Crexendo Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 10 speakers on the call.

Operator

Greetings. Welcome to the Crexendo Second Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Jeff Korn, you may begin.

Speaker 1

Thank you, Holly, and good afternoon, everybody. I want to welcome you all to our 2nd quarter Conference Call. On the call with me today are Doug Gaylor, our President and COO Ron Vincent, our CFO John Britton, our CRO And Ahnen Busch, our CSO. In a moment, I'll ask John to read our Safe Harbor statement. After that, I'll give some brief comments on our performance for the quarter.

Speaker 1

Ron will provide more detail on the numbers before handing over the call to Doug to provide a business and sales update. After that, I'll open the call up to questions. John, would you please read the safe harbor, please?

Speaker 2

I want to take this opportunity to remind listeners that this call will contain forward looking Statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward looking statements. All statements made in this conference call other than statements of historical fact are forward looking statements. Forward looking Statements include, but are not limited to, words like believe, expect, anticipate, estimate, will and other similar statements of expectation identifying forward looking statements. Investors should be aware that any forward looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today.

Speaker 2

These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission, including the Form 10 ks for fiscal year ended December 31, 2022, In the Forms 10 QS filed, Crexendo does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. Back to you, Jeff.

Speaker 1

Thank you, John. And I might add, You actually do a better job of reading the safe harbor than I used to do. I'm exceptionally pleased with our results for the quarter. And I think they speak volumes about the hard work undertaken by the entire team. From a high level in the second quarter, we continued to drive strong organic top line growth We're making great strides in our cost reduction plan.

Speaker 1

Consolidated total revenue for the quarter increased 43% Or $3,900,000 to $12,700,000 compared to $8,800,000 for the Q2 of 2022. These are very, very impressive results driven by the Steady organic growth across our organization. On the cost side, in keeping with my remarks from last quarter, we have made considerable strides $1,000,000 sequential improvement in net loss from Q1. Most importantly, we were substantially cash flow positive in Q2, Which I fully expect to continue. This is not a minor point.

Speaker 1

If you look at our industry peers, you will see that most do not have positive cash flow. We have always managed the business using sound business principles, being appropriately prudent and not mortgaging our future by overpaying for customers with unsustainable debt. I think our sound business philosophy is why we have the results we have and I have high expectations for our future. We plan to continue looking judiciously at our spending. We have sufficient staff and sufficient technology to expand.

Speaker 1

We continue to maintain a hybrid workforce, which has proven to be more productive than our digital based line of work. Our team is effective and productive and just like our award winning solutions have the ability to be mobile. I'm excited to report that we have successfully closed the sale of our building in Tempe, Arizona as of yesterday. This transaction will add about $2,000,000 cash to the balance sheet and essentially remove almost all of our existing debt obligation, giving us greater financial flexibility as we focus on growing the business. Looking at operations, we have continued to make great strides in our integration efforts.

Speaker 1

Allegion has enjoyed a smooth integration into our business and the team members are assimilated well. Over the last few months, We've completed a reorganization of reporting responsibilities to create cross utilization against all divisions, making us a more efficient and collaborative organization. While there are some processes and logistical matters we are still ironing out, I have been exceptionally impressed by the performance of this newly organized team structure. With these changes, we have flexibility with our long term strategy and we're able to run a lean and effective organization. As we mentioned previously, we expect to see additional financial and operational efficiencies over the next few quarters.

Speaker 1

On the sales front, we've seen significant growth from our master dealer Channel, which is expanding the scope of our enterprise sales opportunities. It's clear that our strategic focus on this channel is paying off and we're committed to our expansion strategy. As further evidence of our success, I'm pleased to report that we should very shortly Past the 3,500,000 end users globally. Some of you may recall that we surpassed 3,000,000 end users earlier this year. Reaching 3,500,000 users also equates to almost doubling of our user count since we acquired NetSapiens in June of 20 11 2021, excuse me.

Speaker 1

Those user numbers continue to increase as our licensees and more of our customers to the platform, And we are encouraged by the growth base of customers who have come to rely on our products to run their business every day. It's a very impressive metric. In a similar vein, during the Q2, we also continued with the migration of customers off of Crexendo Classic To our industry leading VIP platform, this consolidation will ensure that all of our customers are hosted on a single best in class platform, In term, reducing costs as we end as we sunset the legacy classical platform and transition valuable engineers and support staff To other parts of the business, we continue to see growth in demand in our software solutions segment, although in recent months we have seen a lengthening of the sales cycle, specifically at the enterprise level. In Q1, we drove 26% organic growth in software solutions, Where in Q2, we only recorded 9% growth rate. These variances can be directly attributed to the difference between subscription license sales And for perpetual license sales.

Speaker 1

Historically, we sold most software solutions on a perpetual license. But over the last year and a half, we've seen much more adoption of our new licensing options to go with the subscription model, which lessens upfront revenue, but increases monthly recurring revenue. Over the long term, performance normalizes and we believe that the growth opportunity as well as the favorable margin Profile justify the unevenness that can sometimes occur here. Said another way, because we own the technology stack, These margins have increased nicely and will continue to increase over time, which supports our profitability goals. Nonetheless, we are still working on Selling more monthly recurring contracts, which should help make the quarterly revenue more predictable on a regular basis and give us greater transparency to results.

Speaker 1

We continue to expand using AI, which we find a very effective tool to support our customer service agents, and we are testing using AI In house for certain level 1 customer service issues. We continue to use AI internally as an effective tool for debugging code For the engineering and support staff, in summary, the Q2, the momentum we established at the start of the year, We are well positioned to meet our operational goals for 2023. We have made significant progress in growing sales, reducing debt And streamlining operations, all of which have served to vastly improve our financial health. Our primary focus has been and will continue to be on driving organic growth, increasing margin and integrating our acquisitions fully into the company. And we will continue to strategically expand One final housekeeping item before I hand the call over to Ron.

Speaker 1

At the end of Q2, we confirmed the appointment of 2 new board members to our Board of Directors, Kevin Jackson and Jasmine Kent. Kevin brings a diverse background having begun his professional career at Texas Instruments, where he worked on design teams for supercomputers that targeted the geophysical industry as well as NASA. Kevin has also held senior engineering sales roles for multiple companies, including the family of Teledyne Companies. Since 2000, Kevin has been in technology consulting, having previously run the Midwest region for Hy Tech Corporation And finishing his career at The Hackett Group, where during his tenure, he represented 61 of America's Fortune 100 Companies. Jasmine Timm is a growth marketing and management executive with deep expertise in all facets of marketing and customer engagement.

Speaker 1

Her career has spanned high growth leadership roles in both Fortune 500 Companies as well as startups that drive growth in new products and services. She has extensive experience in transformational high growth and company defining and digital channel and brand transformation, go to market strategies and cultural processes. Jasmine has served on numerous private and charitable boards. We and I are very excited to have both Jasmine and Kevin on our board, and we look forward to benefit from their future contributions. I believe we've made this a better company.

Speaker 1

I'm convinced that our results will continue to impress and that we will grow the company organically and when we are ready by adding accretive acquisitions. And with that, I'll turn the call over to Ron. Ron?

Speaker 3

Thank you, Jeff. Good afternoon, everyone. I'll go over the financial highlights for the Q2 of 2023. Total revenue for the Q2 increased 43 percent to $3,800,000 to $12,700,000 compared to $8,800,000 for the Q2 of the prior year. Revenue for the 2nd quarter increased 63 percent or $2,700,000 to $7,300,000 as compared to $4,600,000 for the Q2 of the prior year.

Speaker 3

Software Solutions segment revenue for the 2nd quarter increased 9% to $3,900,000 compared to $3,600,000 for the Q2 of the prior year. Product revenue for the Q2 increased 107 percent or $740,000 to $1,400,000 compared to $692,000 for the Quarter to prior year. Gross margins, for the quarter Telecom Services gross margin was 58%, Software Solutions, 67%. Our product margins were 38% and overall gross margins came in at 58%. Operating expenses for the Q2 increased 36 percent or $3,500,000 to $13,200,000 compared to 9 $7,000,000 for the Q2 of the prior year.

Speaker 3

The company reported a net loss of $545,000 for the 2nd quarter or $0.02 loss per basic and diluted common share as compared to a net loss of $896,000 or $0.04 loss per basic and diluted share For the Q2 of the prior year, non GAAP net income of $1,100,000 for the Q2 or $0.04 per basic and diluted common share. As compared to non GAAP net income of only $512,000 or $0.02 per base you can diluted common share for the Q2 of the prior year. EBITDA for the Q2 was $383,000 compared to a loss of $232,000 for the Q2 of the prior year. Adjusted EBITDA for the 2nd quarter increased $1,200,000 compared to $626,000 for the Q2 of the prior year. Highlights for the 6 months ended June 30, 2023 are as follows.

Speaker 3

Year to date total revenue for the 6 month period increased 48% or $8,100,000 to $25,100,000 compared to $17,000,000 for the same period the prior year. Year to date service revenue for the month period increased 62 percent to $5,500,000 to $14,500,000 compared to $9,000,000 for the same period in the prior year. Year to date software solutions revenue for the 6 month period increased 16% $1,100,000 to $8,000,000 compared to $6,900,000 for the same period of the prior year. Year to date product revenue for the 6 month period Increased 125 percent or $1,500,000 to $2,700,000 as compared to $1,200,000 for the same period the prior year. Year to date operating expenses increased 42 percent or $8,000,000 to $27,200,000 compared to $19,800,000 for the same periods of prior Year to date, the company reported a net loss of $2,100,000 for the 6 month period or $0.08 loss per basic and diluted common share compared to a net loss of $2,100,000 or 0 point 0 $9 Loss per basic and diluted common share for the same period of the prior year.

Speaker 3

Year to date, non GAAP net income of $1,700,000 for the 6 month period or $0.07 per basic Common share and $0.06 per diluted common share compared to non GAAP net income of 917,000 or $0.04 per basic and diluted common share for the same period of the prior year. Year to date EBITDA loss of 283 1,000 for the 6 month period compared to a loss of $1,000,000 for the same period of the prior year. Year to date adjusted EBITDA of $2,000,000 For the 6 month period, that's compared to $928,000 for the same period the prior year. Our cash balance at June 30 It was $4,200,000 compared to $5,500,000 at the end of 2022. Cash used for operating activities for the 6 month period was 600 73,000 compared to 2,600,000 used for the same period of the prior year.

Speaker 3

The 2nd quarter had positive Cash flows from operating activities of $881,000 as compared to negative cash flows of 1,550 4,000 for the Q1 of the year. Cash used for investing activities for the 6 month period of 92,000 Compared to 40,000 used for the same period in the prior year, and that's primarily data center equipment acquisitions. Cash used for financing activities for the 6 month period of $486,000 compared to cash provided by investing activities of $20,000 for the same period of the prior year. Now I'll turn it over to Doug Gaylor, our President and COO, for additional comments on sales and operations.

Speaker 4

Thanks, Ron.

Speaker 5

I'm very pleased with our strong Q2 results and excited that we continue to execute on our game plan and manage the fundamentals of the business. Our 43% year over year increase was driven by substantial 22% organic growth from our Allegiant acquisition, which outperformed expectations, Combined with 9% organic growth in our Software Solutions segment and 6% organic growth from our Telecom Services segment. The $12,700,000 in revenue that we generated for the quarter, combined with the 21% year over year increase in our backlog to $51,200,000 Gives us greater visibility and confidence in our growth projections over the coming quarters. As a reminder, our backlog is the sum of the remaining Contract values for all of our telecom services and software solutions customers that will be recognized on a sliding scale over the next 60 months. Our organic growth efforts are continuing and our performance in Q2 was generally steady.

Speaker 5

The 6% Growth rate in telecom services was primarily driven by increased cloud adoption from end users and the 9% organic growth in our Software Solutions segment It was driven by new logos as well as additions from our licensee network. As our licensees grow, many will add or need to add additional services from Crexendo, Creating low hanging organic software solutions cross selling opportunities for the organization. We added 8 new licensees for the quarter, Bringing us to 233 licensees in total, which is on track with our internal expectations, and we anticipate a significant number of additional licensees to Come on board throughout the remainder of the year on the software solution side of the house. And we also expect to continue to add strong dealer partners and agents In the Telecom Services segment, our traditional Crexendo agent program continues to grow and our 3 large master agent partnerships with Telarus, OTG Consulting and Ginnie Distributors all had strong performances for the quarter. We continue to build our roster of partners, We are seeing strong contributions from our resellers that are generating larger size sales opportunities.

Speaker 5

We're continuing to record elevated demand levels for our solutions and we are seeing great momentum in sales bookings despite economic headwinds. As an aside, in the event of an economic downturn, Which now looks less likely, but still possible. I believe that recessionary times actually benefit our industry as businesses look for ways to cut costs and improve efficiency And productivity, and that's exactly what our solutions offer. From an industry opportunity perspective, over half of the businesses in the U. S.

Speaker 5

Still haven't migrated over to the cloud, Building on our international success in Q1, we had another solid performance in the Q2. In addition, Last week, we announced that Crexendo licensee Access 4 has now launched their UC Express, Revolutionary product built on the Crexendo and its Sapiens platform, and they did this to expand their market opportunities for its network of over 400 resellers In the Australian and New Zealand markets, Access4 has historically been a Cisco BroadSoft powered solution, But in order to support their rapid expansion plans, they needed to introduce a commercially flexible solution with an industry leading robust feature set. They found the Crexendo and NetSapiens platform offered the ideal framework to support Access4's growth goals and this relationship between Crexendo and Our strong sales bookings in the first half of the year helped contribute to a record number of installs this quarter and has enabled us to reach nearly 3,500,000 end users, as Jeff pointed out, as they're using our system globally on our platform. At the same time, customer satisfaction remains at an all time high with continued strong reviews on g2.com, The technology industry is leading independent review website. As Ron mentioned, our telecom services margins and product margins declined to 58% 30 5% respectively for the quarter, which was driven by lower margins from the Allegiant's service revenue contribution.

Speaker 5

But just as a reminder, the Allegiant Offerings of additional managed services and network services along with their UCaaS offering, some of these services are lower margins, but ultimately help in pulling a much higher customer spend through a complete bundle of service offerings. Our Telecom Services segment margins in both service and product without Allegion's contributions We're steady at 69% 43%, respectively. We continue to expect the telecom services margins to return to the 70% range As we further integrate the company and improve profitability on certain offerings. Our software solutions margins increased nicely to 67% for the quarter. And because of our technology stack is proprietary, we do not have the typical growth costs associated with increased usage and therefore expect to see these margins continue to improve Insight management application for the software solution platform and through Q2, we have continued to note a great reception from our licensees in terms of order numbers And performance reviews.

Speaker 5

Going forward, we're excited about upcoming API enhancements on the product, along with additional applications that increase efficiency Using AI, chat GPT capabilities as well as others to improve customer interactions. As we look to the future, we are eager to continue delivering new capabilities, services and software offerings. We believe we have the best UCaaS offering in the industry that we will continue to attract new customers and new partners, thereby allowing us to deliver strong returns for our shareholders. With the combination of being the fastest growing platform solution in the country and our growing licensing network and direct end user offerings, Along with our disruptive pricing model and our world class team, we're perfectly positioned for the future. I'll now turn it back over to Jeff For any further comments.

Speaker 1

Actually, Doug, I don't have any comments. So Holly, I'd like to turn the call open to questions.

Operator

Certainly, at this time, we will be conducting a question and answer session. Your first question for today is coming from Eric Martinuzzi at Lake Street.

Speaker 1

Eric, how are you?

Speaker 4

Doing well. Congrats on the cash flow positive. It was sooner and more than I was expecting for Q2. So that's definitely A nice milestone to return to there. I wanted to dive in on the How you're differentiating the master dealer channel specifically?

Speaker 4

You've had obviously good success with your partners and agents here, And the record installs highlights that. But how you don't lack for competitors. How are you differentiating?

Speaker 1

Eric, I'll let John answer that.

Speaker 2

Hi, Eric. Good question. First, I'll start with one of the ways that we have significantly differentiated ourselves is Our real focus on carving out just a great customer experience. If you are familiar with g2.com, they are the largest Independent software review site. We're currently ranked number 1 across all providers for our category By our real customers on G2, and that's what I love about them.

Speaker 2

They validate that your reviewers are actually representing the company and your customers

Speaker 6

that they hold themselves forward to be representing.

Speaker 2

And if you understand that, They hold themselves forward to be representing. And if you understand that the master agent or technology service broker channel, The biggest thing, one of the key criteria to them is support after the sale. So where other competitors have stumbled of recent or not Done as well in that area. We really focus across Crexendo on delivering an exceptional customer experience. I think it pays off there.

Speaker 2

I think there There's other ways that we're differentiating ourselves when you get in. Have been successful in growing into a larger Size customers over time and growing that channel. But to me, that's one of the key ways that I really feel like that we create additional value for those partners.

Speaker 4

Got it. And then on the software solutions side, obviously, it's a lumpy business. We were up 26% in Q1 with a good chunk of perpetual, I'm guessing, and then we're 9% in Q2. Just on kind of an overall 12 months basis, what does that business grow? Is that a high single digits growth business?

Speaker 3

Yes. Right now, we're looking at the remainder of this year, high single digits, and we're moving into the double digits

Speaker 5

And keep in mind, Eric, as we've talked about in the past, we have 2 ways to acquire our platform. 1 is on a proprietary Perpetual license and one is on a subscription basis. And so as we see more perpetual licenses, we'll see a little bit higher Non recurring revenue coming out of the quarter, that's what we saw a little bit in Q1. Q2 was a little bit more normalized with more subscription services. Those subscription services are great because we get a higher monthly recurring commitment out of those opportunities.

Speaker 5

And so that makes for a very More reliable, predictable monthly recurring revenue stream going forward. So that's where you saw a little bit of the Up and down from Q1 to Q2, but still really nice growth in Q2 with 9%.

Operator

Your next question is coming from Josh Nichols at B. Riley.

Speaker 1

Hi, Josh. How are you?

Speaker 7

Doing great. Thank you. Good to see the dramatic improvements in sales and operating performance. Looking here, I wanted to touch on a little bit more. I know you've taken a lot of initiatives to minimize expenses, improve profitability.

Speaker 7

Like could you elaborate a little bit on what you've done there? How much that's currently saved and anything else that you could do to further bolster the bottom line?

Speaker 1

Well, Part of it is, Josh, what we did is we looked at all of the employees we had and realized that we had When we could cross utilize them, we could prevent hiring an additional 10 to 12 people. So that was a huge savings right there when we did a good job of putting everybody together. We stopped certain spending, which I thought was wasteful. We deferred certain spending, which we believed we could defer. And we are waiting, as I said, for the huge savings that's going to come from being on one platform.

Speaker 1

That's going to have some actual very substantial hard cost savings, the rent here, the electricity, all the licenses that are necessary to keep it up, not to mention we will then have another 7 to 8 employees that we can redeploy across the organization who will continue to enable us not to have additional hires. It's hard to quantify because we are genuinely watching every penny. Ron is my watchdog. If somebody asks me to spend any money, Ron looks at it first and sees if it's in the budget. And then if it isn't, there has to be some cost savings to substantiate it.

Speaker 1

So it's mostly a matter of discipline and mostly a matter of genuinely watching every penny we spend and not skimping on customer service.

Speaker 5

I think, Josh, to add to that, as we get larger, we have more leverage with our vendors and suppliers. And so the larger we get The more we spend, the more leverage we have to negotiate rates. And so we've been able to do a good job of controlling our cost by We're negotiating certain packages that have reduced our costs significantly. Yes, thanks. And then just

Speaker 7

to follow-up on the point that you made In terms of migration of customers to the VIP platform, where are you? Is that like halfway done, a third of the way done? And I know it's a gradual Process expectations on time line there since it's a big opportunity?

Speaker 1

It's about halfway done, Josh. And As I mentioned on the call, we have sold the building here. We have a maximum of being in the building 18 months. We can leave as soon as 12 months. I would love to have it done in 12 months, but we will absolutely have it done by the time we have to be out of the building.

Speaker 1

And we're

Speaker 5

picking up a lot Steen there, Josh, and the fact that we've automated a lot of the processes. And so that was probably the biggest challenge is Making things a little bit more seamless and quicker in the processes. And so we've maximized that. And so we're going to start seeing that accelerate even more.

Speaker 7

And then you talked about it on the call, but if you could just dig a little bit deeper into the International opportunity, I don't believe it's not very big percentage of the company's revenue today, but how quickly could you roll that out? In what regions are leveraging the channel effectively to be able to do that?

Speaker 1

Josh, I'm going to let Anand answer that. Go ahead, Anand.

Speaker 6

Yes. Hi, Josh. I think the thing to look at is today, we're probably about north of 20 International service providers outside of the U. S, each one of these, the longer sales and I think just spoke to the fact that The bigger service providers that we're getting, they will come in and as we're establishing our brand there, what you're starting to see and we've seen that with a handful of our Providers as you're starting to see the upgrades kick in. So the reality is that we're being opportunistic in certain areas.

Speaker 6

But if you look at kind of The throughput on a per person basis in that region, there's a lot of activity. And then also from a macro perspective, the conversion to cloud is trailing Outside of the U. S. Relative to where we are here in the U. S.

Speaker 6

So there's kind of a natural organic move in that direction. In terms of the services that we already have, as Doug spoke to, folks are able to actually use a perpetual license Or have a subscription and also host it in our facilities. We currently have Facilities out in Amsterdam and the United Kingdom, and then we look to continue to come. We've got plenty of capacity there. And then with the next generation of hosted services, we're already looking at virtualizing and pushing out, which is already in place.

Speaker 6

So I think all the pieces are there. Now it's just a matter of continuing to kind of service the lead prospects that we have in the pipeline.

Speaker 5

Thanks. And then just

Speaker 7

a housekeeping question for me. I know you broke out some of the organic versus Allegiant, but what was the total Allegiant Revenue contribution during the quarter, I think last quarter was $3,100,000

Speaker 3

Yes. So for the

Operator

Your next question for today is coming from Chris Sakai at Singular Research.

Speaker 4

Yes. Hi, good afternoon. Can you talk about new licenses for the quarter? And how many were there from existing licensees?

Speaker 5

Yes, let me just reiterate My statement from my comments and then I'll have John add some more color. We added 8 new logos in the quarter. I think 6 of those were domestic, 2 of those were international. And as far as the upgrades, we're constantly getting upgrades from our licensees that we have out there. We've got over 230 licensees now.

Speaker 5

So John, do you want to add a little bit more color on

Speaker 2

Opportunity is about half of them are electing to have us hosted, as Anand talked about in our infrastructure, our data centers have for

Speaker 7

self hosting. And then about At

Speaker 2

the current quarter, about 50% chose to procure their licenses on a subscription basis. So When we talk about kind of the big initiatives giving customers buying choice, whether they buy perpetual or subscription licensing And then giving them the opportunity to either host it themselves or us host it for them. We're generally seeing a pretty even And those options and we think that's one of our competitive advantages in the market.

Speaker 4

Okay. Sounds good. And then Can you guys talk about your hiring freeze from Ladder? Has there been any traction for new hires?

Speaker 1

Well, Chris, I loosened up the hiring freeze. Originally, it was a complete hiring freeze. And then as we got the discipline we needed and we started to cash flow, We decided that it was necessary to replace positions where people have left or have been terminated. So it's not a complete hiring freeze anymore, but it is a We are only replacing people who have left. Next year, we will probably add, but we'll have to see where we are at that point.

Speaker 4

Okay. Sounds good. And lastly, can you talk about the Agile Forum and UC Express in Australia? Can you provide any what should we expect as far as revenue there?

Speaker 1

I'll let Anand answer that. Yes.

Speaker 6

I mean, I think from a revenue perspective, So a couple of different things. Obviously, I don't think we provide guidance on where we're going to go. But just to give you a little bit of context, AccessCore in general Is one of the largest white label providers that has a pretty large A channel following probably with respect to probably in the 600 to 800 range of resellers that turn around and resell off of the platform. So this is a white label offering that they're taking to market, which before and again, before they were actually Providing those services using a BroadSoft platform. So they've made a pretty significant commitment.

Speaker 6

However, The growth prospects are we will see kind of over time as we go. And then I think the other thing to keep in mind here is it's an alternative offering in the marketplace and we've seen a general uptick from a lot of need in Australia in general, but it is Basically a channel strategy that they're putting in place that will obviously turn around and benefit us in a great way.

Operator

Your next question for today is coming from Vivek Kalani at Northland Capital.

Speaker 1

Hi, Robert. How are you, sir?

Speaker 4

Hi. Hi there. I'm good. I hope you guys are doing good as well. And I'm Vivek on from Mike Latimore.

Speaker 4

I have a couple of questions with me. And the first one is what is the latest subscriber count?

Speaker 1

I'm sorry, the latest what? Subscriber

Speaker 4

count. Yes.

Speaker 1

Got it. Do you know that, Ronald?

Speaker 3

So on the software solutions, it's

Speaker 5

2018? On the software solutions side, we have 233 license providers on the software solutions side of the house. And then on the direct side of the house, I don't have an exact number, but north of 90,000 direct end users on the platform.

Speaker 4

Okay. And my second question is, have

Operator

you seen any change in

Speaker 4

the same cycle or being priced?

Speaker 1

Well, as we talked about during the call, we have found that the sales cycle for enterprise customers tends to take Longer than it does for smaller customers and we are trying to sell to far more enterprise customers. So to that extent, the sales cycle has increased. I'll let Doug give a little more detail on that. Yes.

Speaker 5

I think when we're talking about the small and midsized businesses, I think the sales process hasn't changed dramatically. But As we've highlighted, we have seen an uptick in larger size opportunities. I think we had over a dozen 6 figure total contract sales during the quarter, which was pretty significant. And so when we see these larger size opportunities, they do take a little bit longer to Materialize. And so we're not seeing a lot of headwinds from the economic Challenges out there.

Speaker 5

So we're just plowing ahead and there's a lot of demand for our products. So the sales cycle has not Changed dramatically for us and we're continuing to see good adoption of the product in the small and midsize. And again, the enterprise has always been a longer sales cycle We're going to probably continue to see that.

Speaker 4

Okay. That's it from my side. Thank you.

Operator

Your next question for today is coming from Michael Kaufman at MK Investments.

Speaker 1

Michael, how are you?

Speaker 8

I'm very good. I want to applaud the team's success in keeping up a financially responsible Growth strategy compared to growth at any cost, which we've seen in some of our competitors like 8x8 and RingCentral. I guess to that end, how are we going to convey what we're doing that this is really a diamond in the rough To the investment community, I mean, what kind of program do we have? And at what point do we start Doing some outlooks where we talk about the expense to revenue ratios, the total available market based on what we're doing And so that people get a better appreciation for that this is bigger than a bread box.

Speaker 1

Well, Michael, we are making strides in that. As you're aware, we did hire an IR firm who is going to be getting us out to home offices, which The team aggressively goes out to investment conferences and tells the story. We are doing an excellent job internally Tracking stock owners and potential stock owners, and we're reaching out to them directly. One of the things your son recommended to us, We continue to market both to customers and potential stock owners see it. I mean, we're in a little bit of a pickle here.

Speaker 1

As you well know, the telecom sector has some substantial headwinds for reasons that have nothing to do with us. It was the growth of any strategy And borrowing cheap money, which has now become quite expensive and has hurt them, something we didn't do. And you're right, we need to do a better job of distinguishing that And showing that we've carefully run the business by sound principles, and we are growing from organic growth. The message will start to get out. I hope that the microcap market will start to be getting a closer look Now that we've had the big runs in the larger markets and we just Michael, all we can do every day is put our head down, Work as hard as we can and deliver as hard as we can while reaching out to as many people as we can and continue to get results like this.

Speaker 1

So when we're getting more eyes and when the market has turned both in telecom and from the micro cap that people will see that we are, as you said, a diamond in the rough.

Speaker 5

We do have, Michael, we do have 4 investment conferences coming up in September October that you'll see a press release on here shortly. So We're doing our best to get our message out there to the masses because we know it's a great story.

Speaker 8

No, I think you guys are doing a great job I'm rooting for you and but anything you could do and kind of forecasting Without really forecasting, but look at the type of metrics you're expecting in terms of gross margin and the mix between the Type of companies that you're servicing. So that somebody could see going forward Where this thing is starting to go?

Speaker 1

We understand that. We're looking at it. And as we discussed during the call, One of the difficulties of doing that is the as one of the previous questioners asked, the lumpiness in the software solution side, As we tend to convert more of the customers to a monthly subscription model, it will give us far more quarter to quarter insight,

Operator

Your next question is coming from Ronald Sowell, a Private Investor.

Speaker 9

Yes, thank you. We made a lot of good progress in reducing the GAAP net loss in this quarter from like 1.5 to 500. When do we think we could GAAP neutral.

Speaker 1

Well, part of the problem, and I'll let Ron address this in more detail, is The intangible costs we have from the acquisition, they are huge. They're not real cost to us, but they're GAAP costs. So getting to GAAP profitability this year would be difficult, if not impossible. It's possible next year. But again, if we were to start doing acquisitions, You get back to intangible costs, but I'll let Ron give a little more detail.

Speaker 3

Okay, Jeff. As Jeff mentioned on the Net income, net loss position from a GAAP basis, it's going to be a little challenging for the next year or so to get there. But on a non GAAP basis and on an adjusted EBITDA basis, you're going to continue to see improvements in those numbers. And we

Speaker 1

You still there, sir?

Speaker 9

Yes. Yes. It well, we made so much Farverson, this quarter from $1,500,000 to $500,000 I just thought maybe in the next quarter or 2, we could get it to breakeven.

Speaker 1

Unfortunately, the $500,000 is basically a lot of the intangible costs and there's nothing we can do about that. But we will work as hard as we can. We will grow as fast as we can and we are shooting for GAAP breakeven and or profitability next year. But as Ron said, We will continue to cash flow and that's the most important thing. As long as we're putting cash on the books and we're profitable, we will continue that.

Speaker 9

But yes, it looks like we made a lot of progress on the cash flow.

Speaker 6

Okay. Any follow-up on?

Speaker 4

No. That's

Speaker 5

Greatly appreciate it. Thank you very much, sir.

Operator

Your next question is a follow-up question coming from Josh Nichols. Josh, your line is live.

Speaker 7

Yes, thanks. Just one last question. I think you mentioned the backlog was, I think, $51,000,000 is about $2,000,000 I assume that includes Allegiant, which isn't really apples to apples on a year over year basis, do you know what the sequential growth in the backlog was? What did we end Q1 at?

Speaker 3

So that growth is both excluding Allegiant, that is the software solutions and our Cloud Telecom, excluding the acquisition backlog. So the number you have there is apples to apples on the comparison basis.

Speaker 1

Seeing none, I want to thank everybody for their attention and for joining the call. We look forward to discussing with you our Q3 results. While I can't promise you what the stock market will do, I can promise you that everybody in this room has rolled up their sleeves. Okay, it's 109 here in Phoenix, so nobody had long sleeves. But are rolling up their sleeves and are working incredibly hard every day to keep making this a better company.

Speaker 1

And I am confident that our results will continue to impress And that we'll have more exciting news when we reconvene again at the for the Q3 meeting. So I thank all of you. Good afternoon, and thank you.

Speaker 2

Thanks, everybody.

Operator

Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your

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Earnings Conference Call
Crexendo Q2 2023
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