First, investors need to understand that Contractual Revenue Backlog gets measured by a forward-looking monthly view of the execution of strategies that generate revenue from each of TEUM’s managed services. At TEUM, investors should focus toward the next 36-month period for when TEUM can record full benefit from the current revenue backlog. And, for investors, it’s a vital timeline. Why? Because as it stands, with the CRB now sitting at an estimated $162 million over the next 36 months the chance for investors to capitalize on a fundamentally flawed valuation and share price multiple at TEUM may soon slip away.
The revenue opportunity is now in place for TEUM, with the CRB getting accrued and generated by each of TEUM’s managed services, global mobility cloud services, and from its application exchange and developer’s platform customer base. For Pareteum, the explosive revenue growth will stem from their multi-year Software-as-a-Service agreements that include service origination and implementation fee’s, guaranteed minimum monthly recurring fee’s, as well as from contractually scheduled subscribers that contributes to a recurring monthly revenue stream to TEUM.
Beyond the contracts, the method is equally impressive, and with TEUM integrating a market disruptive SaaS business model, TEUM may become one of the world’s most innovative communications and services companies, taking advantage of cloud-based opportunities that significantly lower capital investment in infrastructure into existing multi-billion-dollar markets. And, with company growth driven by innovative and market changing technology that can deliver improved client services, slash operating costs, and increase the revenue opportunities for its customer base, the recipe for substantial success is in place.
Growth Supported a SaaS Model
TEUM’s unique business model has allowed them to operate at a low cost, high margin output, and this has resulted in the company becoming one of the fastest growing providers in the industry. Pareteum is experiencing remarkable growth in almost every targeted sector, and their business model easily allows for this trend to continue scaling upward.
At TEUM, both average annual revenue per employee and yearly revenue per connection saw steadily increasing profits throughout the entirety of 2017. As a SaaS provider, efficiency at TEUM is high, with gross margins remaining within the 70-79% range. Also, the company’s monthly recurring subscription model results in stacking generators of revenue, bringing in more profit for the company at comparatively little cost.
TEUM enjoys significant partnership relationships, which hold the potential to bring rapid and global growth to the platform. Currently, the company’s platform integrates technologies from some of the most recognizable names within the tech industry, such as Vodafone, Oracle, Microsoft, IBM, AirFox and Sonus.
On the expansion front, Pareteum has a strategic alliance with Artilium, which has a strong presence in Asia-Pacific, Africa and Latin America, not only provides immediate opportunities for both companies but also opens doors for Pareteum to reach out to additional network telecom giants – which could potentially result in substantial opportunities for TEUM.
The company has described this newfound alliance as a “global license to hunt,” as the services provided by the growing business will likely catch the eye of key players within the telecom industry, inclusive of Liberty Global and Vodafone, with whom TEUM already serves. The services provided by Pareteum are especially valuable to companies like Vodafone, and if TEUM continues their trend of capitalizing on market opportunities, the company could potentially see adoption rates eclipsing multiple millions of new connections through globally positioned telecom providers within the next three years.
Key Performance Indicators Suggest Valuation Will Rise
Average annualized revenue per employee, from $177 in Q1 2017 to $225 in Q3 2017
Average annualized revenue per connection, from $9.76 in Q1 2017 to $11.12 in Q3 2017
Connections by month, from 1,146,825 in January 2017 to 1,273,314 in September 2017
Churn of less than 0.3%.
Backlog conversion from 104% in Q1 2017 to 121% in Q3 2017
Although the performance indicators are a compelling component driving momentum, other indicators make a powerful case for increasing share price valuations. During the first nine months of 2017, for instance, Pareteum reported between 104-121% backlog conversion versus planned backlog. The conversion rate is not only strong, it is deserving of a multiple that more fairly represents TEUM against peer companies.
Currently, SaaS peer companies enjoy revenue multiples of 10-12X, which would equate to between $130-$156 million in the current TEUM run-rate. Extrapolating that multiple may deliver share prices of between $2.60 – 3.12 per share, based on the roughly 50 million shares of stock outstanding. Beyond that, however, additional value can get justified by adding comparative value from SaaS peer revenue backlog multiples of 2-3X, which would equate to $294-441M or $5.88 – $8.82 per share, based on the approximate 50 million shares outstanding.
TEUM Is Communicating Strong Growth Message
Led by CEO Vic Bozzo, along with a team of successful and experienced entrepreneurs, Pareteum has built a solid foundation to grow their company. Mentioned earlier, as of the first quarter of 2018, TEUM has built up a $162 million 36-month contractual revenue backlog and is prepared to act upon plans to expand company operations and outreach further.
And, Pareteum’s model of services enables the company to accelerate this growth by bringing in significant revenues each month, while minimizing any operative and overhead costs. So, that $162 million number will undoubtedly increase, and once the market takes notice investors may see TEUM get provided the share price multiple they deserve and put the value more in line with its peer competitors.
The company’s patented SaaS software, by the way, is a result of years of fine-tuning and is not easily replicated, creating significant barriers to entry for those attempting to design and invest in an in-house solution. The technology is a key differentiator and the impetus to disrupting the cloud-based opportunity.
For instance, the company has secured a $3M contract with an established South African data network provider, which will allow the client ease of mobility, and to integrate further connections within Pareteum’s ecosystem. The company is also exploring other outlets of potential revenue sources, with interest in developing relationships with clients launching mobile gaming apps that can utilize the in-app billing services facilitated by the Pareteum platform. Keeping in mind that with the 2017 global in-app purchase sales estimated to reach roughly $37 billion, these newly surfacing opportunities present significant untapped reserves for TEUM in 2018.
A Compelling Value Opportunity
As of January 30, TEUM is trading at $2.13 a share, with a market cap of $100M. Compared to peer companies, the multiple is significantly discounting a substantial portion of the revenues expected in the CRB alone. To further validate a case for a higher valuation, TEUM is an actively immersed, technologically advanced company led by experienced management. Then, add in the low operative costs and the growing business relationships with industry leaders, an investment consideration into TEUM stock may be a wise endeavor.
But, rather than relying on pure speculation as to what the appropriate valuation for TEUM should be, investors were provided a prospective roadmap at the end of January. On January 29th, Callidus Software Inc. (doing business as CallidusCloud®) announced that SAP America, Inc. has agreed to acquire CallidusCloud, a SaaS model leader in cloud-based Lead to Money (Quote-to-Cash) solutions.
The per share price represents an enterprise value of approximately $2.4 billion. What investors should notice in this deal is that like Pareteum, CallidusCloud employs a SaaS business model, and the terms they struck with SAP demonstrates the opportunities for long-term rewards of investing into micro-cap companies with strong fundamentals, defined strategies, and a strong executive team to drive the growth. The $2.4 billion price tag for CallidusCloud is impressive, with CallidusCloud generating roughly $250 million in annual income in a SaaS business model it represents about 10X revenue. For Pareteum investors, a similar story may unfold with valuations mimicking that of CallidusCloud.
The following article was republished with permission from Modest Money.