Good afternoon, ladies and gentlemen, and welcome to the Crexendo First Quarter 2022 Earnings Call. It is now my pleasure to turn the floor over to your host, Steve Mihaylo, CEO. Sir, the floor is yours.

Okay. Thank you, John. Good afternoon, everyone. I’m Steve Mihaylo, Chairman and CEO of Crexendo, and I want to welcome all of you to the Crexendo Q1 2022 conference call. On the call with me today are Doug Gaylor, our President and COO; Ron Vincent, our CFO; Anand Buch, our CSO; and Jeff Korn, our General Counsel. I’m going to ask Jeff to read the safe harbor statement. After that, I will give some brief comments. Ron will provide more detail on the numbers. Doug will provide a business and sales update, and then we will open the call up for questions. Jeff, would you please read the safe harbor statement?

Yes, sir. Thank you, Steve. 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 in fact forward-looking statements. Forward-looking statements may include terms like expect, believe, anticipate, estimate, will and other similar statements of expectation identifying forward-looking statements, and to add those statements, however, it does not prevent them from being forward-looking. Investors should be aware that any forward-looking statements are based on assumptions that are subject to risks and uncertainties that could cause actual and material results to differ from those discussed here today. Risk factors are explained in detail in the company’s filings with the Securities and Exchange Commission, including the Form 10-K for the fiscal year ended December 31, 2021, 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 to Steve. Steve?

Thank you, Jeff. As everyone is aware, these are challenging times for most companies, our country, our competitors and the world. We want to – and we went from dealing with lockdowns, COVID spikes and inflation, interest rate uncertainty, business slowdowns, employment difficulty, stock market corrections and supply chain issues. Considering all of these issues, I am pleased that we were able to manage a non-GAAP net income of $405,000 for the first quarter of 2022 or $0.02 per basic and diluted common share. I am also pleased that we were able to grow the business 81% year-over-year to $8.2 million for the quarter. These are solid numbers considering the issues which we were faced with, which also included customers that contracted or closed their business, customers and potential customers spending less and delaying certain capital expectations due to uncertainty surrounding the economy. The good news is that even with these issues, we managed the non-GAAP profit. And the better news is that we believe that these issues affecting buying decisions appear to be subsiding. We continue to do a good job of integrating the two teams, and both our software solutions team and our telecom team are working together with one common goal of providing the top UCaaS services in the market. We see good trends, and we believe that people who deferred purchase options or purchases are now coming back and making the expenditures necessary. In addition, the companies that have deferred moving to the cloud are now reengaging in that process. I’m confident that everyone will be moving to the cloud due to the substantial efficiencies, the ability to work from anywhere on the planet and cost savings. Our solution – our software solutions and telecom divisions are geared to take advantage of the migration and provide the best features and products that are available anywhere. Speaking of our software solutions division, our growth continues. I expect within the next couple of weeks that we will be announcing that we reached 2.5 million end users. Our award-winning platform and the continued growth of end users is a very dynamic metric. This is a very exciting time for us, and our potential is unlimited. I monitor the company very carefully, and I mean very carefully. And even with the headwinds that I described earlier, I’ve not changed my expectations of growing the business by 40% to 50% annually. I am convinced we will continue to grow organically, and we will look for appropriate accretive acquisitions. I am as optimistic about the future as I’ve ever been. As always, I put my money where my mouth is. And I intend to enter into a new 10b5-1 plan once we are out of the current no trade period. With that, I will turn the call over to Ron. Ron, would you give us a little granularity on the numbers?

Thank you, Steve. Good afternoon, everyone. Total revenue for the quarter increased 81% or $3.7 million to $8.2 million as compared to $4.5 million reported for the first quarter of the prior year. Our service revenue for the quarter increased 6% or $259,000 to $4.4 million compared to $4.1 million. Our software solutions revenue for the quarter was $3.3 million. Our product revenue for the quarter increased 34% or $124,000 to $492,000 compared to $368,000 for the first quarter of the prior year. Consolidated operating expenses for the quarter increased $4.2 million or 79% to $9.6 million compared to $5.3 million for the first quarter of the prior year. The software solutions segment, with no comparable expenses in the prior period contributed $3.6 million of the increase in operating expenses. The remaining increases were directly related to higher cost of sales and increased spend on sales and marketing. Net loss of $1.2 million or $0.05 loss per basic and diluted common share as compared to a net loss of $715,000 or $0.04 per basic and diluted common share for the first quarter of the prior year. On a non-GAAP basis, as Steve mentioned, when we reported net income for the quarter of $405,000 or $0.02 per basic and diluted common share, as compared to non-GAAP net income of $308,000 or $0.02 per basic and diluted common share for the same period of the prior. EBITDA for the quarter was a loss of $774,000 compared to a loss of $721,000 for the same period of the prior year. Our adjusted EBITDA for the quarter was $302,000 as compared to earnings of $245,000 for the same period of the prior year. Our cash, cash equivalents at March 31 was $5.7 million compared to $7.5 million at December 31, 2021. We used $1.7 million for operating activities for the quarter, primarily resulting from increases in our accounts receivable of $525,000, contract cost increases of $243,000 and a $691,000 reduction in our accounts payable and accrued expenses during the period. We used $34,000 for investing activities and financing activities provided $3,000 of cash, cash equivalents. I will now turn it over to Doug Gaylor, our President and COO for additional comments on sales and operations.

Thanks, Ron. Our first quarter results continue the trend of non-GAAP earnings and substantial potential, which shows the benefit of our acquisition of NetSapiens with 81% year-over-year growth and non-GAAP income of $405,000 or $0.02 a share. We are positioned nicely to continue that growth. Our organic growth of nearly 10% combined with our software solutions addition helped us get close to the 2.5 million end user milestone on our award winning platform. Our backlog continues to grow and is now north of $43.7 million at the end of Q1. Our backlog number now includes the software solutions backlog amounts as well as our Crexendo direct customers and represents a 58% increase of our backlog number from Q1 2021. And our backlog increased over $2 million from our backlog number reported at the end of 2021. We continue to add new UCaaS licensees that utilize our platform to run their businesses, and our pipeline for new licensees is very strong. Our Crexendo licensees are growing with the rapid migration to the cloud and we benefit from that with additional session purchases as they grow. We continue to develop new applications and new solutions to further monetize these additional services from Crexendo to help drive even more organic growth in the software solutions segment. One of these exciting new offerings is our new Crexendo contact center as a service, which is also called CCaaS, with omnichannel, customer engagement, chatbots, and automations that are perfectly designed for larger call center applications. We will be releasing this offering shortly in conjunction with our recently announced partnership with Mavenir and are very excited about the increased revenue opportunities that could be recognized. The Mavenir partnership is very exciting and sets us up for further growth. And we also believe we can enter into similar partnerships, which will both increase what we offer to our customers and add additional future revenues. Our Sessions Not Seats pricing model continues to differentiate ourselves from our two largest competitors, Cisco’s BroadSoft and Microsoft Metaswitch platforms offerings which are significantly higher priced based on their cost per seat models. We now have over 210 licensees using our platform and are excited about the prospects we have in front of us with our funnel that continues to add new licensees. We continue to see pipeline and sales growth from our Crexendo agent program that has multiple strong master agent partnerships with groups like Telecom Consulting Group, TCG, as well as other groups like OTG Consulting, and we are very optimistic about the sales growth projections from these partnerships. Our agent programs highlight our Crexendo VIP offering that has a 100% uptime guarantee along with a lifetime warranty on our Crexendo phones. And we continue to add new and larger agent partners to the program and are excited about the opportunities in the funnel that these new agent partners are bringing to the table. I continue to be pleased with the integrations of our two organizations and the operational benefits and synergies we are seeing and we’ll continue to see and they are coming together extremely nicely. Our combined engineering teams are focused on releasing our version 43 software at the end of Q2. Our customer support teams are working in unison. And I’m extremely pleased that Crexendo is ranked number one on the world’s largest and most trusted tech marketplace website, which is G2.com, and overall customer satisfaction for high performer VoIP providers. We have a score of 4.8 out of 5 for high-performer VoIP providers. And this is very important, because this is a ranking that is by end user customers and verified that their end user customers. Our sales teams continue to benefit from the exceptional industry knowledge and experience, and we have great momentum building. We have consolidated all of our accounting personnel and are executing on our plans to maximize efficiencies, productivity, and cost. I’m very pleased with how our two organizations have come together and I’m very excited about our go forward plans to continue to grow the organization. As we have previously mentioned, the acquisition costs associated with the merger and amortization of intangible assets have us managing the business based on our non-GAAP earnings. In addition to the acquisition cost and the amortization, stock comp expense increased during the quarter as we invest in our employee retention programs to help ensure that we can keep what I feel is the most talented team in the sector. I’m very pleased that we are able to generate non-GAAP earnings of $0.02 per basic common share for the quarter and feel this is strong proof that our combined organization has been able to quickly leverage the power and opportunity we have to grow and succeed together. I’m very thankful to our fantastic Crexendo team that have come together with a tremendous amount of hard work and effort to make this a successful combination. We believe we will continue to see more efficiencies and cost synergies as we continue our growth. And finally, as we head into the second half of 2022, I couldn’t be more excited about the future direction and opportunity for Crexendo. We have tremendous demand for our product offerings along with great solutions and a disruptive pricing model combined with an amazing talented workforce that has positioned us perfectly for the future. We will continue delivering the best UCaaS offering in the industry to our customers, to our licensees and to our partners and our committed to delivering the best returns for our shareholders. With that, I’ll turn it back over to Steve for any further comments.

Thank you, Doug. I think the only comment I have is based on non-GAAP earnings. I expect GAAP earnings within the fourth quarter or first quarter of next year. Other than that, I agree with you. At this time, John, we’ll open it up to questions, and I will be the moderator and I’ll have the appropriate person answer the questions.

Thank you. Thank you, ladies and gentlemen, the floor is open for questions. If you have any questions, please signal by pressing star one on your telephone keypad. And the first question is coming from Josh Nichols with B. Riley. Your line is live.

Thanks for taking the questions.

Good afternoon, Josh.

Hey, how’s it going, Steve?

I guess, we’re talking over each other. It’s going very well. Thank you.

Good to see the continued backlog growth. I was wondering if you could kind of help provide a little bit more detail on what’s going on, on the software solutions side of the business. That was down, but when is that going to flip to growth given that the backlog continues to grow.

Well, first of all, I’m going to let our guys handle that, but I would like to make one comment. Our software solutions division is going to see more choppiness in their numbers for the next three or four quarters. But what we’re doing is two things. We’re going to improve margins there and we’re going to improve the subscription. In other words, the continuing revenue there so that we can better forecast where we’re at. As you know, they were a private company and the way they were doing was perfectly acceptable. But now we’re a public company and our public shareholders expect to have a little bit more clarity, if you will, in what they see. I’m going to have all three of our guys talk about that. Doug and Jon Brinton and Anand Buch. Doug, would you like to add some color to that?

Yes. I’ll start with a little bit of the color. So Josh, as we’ve talked about in the past, one of the things that we’re excited with our platform offering through the software solutions division is the fact that we’re offering subscription services. Subscription services means that instead of a lot of upfront costs for somebody to buy into the platform that they have a higher monthly recurring and a very low cost of entry. That obviously gives us a little bit of the choppiness that Steve talked about, because when we look at historical numbers, most folks that have invested in our software solutions platform had to come out of pocket with a fairly large non-recurring one-time upfront costs, and then they’d have a lower monthly. And so to get more people involved in the platform and more people onboarding the platform, the subscription services has had great, great response. And so we’re seeing a lot of new logos coming on board with subscription services. The only challenge with that is that you don’t have the one-time upfront cost. And so you will see a little bit of choppiness as we migrate from all NRC type sales to more of a subscription service type sales to bring new platform logos on board. And I’ll have Jon Brinton give a little bit more color on that.

Yes. So Josh, I just expand on that, that we’re real excited about the progress with the platform and new wins with new logos within our customer base. As Doug said to kind of quantify for bookings in the Q1 period, we saw about a $750,000 increase in subscription revenue. So what you’re going to see with that as opposed to CapEx. So what you’re going to see with that is that continued growth in the backlog. But as Doug said, we won’t be recognizing that one-time CapEx revenue up front. The great thing about that for this business is it takes, and it transitions more of the revenue to a predictable revenue stream over time. And that’s where Steve’s color on a few quarters to get to that run rate is what we’re expecting because there – it will get a longer term higher percentage of revenue on a quarterly basis that’s already on the books and will be amortized in subscription revenue over time.

Yes. And just to reiterate that number again, $43.75 million in backlog, that’s a $2 million increase just from the end of last year. So in three months, we increased backlog by $2 million. And so that’s a really, really encouraging sign as we bring more of these subscription models on board. It’s going to increase that ongoing backlog number. Anand, any further color?

Yes, sure. So, I mean, I think Josh great question. I think just to echo the sentiment for the team and just to give you a little bit of background there as well. This is kind of the third full quarter, if you will, post-transaction from a standpoint of getting the accounting piece in line so we can be more predictable, as Steve pointed out, but just to give you an idea, the first quarter typically sees this kind of lumpiness from a non-recurring standpoint. But again, as we’ve expanded also our SNAPaccel product offering, which is an infrastructure as a service solution, we’re continuing to see more adoption in that area. And again, that’s kind of the challenge between – we’re seeing more and more folks that, in essence, are saying, okay, you know what, you handle the plumbing, you handle the infrastructure. We want you to manage the service for us as we continue to build. So we’ve seen a lot of that kind of migration, which fundamentally is very, very strong, but obviously will impact this kind of transition from more of a choppy NRC model to a recurring revenue model. So but in general, it’s very promising in terms of the types of logos and the types of folks that we see. And then in general, the migration away from what’s going on in the industry with respect to folks like BroadSoft and Microsoft and the wins that we’re seeing in that category.

And then just to clarify for – of the $3.3 million, how much of that was non-recurring versus more traditional subscription revenue in the quarter. And then is this like a fair baseline or maybe it’ll take another quarter or two to really see the pivot in that model before it starts to grow on a sequential basis?

Well, before Doug or one of the other fellows answers that Josh, what we would – first of all, it’s going to take a little bit longer instead of taking two or three quarters, it’s probably going to take four or five to totally turn the ship around. But my expectations are that we’ll be on a mostly recurring revenue model within the next three or four quarters. And did you want to add something there, Doug – Ron?

Hi, Josh. Yes, approximately $843,000 of the $3.3 million was one-time revenue.

Great. And then last question for me is, I think just regarding the gross margins, I think net-net, they came in a little bit under 60%. Is that going to improve throughout the year moving forward as you kind of transition more of these customers? What’s the thought process?

I expect that to improve gradually for a long time. I want to get it up to at least the margins of the telecom division, which were 70%, 71%. And I’d like to see the blended rate go to as high as 75%. That means probably most of it is going to come from the software solutions division. And I see Anand shaking his head. Did you have some comments on it?

I was just going to echo that same thing, I think. And then, Ron can comment on this too. I think part of the exercise, as Steve pointed out earlier, was the notion of making sure that we are putting our systems in place so that we can understand the metrics associated with capitalized costs and things like that. And so I’ll let Ron touch on the specifics there from a financial perspective, but part of the exercise that we’re going through is exactly that. We’re now three quarters into the integration. And so part of the exercise is making sure that we put the systems in place so that we are allocating things in the right place from a financial perspective. So, Ron, I don’t know if you want to touch on that.

Yes, I’ll just add that we’re continuing to work on the process and the rigor of tracking engineering time between maintenance and support type services and the R&D of the platform itself, future functionality and as continue to develop the product. And so as we put the right accounting, tracking, processes in place, we’re going to be able to properly report R&D versus combining it with the rest of the cost of service revenue or cost.

Thanks. Last question for me, and then I’ll let someone else take a turn out. So whenever you move these customers over right to a more traditional subscription business. Are you – is there a significant, I guess, for a lack of a better word, call it like an ARPU lift, even though it’s not, I know priced on a per user basis, like, are you getting more subscription revenue? Or how are the terms different relative to the upfront? I’m just curious if it’ll wind up being a net positive once you’ve gone through this transition over the next several quarters.

We haven’t made that decision completely yet, Josh, but we will make it in the next four or five days. I’m going to let Anand talk about that.

Yes. Josh, fundamentally, as you start looking at, again, as we start developing more and more of the models so that we can report it appropriately out to you guys, what you will notice is that effectively the effective proceed price contribution from an ARPU standpoint effectively is actually increasing given that most of these additional subscription services that are coming on are not just licensed, but they’re managed services with a pretty high margin. So it’s – typically, we’re seeing an effective average selling price going up over time. So does that answer your question?

It does. Thanks. I’ll hop back in the queue.

Okay. John?

Up next, we have Chris Sakai with Singular Research. Chris, your line is live.

Chris, good afternoon.

Hi. Yes, good afternoon. I had a question on the Mavenir partnership. Just want to know, do you guys break that out as far as new business, some of them, how are things going there this quarter?

Well, as Doug said, it’s going very well, but we don’t expect to start selling that until probably the end of this quarter. So currently, the sales are going to be very small, but I’m going to let Doug and Jon Brinton talk about that so you know exactly where we stand.

Yes. There’s two portions of that relationship because it’s a very symbiotic relationship. So Mavenir is going to be selling our UCaaS platform as their own platform to their end users. So they’re deploying that as we speak. So we’ll start seeing revenue streams coming in off of that. But that’s just going to be a licensee relationship. So it won’t be broken out in any way, shape or form. On the CCaaS, it’s exciting because as we roll out the CCaaS offering, as Steve said, at the end of this quarter, beginning of Q3, we’ll see a real nice monetization on that. So I’ll have Jon explain how we’ll start seeing a nice uptick on that because contact center seats really drive a much, much higher price per seat type revenue.

Thanks, Doug. So Chris, as Doug stated, if you – once Mavenir begins to sell and propose our UCaaS that would be reflected in our software solutions revenue along with other clients. For the CCaaS opportunity, the exciting thing about that is that while contact center customer experience workers are a small percentage of the overall workforce, the average revenue per user in our retail offering under the Crexendo VIP brand would be about four times the revenue that we would get from a UCaaS user. So there’s a lot of opportunity for expanded share wallet there. And then our intent with that partnership for CCaaS is also to offer that to our NetSapiens platform licensees so that they can incorporate that into their offers as well. And that would be a substantial increase in the average revenue per user we received there. So it’s a great opportunity to expand share wallet. It’s also a great opportunity to bring capabilities and functionality to our customers that otherwise we wouldn’t be able to deliver.

Great. Okay. Thanks. And then – was there something else there?

Well, no, I was just going to ask if that answered your question, Chris.

Yes, yes. That helps. Also, I just wanted to ask about the backlog. It seems like a good growing number just for how much of that is for 2022 and how much is that for 2023, if you have that number.

Well, if you know the way our backlog works, it’s on a 36 to 60 month contract. So part of it is going to be immediately recognized and the rest of it’ll probably be over a blended rate of 40 to 42 months.

Yes. We do break that down in the 10-Q. And so Ron’s pulling it up right now. So it’ll give you a kind of an idea, but we break that down on an annual basis so that you can see that snapshot. So we’re just pulling it up right now and we’ll have that for you momentarily. But the backlog increase is exciting, because again, as Steve highlighted, that’s a revenue stream that’s locked and loaded. So just to reiterate, that’s contracted revenue that we haven’t recognized yet. And in our Q, we break that out as to how much of that backlog revenue is in this year, next year, the following year and so on. So that $43.75 million breaks down in this format.

Yes. So for 2022 remainder, it’s approximately $16.9 million. 2023 is $13.4 million. There’s a table in our footnote too that breaks it down by a year for a five-year schedule.

In other words, it’s kind of like a diminishing lease as time goes by, it’s front loaded, and as time goes by, a little bit lower on the back end, but as you know, the backlog has been increasing.

Right. Right. Okay, great. Thanks for that. And thanks for the answers.

Thanks, Chris.

Okay. The next question is coming from Ronald Saul, Investor. Ronald, your line is live.

Thank you. I was just wondering if the company is considering giving any guidance on earnings going forward? And then also a little more insight on the net GAAP earnings by the fourth quarter or first quarter of next year.

Well, let me tell you something, it’s a two-edged sword to give out guidance if you will, if you make it or beat it, it’s positive. If you miss it and there are a lot of reasons why you might miss it, it’s negative. The one thing that I have said is we expect or I expect that our sales will increase 40% to 50%. If you just look at that based on where we are, we should hit north of $40 million this year. And I expect I’ll be disappointed if it’s just $40 million, but right now that’s higher than any analyst hasn’t said. I think there might be a couple that are right at $40 million. But think about it. If you take the current quarter and just put normal growth on that, we’re going to have about $34 million or $35 million in revenue. Then you take the fact that we’re going to be charging a little bit more for our products, so we can do more for our customers. And these are mostly our licensees, but that should add $2.5 million to $3 million in revenue. Now you’re up to $34 million, $36 million, $37 million in revenue. And we are continuing to kick the bushes real hard. And one of the reasons why we wanted to bring NetSapiens into the fold is because of all of their licensees, their potential acquisitions. So I’d be surprised if we don’t have an acquisition by the end of this year. Let’s just use $10 million as a number that they’re doing. That’s $5 million for the second half of the year. Now you’re up to about $42 million, $43 million in revenue. And we are continuing to work on expenses, we measure everything around here. We’re continuing to get our revenue a little more streamlined, so it’s more predictable. And all of that is going to get us GAAP earnings. But if people don’t agree with that, they can move their money. If they agree with it, they can buy more. And I’m not soliciting anybody to do anything here. I’m just pointing this out to you, Ronald and I hope you agree with me.

Yes. No, no. I agree with you. But this path to GAAP earnings seems to be stretched out a little longer in respect to NetSapiens merger?

I’ve told you. And I agree and that’s one of the reasons why I’ve been looking at and putting most of my effort on the software division. We and Anand agree with me, we need to get less expenses, more margins and higher predictable revenue stream there.

And I would highlight, Ronald, that if you look at our numbers, I mean, for the quarter, we had over $1 million worth of stock compensation expense and $600,000 of intangible asset amortization. So those are big numbers. And so when you think about the size of our organization, those two numbers are the headwinds to get to GAAP. So that’s why we’ve been highlighting non-GAAP profitability, because when you take those numbers out, we’re in a much stronger position, but that the amortization of intangible assets and that’ll be on the books for some time.

And let me just tell you that the headwinds one more time, we’ve had lockdowns, we’ve had COVID spikes, we’ve had inflation, we’ve had interest rate uncertainty. We’ve had business slowdowns, employment difficulties, and the stock market is in a mess right now. And we’ve had supply chain issues and who knows maybe next quarter will be in a recession, I hope not, but we could be. You take all of that. And I’m very proud of our managers for managing in spite of everything that I’ve said. I’m sorry to get a little excited here, Ronald.

Any follow-up, Ronald?

No, that’s – I think the stock in the market is looking for net GAAP earnings and I think that’s what’s going to really drive the stock.

Yes. Agreed.

Well, in this market, you’re probably right. The days of emotional stock purchases based on top line are probably behind us. The marketplace is, as it becomes more and more rational, right now, you’re seeing irrational further on the downside, but I think in the next quarter or so it’s going to be more rational and people are looking for GAAP earnings. Absolutely.

Okay. Well, that answers my questions.

Thank you. Good questions.

Up next, we have Chris Blum with Alpine Capital. Your line is live.

Good afternoon. How are you doing?

Good, good. Thanks, Steve. Maybe just a follow-up on the acquisition strategy in maybe more detail on the pipeline. And then also, maybe because of the current environment, are you seeing any need to change the strategy on the acquisition front multiples paid things like that based on what’s going on right now?

First of all, we’re going to get revenue at least half of it of the 40% to 50% from acquisitions and half of it approximately from organic growth. But I’m going to let Doug, who’s a little closer to that than I am answer that question.

Yes. Obviously, Chris, there are lots of opportunities out there. We’re very selective in what we’re looking for that is going to be a good fit. Obviously, it’s going to be accretive in anything that we look at doing. And so I think with the current market environment, there are lots of opportunities out there. We have lots of opportunities that we’re considering and as Steve said, I mean, I wouldn’t be surprised if we have an opportunity closed before the end of the year. So when we look at our acquisition strategy, it’s revenue, it’s accretive revenue and synergies. And so we’ve really got a lot of opportunities that I think fit the bill and we’ll be excited to get the next one under our bill.

And by the way, this goes back to Ronald’s question, Chris, they’ve got to be cash flow positive or – with that in mind, they need to have a plan to get the cash flow and preferably GAAP positive.

Got it. Thanks.

Okay. Up next, we have Damon Finaldi with Telecloud.

I’m sorry.

Okay. Damon, how are you?

Hi guys. Nice. Nice to hear from you. My question was on backlog. You already answered it earlier. Thank you.

Okay. Thank you.

Okay. We have Rafe Quinn with BARC Partners. Your line is live.

Hey guys, how are you?

Hey, Rafe. Great. How are you?

We’re doing well. Thank you, Rafe.

Hey I have a few questions, if you don’t mind. So starting with the software solutions segment, NetSapiens. So you just reported $3.3 million in the quarter, and it sounds like some of sort of the shortfall versus where expectations were was because really more of an accounting change, where you guys are pushing more of the SaaS approach versus the traditional perpetual. We saw, if you look back in the business, I don’t know, 10 years ago and beyond when a lot of software companies made that transition. One of the things that they did was provide a bookings metric sort of for the previous period and on the current period. So in this case, it’d be the first quarter of last year versus what you guys just reported. I realized NetSapiens was private back then. You didn’t own them yet. So I’m not sure what the data looks like, but I guess the point being that a lot of the negative response from the market sort of – you can look through that and just focus instead on the underlying economics of what’s happening. So I was wondering if you guys can sort of share any metric around what bookings look like this quarter versus a year ago for that specific division.

Well, let me answer that. And then I’m going to have both Jeff Korn and Anand and Doug Gaylor and all the rest of the guys answer it. But first of all, if we have a metrics, that’s going to be forward-looking. And it’s probably guessing at what we’re doing, and I don’t like to guess at anything. I’d like to have information that we can feel, touch, smell, measure, measure, measure, and measure. And if we get there, Rafe, you’ll be the first one to know.

Yes. I would tell you, Rafe, that if we look at it from the information that we do have, bookings are up. But again, when we look at the bookings, subscription services bookings are probably almost double or 100% of what they were previously because we weren’t doing subscription services in January of last year. So I’ll have Anand give a little bit more color on that. But I think that we’ve traditionally, quarter-over-quarter, have seen increase after increase after increase in the software solutions bookings.

Yes. Rafe, I think that’s a great question. And I think one of the things that we’re doing on the software solutions side is working very closely with Ron and also working very closely here with Jon on the revenue side to actually figure out exactly what metrics we want to provide to you for that reason to make things that much more predictable. We can dig in historically. But Ron made a very good point in terms of how the measurements were being done as a private organization versus a public organization are very different. And so giving you just kind of some ballpark number would probably be inaccurate or not appropriate, but as we develop those, we absolutely want to – because we need those to obviously manage the business as well. And so what we’re seeing is significant increases in kind of total contract value on the subscription side. But as we dig into the models of how to model the business as we go forward, we’ll be happy to share those with you.

Ron, I don’t know if you want to add to that.

Okay. That – I’m sorry. Go ahead, Ron. I didn’t mean to talk over you.

No, you’re fine. He covered it. So I didn’t really need to add anything in addition.

Yes. And I guess the point is just trying to understand the noise from accounting versus the underlying economics. And so to the extent that the market gets that, it can reduce sort of the response here from what happened. And then I guess the second question on the related point is, you had mentioned that about $800,000 of the software solutions business was one time, which would imply about $2.5 million was sort of the recurring. Is that some sort of a decent baseline that we should go off of for sort of a quarterly basis going forward there a bit of a reset to that line item, and then just kind of layer on top of that.

Yes. You’re history as a proxy for the future, yes. I would say that that’s a fair assessment with growth on top of that.

Okay. Excellent. And then just with respect to, I guess, the final point here on the M&A side, which is great, if you guys find opportunities. Looking at cash on a balance sheet, it looked like you guys had about $6 million at the end of the quarter. Would you plan to finance that through sort of stock deals combined with cash? Or how would you think about that in the current environment?

Yes. As I said, Rafe, we’ve got lots of deals in the hopper. And so all of them have different components that make up how we would do those acquisitions. But I would say that probably all considerations are on the table depending on the opportunity, but a combination of cash, stock, and financing are probably all in on the table for any of the deals that we’re looking at the moment.

There’s – basically, there’s no set formula.

Okay, great. Thanks guys. Those are all my questions.

Yes. You’re welcome. Thanks for your time. Okay, John, next question.

All right. Up next, we have Michael Kaufman, Private Investor. Michael, your line is live.

Good afternoon, Michael.

How you doing Steve? I want to congratulate you and Doug and the team for very good progress in spite of the economic headwinds that everybody is facing.

Well, thank you. And it was my management team. I do very little except complain about everything around here.

One of the things that really excites me about the opportunity is you basically have an exciting low-cost pricing strategy where you can go after the larger players, the entrenched players and offer a much better cost, because they have a large installed base. So if they try to equal you in terms of pricing, they have a huge hit. And they have a very large infrastructure with high salaries and big corporate overhead. So there’s a real opportunity to get very big, very fast with competitive pricing.

That’s true. And we’re winning deals against BroadSoft and Metaswitch and others out there. So all of what you’re saying is true. And let’s face it, they have to be competitive in the marketplace. So they’re going to charge so much to the end user, but it’s all about cost in this business. If they can get the cost down, that’s money in their pockets or more money, they can pay their employees with, etc.

And the market is so huge that if you offer a compelling…

We think it’s at least a $500 trillion market worldwide.

So for ergs of activity, if you offer a compelling price point, you can go under their umbrella, which is hard to lower because they have big corporate overheads. And so that’s…

Bingo. You hit the nail on the head.

So that – in addition to great product and everything else you do, there’s a real opportunity that the market may not know about. And I – that it’s no longer a foo-foo game like we had in the past where people like RingCentral was – maybe 30 times revenue of some coocoo number. Those days, maybe behind us for a while, and it’s real blocking and tackling, which you guys are used to. And I think…

Getting back to Ronald’s question or his comments, I think the market is going to be more rational and they’re going to look at metrics versus pie in the sky.

And so one of the things that you had spoken of at the last meeting is that, because it’s going to take longer to do this really strategically and blow this out as a big profitable company that you are thinking of allowing patient investors to have some small reward with a small dividend. Is that still on the table or because of all the other issues you’re moving away from that.

I’m going to let Jeff Korn answer that.

Well, there are a couple of moving parts, Michael. First of all, we have to announce to NASDAQ before we announce a dividend. So I wouldn’t do it on the call anyway. But we have a board meeting to discuss that a little later in the week. We wanted to see some additional numbers. So I expect you’ll hear something from us next week.

Okay. And I guess the other thing is that because the market has, in general, collapsed for smaller technology companies, it’s harder for people to buy the stock that is below $3 a share. So hopefully that’s going to quickly get resolved, because I think you have a really promising long-term business opportunity and I’ve been a continued supporter and I believe the team will do very good.

Thank you very much.

With that I wish you would too.

Thank you.

Thank you. Up next, we have a private investor. Ron, your line is live.

Good, happy to have a nice day. I was just wondering, Doug, how your virtual conference with Oppenheimer went the other day what was the flavor of that in general?

Went extremely well. We had I think six individual one on one meetings and all of them with fairly decent size, institutional or family offices. And so I think we had overall just great comments on our growth and the potential. I think the institutions and the investors that we met with feel as we do that our stock is very undervalued and feel like it’s a tremendous opportunity based on where we have the opportunity to take this. And so when we highlight the opportunities ahead, we highlight where we are from a growth perspective, we highlight the opportunities in the sector. We highlight the opportunities from an acquisition perspective. And we highlight the fact that this isn’t our first rodeo. And the fact that we’ve done this in our previous history and we know what we’re trying to accomplish. And so they like the fact that we are very diligent and that we’ve met all of the commitments that we’ve made in the past. So when we do these investor presentations, we’re highlighting the fact that we have been successful in the fact that we stated we were going to uplist to the NASDAQ, we did that. We stated that we were going to do a successful raise. We did that. We stated we were going to get to GAAP profitability, we did that. We stated we were going to do an acquisition, we did that. We stated we were going to get on one of the major indexes with the Russell Microcap funds, we did that. And so we continue to execute on that. And so we’re going to continue to execute on all the things that we’ve committed to on this call and the bankers and the institutions and the family offices that we’ve talked to. Love that message. What they do with that is yet to be seen, but we feel like there’s tremendous opportunity where we sit today.

Nice. That’s all I had. Thank you.

Okay.

You’re welcome. Thank you, Ron.

Okay. We have no further questions in the queue at this time. I’d like to turn the floor back to Steve Mihaylo for closing remarks.

My closing remarks are everyone is working very, very hard here at Crexendo, and we’ll continue to work hard. This is not like a one-and-done. It’s a process and we’re going to work hard to make sure the process delivers a nice return to our shareholders. Everyone in this room is a shareholder and we’ve all got a lot of skin in the game, either spread equity, actual dollars or just the fact that we hate losing. We want to win and we will win. And with that, I’m going to wish everyone a good summer and we’ll be back after we have Q2 numbers. And you’re going to see a little bit of improvement in the Q2 numbers.

Thanks, everybody.

Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.