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

Good day and welcome to the Crexendo First Quarter 2016 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.

Thank you, Shannon. Good afternoon everyone. I'm Steve Mihaylo, CEO and Chairman of Crexendo. I want to welcome all of you to the Crexendo 2016 conference call. With me here today are Doug Gaylor, our President and COO; Ron Vincent, our CFO; and Jeff Korn, our Chief Legal Officer and Joe Sealer, our Controller. I'm 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 up to 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 press conference call other than statements of historical fact are forward-looking statements. Forward-looking statements include but are not limited to words as like, believe, expect, anticipate, estimate, will, and other similar statements of expectation identifying forward-looking statements. Investors should be aware that any forward-looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today. 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, 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. I am pleased with the steady progress that we made during the quarter. Our telecom business has starting to materialize; our hosted telecom segment revenue for the first quarter or 2016 increased by 34% to $1.8 million compared to $1.2 million for the first quarter of 2015. This is a solid increase and a testament to our progress. Also important is that we continue to increase our backlog. We are also doing a good job of keeping the expenses down and within our projections. I think it is particularly telling that we have lower expenses in Q1 2016 as compared to Q1 2015. These results confirm to me that we are staying on plan and we are well positioned to reach cash flow breakeven late this year and GAAP profitability in the first half of next year and I might point out this is the first time I put this in our press release. While we are watching expenses we continue to strategically invest in the business in our future success. The first thing we have done is to open up our platform to allow customers to migrate their Polycom phone star system. We initially limited our services to Crexendo branded phones while honing our award winning service. We are now at the right stage of our growth phase to expand those services by opening up our system to the he largest provider of phones which allows us to expand our sales reach to businesses which currently have investment in Polycom phones. However, we are not reducing our commitment to provide top of the line cost effective Crexendo branded phones. We have added two new Crexendo branded phones which are feature rich and are competitively priced. These phones allow our customers top of the line phones at great prices while still increasing our margins. With now supporting Polycom, Yealink and Crexendo telephones we have the ability to reach more customers which should result in additional backlog and revenue. We are also investing in our expected growth by planning to automate more processes. I believe we have a very strong future and it is important to make sure that our processes are able to keep up with the pace of our expected growth. This investment should further reduce expenses going forward. We will also continue to invest in sales both internal and our dealer partner channel. We continually invest in engineering and technology. Our goal is to remain on the leading edge of our industry. Our results continue to be positively impacted by our process. We have a small integrated sales process with sales engineering with our partners providing specific solutions when needed. We have had great success with enterprise customers due to our ability to respond to their needs. This gives us a competitive advantage and I expect for that to continue. We are committed to service excellence. Our solutions are amongst the best in the industry. They are affected for customers that need one phone or thousands of phones. We continue to invest in our sales and marketing so that we continue to grow in the mid markets. With the opening of our platform and additional marketing outreach I believe we have a substantial opportunity to grow our business. I am pleased with our progress. We worked to grow the business while keeping our costs in line. That is why I believe we will reach GAAP profitability in the first half of next year. As I remind you regularly we are essentially a startup company and when viewed in that regard the ability to reach GAAP profitability next year is a great accomplishment. I intend to keep us on track with increasing sales and continued reduction in cost. I am convinced we are in the right space; Cloud Telecommunication is gaining more and more acceptance daily. Market research indicates that cloud communication service is expected to grow by roughly 9.7% between 2014 and 2020 is supposed to reach a value of $136.76 billion by 2020. We are doing an excellent job of positioning ourselves a part of that growth. We will work to grow and grow profitably. We will always working on our award winning products and our world class service. Our customers are very pleased with our services and we continue to have extremely high retention rate. I am very confident with our future. With that I will turn the call over to Ron. Ron?

Thanks, Steve. We reported consolidated revenue for the first quarter of $2.2 million compared to $1.9 million in the first quarter of the prior year. Approximately 82% of the revenue for the quarter was generated from our hosted telecommunications segment which contributed $1.8 million. Our Web services contributed $396,000 for the first quarter down 25% from $528,000 contributed in the first quarter of the prior year. Consolidated first quarter operating expenses decreased 6% to $3 million compared to $3.2 million for the first quarter the prior year. The decrease in operating expenses can be attributed to a decrease in general and administrative expenses of 17% to $1 million compared $1.3 million for the first quarter of the prior year. Also revenue increased 6% to $913,000 from $861,000 for the first quarter of the prior year. The marketing expenses increased slightly approximately by 1%. Both cost to revenue and sales to marketing increases are directly related to the increase in revenue. Additionally research & development increased 13% to $229,000 compared to $203,000 in the first quarter of the prior year as we further develop our products and services. On a GAAP basis the company reported $868,000, our net loss for the first quarter or a $0.07 loss per diluted common share compared to a net loss of $1.2 million or a $0.09 loss per diluted common share for the first quarter of the prior year. Non-GAAP net loss for the first quarter or $0.04 loss per diluted common share compared to a non-GAAP net loss of $636,000 or $0.05 per diluted common share for the first quarter of the prior year. EBITDA for the first quarter was $830,000 compared to $1.3 million for the first quarter of the prior year. Adjusted EBITDA for the first quarter was $580,000 loss compared to an $860,000 loss for the first quarter of the prior year. Total cash and cash equivalents including restricted cash as of March 31, 2016 was $1.3 million compared to $2.2 million at March 31, 2015. Cash use for the operations for the period was $261,000 compared to $756,000 used for the same period for the prior year. Cash provided by investment activities for the period was $12,000 compared to cash used for investing activities was $4,000 for the same period of the prior year. Cash use for financing activities for the period was $97,000 compared to cash used for financing activities of $61,000 for the same period of prior year. With that I will turn it over to you Doug Gaylor, our COO.

Thanks, Ron. Q1 delivered increases in telecom revenue, telecom backlog and overall revenue while we continue to decrease expenses and lower our costs. Our sales bookings although lower than Q4 are in line with the budget and projections for Q1. We continue to make progress towards cash flow breakeven and cash profitability. Our telecom sector revenue increase of only 4% were impacted by some delays on a large 1000 ton that was not able to completed in Q1 as recently scheduled. As we continue to sell larger multi-location and more complex opportunities, we could see delays in completing installations in certain quarters which could impact revenue of quarter over quarter. Our partner channel as well as our direct channel had nice success during Q1 selling larger opportunities as we continue our focus on larger, national and multi-location account. These larger opportunities continue to help increase our contracted back log which increased 6% quarter-over-quarter. we continue to be very successful with enterprise sales and we will be preparing some future case study releases during those sales as we hope to replicate the successes. Some of these notable sales in Q1 included large multi-location financial institutions with 200 stations, a multi-location retail healthcare service provider with over 400 stations, a very prominent non-profit organization with over 250 stations, a large multi-location law firm with a 100 stations and a very high profile west coast retail store with 125 stations. We are pleased that we have been able to acquired enterprise sales from both our direct and partner channel and our funnel for similar size opportunities is strong in both channels. We are getting great feedback in our telephone sets that we introduced in Q1 and have begun shipping. These new phones now give our customers five Crexendo design and feature rich affordable options to provide solutions for their business. The fact that we have customer designed our phones allows us to see better margins and will help accelerate our path to profitability. In addition, our inter-operability with Polycom line of phones has started to show immediate benefits as we have sold and implemented numerous accounts that have BYOD but manage to bring your own device. This will have significant benefit going forward as it allows us to migrate customers from our competitors that would not otherwise migrate if they were required to buy new telephones. The Polycom integration will allow us to solicit partners as well who may be selling competitive hosted platforms and will find our platform more stable, our offering more robust and our pay structure more lucrative. The 17% decrease in G&A that Ron highlighted is a testament to our constant focus on cutting cost in the operation, our growth in subscriber usage has allowed us to negotiate a better rate from our service providers and helped us increase our margins quarter-over-quarter. We instituted quality processes and encouraged employees to pro-actively help identify areas of process and cost improvement in the organization. It has helped us increase our productivity and improved our gross margins. In addition to lowering our expenses, we also saw nice improvement in our cash flow as we improve cash flow by 65% from Q1 of last year. I am encouraged with the quarter-over-quarter and year-over-year increases and back log increases that we have seen and I am confident that the trend will continue. Crexendo has designed and delivered a very robust and effective solution that services are small, mid-sized and enterprise customer extremely well and as more businesses migrate to the cloud for their communication need we are positioned very well to capture our share of the market. 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 am confident we are on the right track and I am excited to continue to execute on the growth plans of our future. I will now turn it back over to Steve for any additional comments.

Shannon, I think we are ready for questions if there are any.

Okay. Well, thank you, Shannon and thank you for participating everyone. I want to make one summing remark here and that has to do with Doug Gaylor's presentation. It's important to note that we have quite a few large installations that are in our backlog and will be fulfilled in the second quarter which should allow us to have very robust sales quarter-over-quarter revenue I should say. With the pipeline that has very significant large orders I think we are going to see a good back log increase as well. I want to thank everyone for participating today and we look forward to talking to you next quarter. Thank you Shannon and good evening.

Thank you,sir.That does conclude today's teleconference. Thank you all for your participation.