted EBITDA for the six months ended June 30, 2018, was $1.6 million, an improvement of $1.3 million or 490%, compared to $265K for the same period in 2017.

Operating loss for the six months ended June 30, 2018, was $2.2 million an improvement of $932K, or 29%, compared to a loss of $3.2 million for the same period in 2017.

Restructuring charges for the six months ended June 30, 2018 and 2017 were $79,193 and $588,106, a decrease of $508,913 or 87%.

Of note, the following were non-cash expenses associated with the six months ended June 30, 2018 and 2017. We recognized share-based compensation expense of $1.8 million and $1.1 million, respectively, an increase of $0.7 million or 64%. Depreciation and amortization expenses for the six-month period ended June 30, 2018 was $2 million, an increase of $243K or 14%, compared to $1.7 million for the same period in 2017. Changes in derivative liabilities for the six-month period ended June 30, 2018 was $0 compared to a gain of $1.9 million for the same period in 2017.

Net loss for the six months ended June 30, 2018, was $452K, an improvement of $875K as compared to a net loss of $2.6 million, for the same period in 2017. The resulting EPS for the six months period ended June 30, 2018 was ($0.01), as compared to the loss of ($0.24) for the same period in 2017.

Cash used in operations for the six months ended June 30, 2018 was $952K, however adjusting for restructuring and acquisition expenditures we generated $565k from operations excluding expenditures for restructuring and acquisition.

Conference Call Information:

Date: Monday, August 6, 2018
Time: 4:30 PM ET
Conference ID: 6688675
Domestic Dial-in Number: 1-800-289-0438
International Dial-in Number: 1-323-794-2423
U.K. Toll Free: 0800 358 6377
Live webcast: http://public.viavid.com/index.php?id=130594

All interested participants should dial in approximately 5 to 10 minutes prior to the 4:30 PM ET conference call and an operator will register your name and organization.

A replay of the call will be available approximately one hour after the end of the call through August 6, 2019, and can be accessed at: http://public.viavid.com/index.php?id=130594

UK Takeover Code Notice:
The Adjusted EBITDA projections for Pareteum and Artilium included in this announcement technically constitute “profit forecasts” for the purposes of Rule 28 of the UK City Code on Takeovers and Mergers (the “Code”) and accordingly either (as relevant) (a) have been reported on by Squar Milner LLP (“Squar Milner”) and Jefferies International Limited (“Jefferies”) or (b) are subject to “directors’ confirmations” by the directors of Pareteum/Artilium pursuant to Rule 28.1(c)(i) of the Code. The reports by Squar Milner and Jefferies and directors’ confirmations (as relevant) are available in an announcement released to the London Stock Exchange on 6 August 2018 and will shortly be uploaded to Pareteum’s website at www.pareteum.com/investors

About Pareteum Corporation:
Pareteum Corporation (NYSE American: TEUM) is a rapidly growing Global Software Defined Cloud company with a mission to connect “every person and everything.” Organizations use Pareteum to energize their growth and profitability through our Global Software Defined Cloud and complete turnkey solutions featuring relevant content, applications, and connectivity worldwide. Our Cloud platform services partners (technologies integrated into our cloud) include: HPE, IBM, Ribbon Communications (Sonus+GenBand), NetNumber, Oracle, Microsoft, and other world class technology providers. All of the relevant customer acquired value is derived from Pareteum’s leading Global Software Defined Cloud, delivering award-winning mobile enablement, regardless of the user’s location or network. By harnessing the value of communications, Pareteum serves retail, enterprise and IoT customers. Pareteum currently has offices in New York, Sao Paulo, Madrid, Barcelona, Bahrain and the Netherlands. For more information please visit: www.pareteum.com.

Forward Looking Statements:
Certain statements contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements with respect to Pareteum’s plans and objectives, projections, expectations and intentions. These forward-looking statements are based on current expectations, estimates and projections about Pareteum’s industry, management’s beliefs and certain assumptions made by management. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Because such statements involve risks and uncertainties, the actual results and performance of Pareteum may differ materially from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, Pareteum also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made here. Additional information concerning certain risks and uncertainties that could cause actual results to differ materially from those projected or suggested in Pareteum’s filings with the Securities and Exchange Commission, copies of which are available from the SEC or may be obtained upon request from Pareteum Corporation.

Contractual Revenue Backlog Definition:
Contractual Revenue Backlog, or just Backlog, a Non-GAAP measure is measured on a forward looking 36 month snapshot view monthly, and, is generated by each of the Company’s Managed Services, Global Mobility Cloud, and Application Exchange & Developer’s Platform customers. The Pareteum multi-year Software-as-a-Service agreements include service establishment and implementation fees, guaranteed minimum monthly recurring fees, as well as contractually scheduled subscribers, in some cases including subscriber usage, during the term of the agreement, and, their resulting monthly contractual revenue. There can be no assurances that we reach the total contract revenue backlog. Timing of revenue recognition may vary from actual results.

Discussion of Non-GAAP Financial Measures:
Pareteum’s management believes that the non-GAAP measures of (1) “EBITDA” (2) “Adjusted EBITDA” (3) Cash from operating activities excluding expenditures from restructuring and acquisitions and (4) Contract Revenue Backlog enhance an investor’s understanding of Pareteum’s financial and operating performance by presenting (i) a focus on core operating performance and (ii) comparable financial results over various periods. Pareteum ‘s management uses these financial measures for strategic decision making, forecasting future financial results and operating performance. The presentation of non-GAAP (“Generally Accepted Accounting Principles”) financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

EBITDA and Adjusted EBITDA Definition:
“EBITDA” is a non-GAAP measure defined as earnings before interest, taxes, depreciation and amortization. “Adjusted EBITDA” is a non-GAAP measure defined by Pareteum as “EBITDA” excluding stock based compensation, restructuring charges, nonrecurring expenditures and certain software and non-cash adjustments made during the 2016 restructuring that are not applicable in 2017 and 2018.

Cash from operating activities excluding expenditures from restructuring and acquisitions:
Cash from operating activities excluding expenditures from restructuring and acquisitions is a Non-GAAP measure defined as cash flows from operating activities as adjusted for adjustments to deferred revenues, net billings in excess of revenues, restructuring costs primarily from prior periods and acquisition costs.

Pareteum Investor Relations Contacts:
Ted O’Donnell
Chief Financial Officer
(212) 984-1096
InvestorRelations@pareteum.com

Stephen Hart
Hayden IR
917-658-7878

Carrie Howes
Rayleigh Capital
Dubai- London
T UAE: +971 (0) 55 997 0427 | T UK: +44 (0) 870 490 5443 | T CAN: +1 416 900 3634

 

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