Steve Mihaylo - Chairman & CEO Doug Gaylor - President & COO Ron Vincent - CFO Jeff Korn - Chief Legal Officer

Good day and welcome to the Crexendo Third Quarter 2015 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chief Executive Officer, Steve Mihaylo. Please go ahead, sir.

Thank you, Rene [ph] and good afternoon, everyone. I am Steve Mihaylo, CEO and Chairman of Crexendo. I want to welcome all of you to the Crexendo's 2015 third quarter conference call. With me here today are Doug Gaylor, our President and COO; Ron Vincent, our CFO; and Jeff Korn, our Chief Legal Officer. I am going to ask Jeff to read our Safe Harbor statement, after that I will give some brief general overview comments relative to the quarter. Ron will provide some granularity on the numbers. Doug will provide a business and sales update. And then we will open the call for questions. Jeff, would you please provide the Safe Harbor statement?

Yes, 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 forward-looking statements. Forward-looking statements include, but are not limited to words like, belief, expect, anticipate, estimate, will and other similar statements of expectation identify 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. These 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, 2014, and the Form 10-Q for the period ending March 31, 2015 and June 30, 2015 and September 30, 2015. 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. This quarter has been a quarter with some good trends and I think the results show we are on the right track. Let me point out some of the highlights. We have had our best sales quarter in our history. We continue to increase sales this quarter and continue to have success with larger sized customers. I am hopeful that we will continue to increase these sequentially quarter to quarter. Our backlog continues to grow every quarter and I'm convinced that this bodes well for the future growth and revenue from telephony services. We work hard on our cost structure and we continue to do an excellent job of reducing costs. Our $1.2 million decrease in operating expenses for the nine months when compared to the same period a year ago, a testament to that. We will always watch your expenses carefully. As I've discussed before, our ability to work on large enterprise deals sets us apart from most of our competitors. Our business is primarily attend to working with enterprise customers. We have a very integrated sales process for sales and engineering or partnering - are partners in providing specific solutions when needed, this gives us a competitive advantage when customers who need advanced and customized solutions. We can do it better, faster and more cost effectively than our competitors. I mentioned last quarter that we were working on several large deals, and while I'm not going to discuss the specifics due to competitive factors, I'm pleased to be able to confirm that two of the deals I discussed were finalized in the third quarter. In addition, we have just received a contract for another large multi-location business. I expect those revenues to start impacting our on our results starting in Q1 of 2016. Sales from our partner channel continue to have a very positive impact on our business. We are not content with results however, and continue to work on having additional highly qualified partners, and we are working continually on improving our lead generation process. We are always working on our award winning products and our world-class service. Our customers are very pleased with our service and we continue to have an extremely high retention rate. We are always working to grow the business, our cost structure is in line and we need to continue to grow sales. And I believe we are on the right track for that. We will also continue to look for a creative acquisition which will be beneficial to our business. It does appear however, that we need additional funding before we achieve profitability. Our Board will be reviewing all reasonable funding sources. I believe in this business and that is the reason I have made a commitment to a certain levels of funding through December 31, 2016. I'm confident that we will find the right funding mechanism and this will provide the path to get us to profitability. We will explore every option. I believe that we were in the right space, and that we have the right products, servicing people to allow us to continue our goals. With that I'm going to turn this over to Ron to add some granularity to the numbers. Ron?

Thanks, Steve. We're happy to report the consolidated revenue for the first quarter increased 14% quarter-over-quarter compared to $1.7 million for the third quarter of the prior year. I hope it casting [ph]. Services segment contributed $1.5 million for the third quarter, a 49% compared to $1 million contributed in the third quarter for prior year. Our web services segment contributed $430,000 plus their quarter down 38% from $690,000 contributed in the third quarter of the prior year. Our consolidation revenue for the nine month ended September 30 increased 2% to $5.7 million compared to $5.6 million with a nine months in September 30, 2014. The 45% or $1.3 million increased from our fellow communication services segment was offset by 46% or $1.3 million decrease in revenue from our my web services in the same period. Consolidated operating expenses for the third quarter decreased to 8% quarter-over-quarter, $3 million compared to $3.3 million for the quarter of the prior year. Year-to-date, consolidated revenue expense decreased 11% or $9.2 million compared to $10.4 million for the same period of the prior year. On a GAAP basis, the company reported a net loss of $1 million during the third quarter or a loss of $0.08 per diluted common share compared to a net loss of $1.5 million or a loss of $0.13 per diluted common shares for the third quarter of the prior year. We reported that loss of $3.3 million for the nine months ended September 30, 2015 for a loss of $0.25 per diluted common share compared to a net loss of $4.6 million and a $0.42 loss per diluted common share for the same period the prior year. The company reported non-GAAP net loss of $742,000 for the third quarter, or a loss of $0.06 per diluted shares compared to non-GAAP net loss of $1.2 million or a loss of $0.11 per diluted common share for the third quarter of the prior year. Year-to-date the company reported non-GAAP net loss of $2.2 million or a loss of $0.17 per diluted common share compared to a non-GAAP net loss of $3.7 million or a loss of $0.33 per diluted common share for the same period prior year. The third quarter EBITDA of the net loss of $1 million compared to a net loss of $1.4 million for the third quarter of the prior year. Adjusted EBITDA for the third quarter was a net loss of $738,000 compared to a net loss of $1.2 million for the third quarter of the prior year. EBITDA for the nine months ended September 30, 2015 was a net loss of $3.3 million compared to a net loss of $4.2 million for the same period of the prior year. Adjusted EBITDA for the nine months was a net loss of $2.3 million compared to a net loss of $3.5 million for the same period of the prior year. Our cash and cash equivalents included restricted cash at September 30, 2015 was $1.7 million compared to $3 million reported at December 31, 2014. During the - cash for operations during the quarter of $236,000 compared to $894,000 for the same period in the prior year. Year-to-date we have used cash for operations of $2 million compared to $3 million used for the same period the prior year. Non-cash - no cash was used for our investing activities for the quarter compared to cash used for investing activity of $1,000 for the same period the prior year. Year-to-date we have used cash for operations $20,000 compared to $1.8 million provided by investing activities for the same period in the prior year. Financing activities provided $48,000 for the quarter compared to $11,000 used for financing activities for the same period of the prior year. Year-to-date, financing activities have provided $678,000 compared to $6,000 used for the same period in the prior year. With that I'll turn it over to Doug Gaylor, our President and COO for additional comments.

Thanks, Ron. We had a strong third quarter and our numbers continue to head in the right direction. Our telecom revenues and our telecom backlog have quarter-over-quarter increases of 9% and 12% respectively as opposed to record sales bookings for the quarter. Our direct sales team continues to have great success with the larger sized transactions in major accounts while sales from our partner channel continue to post strong numbers. The activity, contributions and excitement from both of our sales channels is becoming more consistent and helping us grow our business. In addition, our continued focus on cost control lessened our cash burn for the quarter as we work towards profitability. On the sales front, we had a very strong bookings quarter from both our direct and partner channels that help contribute to our stronger sales bookings quarter-to-date. We continue to add quality channel partners that want to add strong cloud-based communication solutions to their portfolio. Our partners continue to uncover large opportunities and as a matter of fact, our partner sales thus far in Q4 are extremely strong. Our direct sales team success on larger national and multi-location accounts, along with specific particle market concentrations at a significant impact on our Q3 sales numbers with multiple sales in the 200 plus phone arena. The combined efforts of both channels allowed us to onboard and activate a record number of desktops during the quarter. We expect these trends to continue and are adding additional sales resources in both channels in the months ahead to allow us to continue this momentum. Our new partner portal launched earlier this year has received great feedback from our partners on the wealth of tools and resources provided to them within the portal that helps them position and sell our solutions. Also during the quarter we were honored to be awarded the Internet Telephony Excellence Award for the third consecutive year during Q3. This is significant, this is a very significant achievement and great recognition from the leading resource in the telecommunications industry. This award is also a testament to our entire team here at Crexendo. Everyone here works tirelessly to make sure that we are providing the best cloud-based telephone solutions in the industry. This prestigious award confirms our commitment to excellence and product, service and support for small to enterprise level customers. Our product portfolio of Crexendo branded telephone is meant for benefit from three new models that will be available before year-end. This will double the amount of telephones available for our customers and will allow us to easily meet customers technical, as well as financial requirements. Additionally, we will be rolling out video capabilities to our mobile application in the months ahead, and that will give prospects even more reason to select Crexendo as their vendor of choice. Our constant focus on cost structure and expenses help decrease their operating expense by $1.2 million year-to-date compared to the first nine months of 2014. We continue to review and consolidate expenses where possible and anticipate that we will continue to see additional cost savings throughout the remainder of the year from these efforts. As mentioned earlier, we on boarded and activated a record number of desktops during the quarter and continue to receive very high customer satisfaction scores from our efforts. With larger and more complex implementations we go the extra mile to make sure that we meet and exceed the customer's expectations. In Q3 we had multiple implementations that required custom engineering and programming to meet specific customer requirements, and in many case our operations and engineering teams did a tremendous job. I'm encouraged with the quarter-over-quarter and year-over-year revenue increases and backlog increases we have seen this year, and I am confident that the trend will continue. Crexendo has positioned itself well to take advantage of the rapid migration to businesses to the cloud as evidenced by our growth in both our direct and partner channels. As we continue to increase our revenues and decrease our cost, we are positioned well to execute on our plans for growth and profitability. I'm confident we are on the right track and I'm excited to continue to execute on our growth plans now and in the future. Now I'll turn it back over to Steve for any additional comment.

Now I thank you Ron, Doug. Rene, we're ready for questions from the folks that are on the conference call.

[Operator Instructions]

It sounds like we did too good a job explaining everything for this corner Rene. We'll give them just a couple of more seconds. If not, we'll close the conference.

Okay. [Operator Instructions] And it appears we have no questions in the queue. I would like to turn the conference back to you, sir, for any additional or closing remarks.

All right. I want to thank everyone for being on the called this quarter and your continued support and following of Crexendo. We look forward to talking to you sometime in the New Year when report our year-end numbers. And with that I'd like to wish everyone happy holidays, Thanksgiving, Skimming up, Christmas and Hanukkah [ph] and all the other holidays. So with that, I'm going to say goodbye and we'll talk to you next quarter. Thank you.

This does conclude today's presentation. We thank you for your participation.