Crexendo Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 5, 2024

There are 8 speakers on the call.

Operator

Greetings. Welcome to Crexendo's 4th Quarter and Year End 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, CEO at Crexendo. You may begin.

Speaker 1

Thank you, Paul, and good afternoon, everyone. Welcome to Crexendo's 4th quarter year end 2023 conference call. I'm Jeff Korn, Chairman of the Board of Directors and CEO. On the call with me today are Doug Gaylor, our President and COO Ron Vincent, our CFO John Britton, our CRO and Anand Busch, our COO CFO, excuse me. In a moment, John will read our Safe Harbor statement.

Speaker 1

After that, I will give some brief comments on our performance for the year end and Q4. Ron will then provide more detail on the numbers before handing the call over to Doug to provide a business and sales update. After that, we'll open up the call to questions. John, would you please read the Safe Harbor statement?

Speaker 2

Thank you, Jeff. 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.

Speaker 2

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. 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, 2023, and the Forms 10 Q as 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. I'd now like to turn the call back over to Jeff. Jeff?

Speaker 1

Thank you, John. I'm very pleased to report that in the Q4 Crexendo once again achieved GAAP profitability. While my focus has been on cash flow and EBITDA as primary indicators of our operational health, maintaining GAAP profitability represents a significant milestone for us. This achievement is particularly meaningful as it marks roughly 1 year since I stepped into the CEO role, a period during which the management team last year deliberately paused our acquisition strategy to concentrate on maximizing the efficiencies of our existing operations and fully integrating the acquisitions we had already made. Our efforts have been very successful and continue to work well.

Speaker 1

In the Q4, we maintained our commitment to driving robust growth alongside continual operational enhancements and sales improvements. Our efforts brought bore fruit as we entered the 4th quarter with strong momentum, cumulating in a remarkable 24% increase in 4th quarter revenue compared to the same period last year. This achievement is part of a broader success story for the year with our total annual revenues climbing by an impressive 42% year over year to reach $53,200,000 These results are particularly noteworthy given the challenging start we had at the beginning of last year with an initial loss position in the Q1. This turnaround reflects our team's hard work and dedication to not only achieving but exceeding our strategic goals. This hard work and dedication continues every day by everyone with me in this room and everyone working at Crexendo.

Speaker 1

The transition of our customers from our classic Crexendo system to the cutting edge VIP platform is advancing smoothly and effectively. We are very optimistic about completing the migration by year end. Achieving this milestone will allow us significant operational efficiencies including vacating the premises we currently lease and eliminating the expense associated with hosting and an additional system. Furthermore, it will enable us to relocate our workforce more effectively. Employees who had been dedicated to migrating customers and maintaining the old system will transition to new roles.

Speaker 1

This shift not only reduces cost, but also enhances our support capabilities aligning with our commitment to delivering exceptional service and value to our customers. Our journey over the last year has not been about chasing fleeting success rather it's been a dedicated effort toward integrating our acquisitions thoroughly, enhancing operational efficiencies and overall improving our company's standing. The ability to quickly generate additional cash and achieve GAAP profitability is a testament to the strategic timing and value of our past acquisitions, affirming the strength of our business model and the mechanisms under which we review and approve acquisitions. As we move forward, we will again be pursuing accretive acquisitions with confidence in securing at least one meaningful addition to our portfolio this year. Though maintaining GAAP profitability might become more challenging as we embark on new acquisitions due to the associated intangible costs, I am optimistic about our continued profitability, positive EBITDA and our capacity for growth and value creation.

Speaker 1

As part of our ongoing commitment to strengthen and grow crescendo, I'm pleased to announce a series of strategic investments aimed at enhancing our operational capabilities and ensuring our competitive edge in the market. We are doubling down on our hosted platform, a cornerstone of our offering to maintain our position as the 3rd largest and fastest growing platform in the country. The demand for our hosted solution is accelerating with more customers performing our hosted platform over the hassle of managing and hosting themselves. Recognizing this shift, we are proactively investing in what we call Hosted 2.0. This initiative is not merely an upgrade, it's a transformation.

Speaker 1

Hosted 2.0 is designed to facilitate seamless growth, integration and provide the essential tools our licensees need to run their business effectively. Our current solution, while excellent and effective, needs to evolve to accommodate the growth we anticipate. Through that investment, we are not just preparing for the future, we are shaping it. Our aim is to continue offering unparalleled service to our customers, while ensuring our platform remains robust, scalable and capable integrating new technologies and acquisitions effortlessly. We're also upgrading our accounting system.

Speaker 1

This upgrade is not just a step toward modernization, it's a move to seamlessly integrate future acquisitions and manage the growth we are anticipating. The updated system will provide us with the agility to effectively we effectively need to scale our future growth. In conclusion, our 4th quarter and year end results have been highly encouraging, serving as a testament to our strategic and operational strengths. Our technology continues to receive exceptional reviews and awards. Our team is excited about that and we're also looking forward to our communication system being used here in our hometown of Phoenix at the Final Four coming up next month.

Speaker 1

Looking ahead, we anticipate not only sustaining our double digit organic growth, but also amplifying it through strategic acquisitions. The future is very, very bright for us. I along with our dedicated team am excited about the year ahead and our opportunities to continue our tremendous growth and success. We are committed to continual improvement in driving growth for our company, technological advancements for our customers and partners and value for all of our shareholders. With that, I'll turn the call over to Ron for more detail on the numbers.

Speaker 1

Ron?

Speaker 3

Thank you, Jeff. Good afternoon, everyone. I'll start with some financial highlights for the Q4 of 2023. Total revenue for the quarter increased 24 percent to $14,200,000 compared to $11,400,000 for the prior year. Our service revenue for the quarter increased 26 percent to $7,700,000 compared to $6,100,000 for the prior year.

Speaker 3

Our Software Solutions segment revenue for the quarter increased 21 percent to $5,300,000 compared to $4,400,000 for the prior year. And product revenue for the quarter increased 23 percent to $1,200,000 compared to $947,000 for the prior year. Operating expenses for the quarter decreased 69 percent to $14,100,000 compared to $46,000,000 for the prior year. The significant decrease is primarily related to the goodwill and long lived asset impairment of $32,700,000 we reported in the prior year due to a sustained decrease in our stock price. The company reported net income for the quarter of 61,000 dollars which is breakeven on a basic and diluted common share compared to a net loss of $32,600,000 or 1.33 dollars loss per basic and diluted common share for the prior year.

Speaker 3

Non GAAP net income of $1,600,000 for the quarter, $0.16 per basic and diluted common share. That's compared to $2,500,000 or $0.10 per basic and $0.09 per diluted common share in the prior year. EBITDA for the quarter was $918,000 compared to a loss of $1,000,000 for the prior year. Adjusted EBITDA for the quarter was $1,700,000 and that's compared to $596,000 for the prior year. Now I'll give you some highlights for the full year ended December 31, 2023.

Speaker 3

Total revenue for the year increased 42 percent to $53,200,000 compared to $37,600,000 for the prior year. Service revenue increased 52 percent to $29,700,000 Our Software Solutions segment revenue increased 19% to $18,000,000 compared to $15,100,000 in the prior year and product revenue increased 90% to $5,500,000 compared to $2,900,000 for the prior year. Operating expenses for the year decreased 27 percent to $54,900,000 compared to $74,900,000 for the prior year. As discussed earlier, the significant decrease is primarily related to the goodwill and long lived asset impairment that we recorded in the prior year. With 2 consecutive quarters of net income, the company was able to reduce the net loss for the full year to 320 sorry $362,000 or $0.01 loss per basic and diluted common share.

Speaker 3

That's compared to a net loss of $35,400,000 or $1.54 loss per basic and diluted common share in the prior year. Non GAAP net income was $6,700,000 for the year. That's $0.26 per basic common share and $0.24 per diluted common share compared to non GAAP net income of $4,100,000 or $0.18 per basic and $0.16 per common share diluted common share for the prior year. EBITDA for the year was $1,900,000 compared to a loss of $2,000,000 for the prior year. Our adjusted EBITDA was $5,700,000 for the year.

Speaker 3

That's compared to $2,400,000 for the prior year. Our cash balance at December 31 was $10,300,000 as compared to $5,500,000 at the end of the prior year. We had positive cash flows from operating activities of $3,500,000 The 4th quarter had positive operating cash flows of $2,600,000 compared to $887,000 for the 1st 9 months of the year. Our investing activities provided $3,700,000 of cash compared to $1,700,000 used for investing activities in the prior year. During the year, we received $3,800,000 in proceeds from the sale of our corporate office building.

Speaker 3

We utilized $2,300,000 of our cash for financing activities during the year. That's compared to $54,000 used in the prior year. In connection with the sale of our corporate office building, we repaid the note payable on the building of $2,300,000 I will now turn the call over to Doug Gaylord, our President and COO for additional comments on sales and operations.

Speaker 4

Thanks, Ron. I'm extremely pleased with our record Q4 and year end numbers that we reported today and very excited about our strong momentum as we start 2024. Our 24% year over year increase in Q4 revenues along with our 42% year over year increase in annual revenue were the direct result of our focus on growing organically as well as through acquisition. Our growth combined with our dedication to managing costs allowed us to achieve GAAP profitability ahead of schedule and finish both Q3 and Q4 with positive GAAP earnings. We had GAAP net income of $60,000 for the quarter and a small GAAP loss for the year of $362,000 On a non GAAP basis, we had strong non GAAP net income of $1,600,000 for the quarter $6,700,000 or $0.26 per share for the year.

Speaker 4

Our results for the quarter and for the year highlight our success in managing costs and recognizing significant synergies from our acquisitions, allowing us to quickly leverage the opportunity to grow our business. Our entire team worked tirelessly together to improve business processes and make our company more efficient and we believe we will continue to see more efficiencies and cost synergies as we continue our growth. Our acquisition of 1 of our software solution licensees, Allegiant Networks, that we completed at the end of 2022 had a great first year under Crexendo. We saw nearly a 21% organic growth rate on a standalone basis for Allegiant as they benefited from transitioning from a local provider to a division of the fastest growing UCaaS provider in the country. We've also been able to benefit from cross utilization of the talent from our acquisitions to help improve our revenue production per employee on an overall basis.

Speaker 4

As Jeff mentioned, we paused acquisition discussions in 2023 to maximize synergies from our previous acquisitions. And we're excited to be priming the pump for additional accretive acquisitions of 1 or 2 in 2024. We've highlighted in the past that the 220 licensees that we have that are using the Crexendo platform to run their UCaaS business are the ideal stock fishing pond of candidates for us to find our highly accretive acquisition targets and we look forward to landing our next big fish from the pond. We continue to see tremendous demand and growth in the UCaaS industry and are proud of the fact Frost and Sullivan recently awarded us their 2024 North American Strategy Leadership Award and highlighted our outstanding 36% user surge in 2023, which was nearly double the industry average. Our platform now supports over 4,000,000 users across the globe.

Speaker 4

Our Crexendo licensees and our agents continue to benefit from the rapid migration by small and midsized businesses and enterprise level businesses to the cloud. As our licensees grow, they need additional services from Crexendo, which helped drive a 19% organic growth rate on the software solutions side of the business for the year. Our unique pricing and support model for our software solutions platform combined with our robust feature set continues to drive new licensees to our platform and allows us to differentiate ourselves from our 2 largest competitors, Cisco's BroadSoft and Microsoft's Metaswitch platforms. We had great success in adding new licensees in 2023 and have left that have left the likes of Cisco, Microsoft and Avaya for Crexendo and hope to see more of those in the year ahead. We also continue to see strong traction in our international efforts as we saw a large increase in bookings and new logos added in 2023 outside of the U.

Speaker 4

S. Our Telecom Services segment grew at 9% organically excluding our Allegion acquisition and we saw strong demand for our offerings from our channel partners and saw a 4 0 5% growth in sales for the year from our master agent partnerships. Our channel partners sell our services to their prospects and customers on a revenue share basis and we saw a nice growth from our existing channel partners and added 28 new resellers to the program over the course of the year. Our channel partners have great confidence representing the Crexendo VIP offering because of our 100 percent uptime guarantee along with our lifetime warranty on our Crexendo phones and our best in class customer service and customer satisfaction results. We continue to add new and larger agent partners to the program and are excited about

Speaker 5

the

Speaker 4

at the end of the year is now at $63,900,000 an increase of 36% from the end of 2022. Our backlog number is the sum of the remaining contract values for our telecom services and software solutions, customers that will be recognized on a sliding scale over the next 60 months and it's a very strong indicator of our future revenue stream. We continue to focus on improving our gross margins and saw a nice increase from 65% to 69% for the year in our Software Solutions segment. Telecom Service segment gross margins continue

Speaker 6

to be affected by lower margins from some

Speaker 4

of the Allegion acquisitions, but the Telecom Service margins were 58% and Telecom Services product margins were 39%, including Allegiant. Excluding Allegiant, those margins were very consistent with prior year at 68% for Telecom Services and 42% on the product. Our amazing engineering team continues to add to and improve our award winning technology. We were ranked by g2.com, which is the premier business software and services review site as the best usability solution in the hosted telecom sector for the fall of 2023. We were also honored with the Remote Work Pioneer Award as well as the Product of the Year Award from Internet Telephony Magazine.

Speaker 4

In addition, we released our version 44 software in Q4 to great reviews. Version 44 allows for new communication platform as a service or CPaaS capabilities via our open to API 2.0 release. And this offering also allows for new generative artificial intelligence or AI technology features to easily be integrated into the platform. The first AI solution released during Q4 allows for AI powered by ChatGPT and our company's contact center solution that enables the system to interact and answer commonly posed questions using AI without the need for a live body. So as we start 2024, I couldn't be more excited about the future direction and opportunity for Crexendo.

Speaker 4

3 years ago, we had revenues of $16,400,000 and by executing well on our plan for organic and inorganic growth, we have more than tripled our size in 3 short years to over $53,000,000 We are positioned perfectly with the combination of strong demand for our product offerings along with great solutions with a disruptive pricing model and the best and most talented workforce in the industry to continue our strong growth and our success. We're committed to delivering the best UCaaS, CCaaS and CPaaS offerings in the sector to our customers and our partners and the best returns for our shareholders. As the fastest growing platform solution in the country, supporting over 4,000,000 users, we are focused on enhancing our solutions, improving our efficiencies and returning strong results. With that, I'll now turn it back over to Jeff for any further comments.

Speaker 1

Thank you, Doug. Actually, I don't have any further comments. So Paul, why don't we open the call up to questions?

Operator

Certainly. At this time, we'll be conducting a question and answer session. And the first question today is coming from Mike Latimore from Northland Capital Markets. Mike, your line is live.

Speaker 6

All right. Thanks, guys. Congrats on the great year there. Very, very nice.

Speaker 4

Thank you, Mike.

Speaker 6

Yeah. Just on the users, 4,000,000 or so relative to 3,500,000 in the September quarter.

Speaker 4

Can you just give

Speaker 6

a little more detail on what drove that strong growth? I mean 14% sequential growth is pretty impressive. Were there like a couple of big on boarding there? Or was it just kind of broad based demand? Or

Speaker 4

Yeah. Great question, Mike. And it's really a combination of all of the above. So when we think about last year, we added 21 new logos that are new platform providers of our platform. So as those new logos come on board, they tend to ramp up very quickly.

Speaker 4

So if they're putting in a platform, once they go live, they move all of their bump. But our existing licensees 220 plus now in total, they're growing at the industry rate if not higher. And so as they grow, we continue to grow. And so our licensees are doing great out there. There's still a lot of demand in the SMB market for our services and our solutions.

Speaker 4

And so as our licensees continue to grow and add more users, it really allows us to see that trajectory go. So the $3,500,000 to $4,000,000 was a pretty quick gate for us to eclipse. And we anticipate getting to $4,500,000 $5,000,000 dollars here in the course of this year or so.

Speaker 6

Great, great. And then on Allegiant, really strong growth for that entity alone. But how are you thinking about the cross sale opportunity with that group this year?

Speaker 4

Yeah. Great question again. So when we look at the cross sales opportunity, a lot of opportunity for us to sell the MSP services and the Internet services that they're selling. If you look at their average size transaction with their customers, it's much larger than our average size transaction on our direct side of the house. So when we look at selling that bundle of services, we're excited about that prospect.

Speaker 4

John Britton, our Chief Revenue Officer is here. And so I'm going to have him just comment a little bit on some of that cross migration from the Allegiant team over to the Crexendo team.

Speaker 3

Yeah. Hi, Mike. How are you doing today?

Speaker 2

Good. So back up real quick good. I'll back up super quick on the growth. One thing is Doug mentioned the Frost and Sullivan Leadership Award that we got and in that we are benchmarked growing double the rate of the market by them and that's something that we continue to appreciate because of the success of our licensees and continuing to grow there. As it relates to the Allegiant cross sales opportunity, we think that's going to give us a significant operations and support teams, so customers continue to get the great experience like we talked about with our G2 rankings.

Speaker 2

And we're now starting to look at those services that we can bring into the bundle on what we call the VIP side of the house, so that we can add those to our offerings there. So we're excited to do it. We're just doing it in purposeful way, so that we make sure we're still delivering the same customer experience and excellent outcome like we have in the past.

Speaker 6

Excellent. Excellent. One more quick one here. I guess, can you provide any color on just how January February have played out from a bookings perspective? Kind of is it normal seasonality?

Speaker 6

Better or worse? Just how are you how did you see January February relative to kind of those normal months the start of the year?

Speaker 1

Josh, as you know, we don't give guidance, but I'm sorry, Mike we don't give guidance, Mike. But as I said in my comments, I'm very pleased with the results we're seeing for Q1. So I don't want to say much more than that. But I wouldn't have indicated that we expect double digit growth if we didn't see Q1 going well.

Speaker 4

Yes. And I would tell you Mike that sales momentum is very strong right now. We continue to add new reseller partners out there and our funnel for sales opportunities is as strong as it's ever been. So we're not seeing any slowdown in opportunities out there and bookings continue to have great momentum.

Speaker 1

All right. Great. Best of luck this year.

Speaker 3

Thank you. Thanks, Mike.

Operator

Thank The next question is coming from Josh Nichols from B. Riley. Josh, your line is live.

Speaker 6

Yes. Thanks for taking my question.

Speaker 2

Just because you mentioned you've been doing a lot of work to finish the migration to the Crexendo VIP platform and it looks like that's going to be done this year. You said service gross margins excluding the Allegion acquisition were around 68%. Do you expect that you'll get back to that level for the entire company by

Speaker 3

the end of this year

Speaker 2

if you do complete that migration?

Speaker 4

Yes. I'll tell you where the migration is currently and then I'll have Ron add a little bit more color on where we see the pickup from a gross margin perspective once that migration is complete. But we feel like we're about 70% complete with that migration right now. So we're almost 3 quarters of the way there. So just said by the end of the year, I'm a little bit more optimistic that might be towards the end of summer.

Speaker 4

And so we're extremely excited about that migration process. The customers are extremely happy because they're getting more robust feature set for in most cases roughly the same cost investment. But once we get that full migration over, we get a lot of pickup because we'll have a lot of costs that will go away supporting 2 platforms. And Ron will add a little bit more color on that.

Speaker 1

Yes, Josh. So we will have

Speaker 3

a little bit of anticipated pickup in our gross margins as we no longer have to support 2 platforms and an extra data center. But it's hard to pinpoint exactly what that percentage point is going to be to give guidance on that. We're going to continue to have lower margin sales out of the Allegion acquisition just due to the nature of the products and services they sell. And so that's going to have a little weight on there. So we may not get back to the 70% to 72% range that we were trending prior to the acquisition, but we expect some improvement as we go forward.

Speaker 2

Fair enough. Good to hear that there's probably going to be some improvement. And then just curious because you did hit the pause button on acquisitions understandably so right for last year, but it looks like you're back at it. What are kind of like the company's KPIs or criteria in terms like is it size, gross margin, growth, profitability or how you think of?

Speaker 3

All of the above.

Speaker 1

All of the above to be honest. As Doug likes to say, we look at our stocked fishing pond and we have some natural people there. Obviously, our preference would be to pick up one of our licensees because that becomes a very easy acquisition. We essentially just have to change the billing from their name to Crexendo And we've got everything working and we can usually pick up some good engineers and or customer service people. But we're open to an acquisition that incorporates technology or other aspects that can help us grow our business.

Speaker 1

I mean, we're obviously looking at a number of things now and I don't want to tip my hand on the call, but the metrics you mentioned are the things we look at.

Speaker 4

And there's plenty of opportunities out there as we've talked about. And when we look at those size of opportunities, it's not necessarily the size of the opportunity, but how well it's going to integrate into our company and be an accretive acquisition. So plenty of opportunities out there and we're excited about the opportunities that are surfacing.

Speaker 2

Appreciate it. Thanks guys. Thank you.

Operator

Thank you. The next question is coming from Max Michalis from Lake Street. Max, your line is live.

Speaker 6

Hey, guys. A nice quarter. First one out of me is just related to international revenue. Where did that finish out in Q4 as a percentage of revenue? And then maybe looking out into 2024, it sounds like Q4 bookings were strong there.

Speaker 6

And what could we expect maybe as goalposts for percentages of revenue in 20 24 from the international space.

Speaker 2

I'm going

Speaker 1

to let Ron answer the percentage question and then give it to Anand to discuss our international sales a little bit Go

Speaker 2

ahead, Ron.

Speaker 3

So currently, the international revenue is less than 5% of our total revenue, but we're continuing to see traction in that area. And I'll let Anand give you some more details on our sales efforts in international locations.

Speaker 7

Yes. So internationally, even with a pretty small effective team, we've started seeing some growth in the Australian markets. We're seeing obviously, because our team is based out of the U. K, we have a number of big partners now that are continuing to grow. And that's going back to the earlier question about the users, that's where you're seeing obviously an uptick, because we're kind of early in the journey with respect to the international partners that are out there.

Speaker 7

So Europe, we have some opportunities now in APAC as well that we're looking at. So it's a pretty widespread, but we're also being very purposeful if you will given the locations and the relationships that we have with the size of our team. So EMEA is kind of target number 1 Australia and New Zealand partners in that area and then APAC after that.

Speaker 6

All right. Thank you. Next one, just I wonder if you can go into more detail on the hosted 2.0 investment as well as the accounting system, maybe put a size to the investment you expect maybe in 2024?

Speaker 1

Yes, Max, I think we're going to spend well, we put it in our 10 ks. So we've contracted with Oracle who's going to be providing hosting and back end support to us, which opens up a world of opportunities for us. I think we'll probably spend about $300,000 this year, Ron, and probably $1,000,000 next year as we expect the growth to accelerate substantially next year as we have the hosted solution fully up and running.

Speaker 4

All right, guys. That's it for me. Thanks.

Operator

Thank you. Our next question is coming from John Roy from Water Tower Research. John, your line is open.

Speaker 4

Thank you. So if you take

Speaker 6

a step back a little bit maybe, I know

Speaker 4

you mentioned you were getting started on AI. I was curious as to other areas you might be looking to exploit it. Is it more better customer experience, more cost control?

Speaker 6

Are you going to try and look at

Speaker 4

it to help with sales? Just if you could give us any color on projects you've got going on there that would be great. Yes. So AI allows us a lot of different user case scenarios. And so when we talk about AI, it's really a opportunity for applications to integrate with our system.

Speaker 4

And so we've got a lot of 3rd party developers out there that are developing AI applications for different use cases. So currently, as I mentioned on my comments, one of the use cases is having contact center capabilities where a live body gets replaced with an AI interface using chat GPT to be able to pull up questions and answers and be able to eliminate maybe 80%, 90% of commonly asked questions without having a human to interface with that. We've also got a lot of other AI applications sentiment analysis being able to do call recordings and be able to analyze those call recordings and be able to act on those call recordings and have a supervisor join in when something gets said or if there's a sentiment that is highlighted that needs to be elevated or escalated to a superior or manager. So a lot of applications there. But if Hainan, you want to maybe give a little bit more detail on some of our 3rd party application partners out there that are developing AI applications?

Speaker 7

Yeah. Be happy to. So, yeah, just I mean as Doug pointed out, I mean I think AI as a tool opens us up to many, many different use cases. But one some of the examples that we're seeing is, for example, generative voice prompts or music on hold and things of that nature that are customized to a particular SMB or a particular business. So you're seeing anything from actual voice system AI applications that are outward facing.

Speaker 7

But then one other point I'd like to make also is just from a productivity perspective our developers are using it internally to code check to provide an extra pair of eyes that ultimately just makes the tedious work. We're able to actually rapidly accelerate some of that work using internal AI systems to help guide our work as well. But in terms of the 3rd party applications, yes, there's a whole host of folks. If you think about the 4,000,000 users that are out there and growing, there's whether it's CRM integrations, whether it's voice specific integrations, Doug obviously mentioned, voice services, whether it's sentiment analysis, summarization things of that nature, a whole host of application providers that are now part of the ecosystem and growing into the ecosystem as we go forward.

Speaker 4

Great. Hey, a slightly different question. I believe

Speaker 2

you said you're going to

Speaker 4

be moving out of some buildings. Can you give us some color on how much you expect to see there?

Speaker 1

Well, I think Doug explained that Ron explained that before. We will have some substantial cost savings as we won't be maintaining 2 systems, but it's a little hard for us to quantify how much it is. But if we don't take out at least $1,000,000 in costs, I would be very surprised.

Speaker 6

And on

Speaker 4

top of that I'm actually talking about buildings. Yes. And on top of that, yes, we're currently doing a sale leaseback. So after we sold our building, we did a 12 month leaseback with a 6 month extension option. And so when we are looking at new spaces out there in the Phoenix market to relocate our corporate headquarters to we anticipate we'll pick up some significant cost savings on a monthly basis.

Speaker 4

There's a lot of empty space out there and some attractive deals out there. So we feel that once we relocate out of this building, we'll not only have the significant savings on the support of our data center, but we'll also have cost savings on our monthly expense for rent and services. Great. Thanks so much and congratulations on the growth.

Speaker 3

Thank you. Thanks, John.

Operator

Thank you. The next question is coming from Chris Sakai from Singular Research. Chris, your line is live.

Speaker 6

Yes. Hi, good afternoon. I just had a question on Allegiant. And if you could I know last quarter you had a carve out for gross margin. I know it was a little less than the overall segment.

Speaker 6

So wanted to see if you could if there was any improvement there with the Allegiant gross margin?

Speaker 3

Yes. So we do have carve out on that. So our Cucina Business Solutions service revenue came in 4th quarter at 67%. Leisure came in at 37% for service revenue. And our product revenue from Crexinna Business Solutions was 45%, up slightly from 42% in Q3.

Speaker 3

And Allegiant product revenue came in at 35% for the quarter.

Speaker 6

Okay. Sounds good. And just talking about AI, will that be leading to any cost savings as far as taking the place of any jobs?

Speaker 4

When we look at AI, it's really more from a sales perspective and a revenue generator for us, because all of our licensees and all of our end user customers are looking for aspects where AI will help their businesses. We're going to be using some of it internally for customer support, but it won't be replacing positions, but it will just allow us to continue our great customer support. And we're already ranked number 1 in g2.com. So maybe we'll be a 1, A plus with our AI interfaces.

Speaker 1

It will improve our access to information to customer service and should shorten our response time. So to that extent, it may enable us not to use some of the future hires we have in our budget. But we certainly don't anticipate cutting anybody because we're very proud of our customer

Speaker 3

cart.

Speaker 6

Okay. Sounds good. And then can you talk about license growth internationally? How is that going?

Speaker 1

We'll give it back to Anand.

Speaker 7

Sure. Yes. I mean, I think as Ram pointed out earlier, the number of logos that we had coming in from international and continues to grow in that regard across the board. We picked up probably another 3 or 4 logos in the U. K, one out in Australia.

Speaker 7

And so that continues to see a chart. We've also increased our staff and focus in that area with respect to the marketing that we're doing there. So that expansion continues both companies that are headquartered out there. And then in general, we're actually seeing folks now starting to expand, which have operations in the U. K, but they may or in the U.

Speaker 7

S, but they may have remote offices, etcetera. So I think we continue to see that across the board.

Speaker 3

Okay. Thanks.

Speaker 4

Thanks, Chris. Appreciate it.

Operator

Thank you. And the next question is coming from Michael Kaufman from MK Investments. Michael, your line is live.

Speaker 1

Good evening,

Speaker 5

Michael. Hi, Jeff and Doug, I want to congratulate you and the for maintaining balanced growth in both revenue and profits, which is unusual in this segment of the industry. And a specific question I had is the TelklaoCloud Partnership. Is there any way to get a handle on what the potential expansion of the total available market is either for user growth or revenue potential because I don't have any statistics on that?

Speaker 1

Mike, I'm going to let John answer that. John, go ahead.

Speaker 3

Yes. Hi, Michael. Good to hear from

Speaker 2

you again. So we're TeleCloud specifically is what we call a hotline replacement or plain old telephone service replacement. You may have seen recently that AT and T filed with the state to be able to at their will decommission all of their traditional copper line service in the state of California. And also seen recently where in some places because this is a service that's de tariffed by the FCC that companies individuals are being charged over $1,000 a line in some cases with price increases they're seeing. So the industry estimates are in the U.

Speaker 2

S. There's over 5,000,000 lines that are currently traditional be supported in the cloud as that copper infrastructure is retired. So if you think of the service that won't die, fax lines, alarm lines, fire alarm lines and any other type of analog line that hasn't been something that's been easily movable to the cloud in the past, the POS line replacement service gives us and our licensees a great opportunity to be able to participate in the migration of those 5,000,000 plus lines.

Speaker 5

Yeah. It sounds like an interesting entree because of the legal requirements to sustain that stuff to get you into these companies and enhance the growth prospects. So sounds like an interesting opportunity.

Speaker 2

Yes. We're very excited about it.

Speaker 5

But great job overall.

Speaker 1

Thank you, Michael.

Operator

Thank you. And there were no other questions in queue at this time. I would now like to hand the call back to Jeff Korn for closing remarks.

Speaker 1

Thank you, Paul. I want to thank everybody for their time and attention. We will in the not too distant future be having our Q1 results. And I can tell you everybody in this room is excited about the results we've seen to date and exceptionally excited about our future results. So enjoy the ride with us and we'll look forward to speaking with you in May.

Speaker 3

Have a great evening. Thank you. Thanks everyone.

Operator

Thank you. This does conclude today's conference.

Speaker 1

Today you

Operator

may disconnect your lines at this time.

Powered by Quartr
Earnings Conference Call
Crexendo Q4 2023
00:00 / 00:00