Good day, and welcome to the Crexendo Third Quarter 2017 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, Becky. Good afternoon, everyone. I'm Steve Mihaylo, Chairman and CEO of Crexendo. I want to welcome all of you to the Crexendo Third Quarter 2017 Conference Call. With me today are Doug Gaylor, our President and COO; Ron Vincent, our CFO; 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 general comments relative to the quarter. Ron will then provide some granularity to the numbers. Doug will provide a business and sales update, and then we will open the call up to questions. Jeff, would you please read -- please provide the safe harbor statement?

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 forward-looking statements. Forward-looking statements include, but are not limited to, words like, believe, expect, anticipate, estimate, will and other similar statements of expectation identifying forward-looking statements. Investors should be aware that any forward-looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail on the company's filings with the Securities and Exchange Commission, including the Form 10-K for fiscal year ended December 31, 2016, and the Forms 10-Q for 2017 as filed. Crexendo does not undertake any obligation to publicly update or revise any forward-looking statement, 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'm very proud of Doug and our entire team. We set our sights on being cash flow positive for the quarter and that's exactly what we did. It was a very impressive showing. Our sales for the quarter were very encouraging. We achieved 11% increase in total revenue for the first 9 months of 2017 compared to the first 9 months of 2016. Our Cloud Telecommunications UCaaS segment service revenue had a highly impressive 26% increase compared to the first 9 months of 2016. With major increases, we still managed to control costs. We reduced our operating expenses for the first 9 months of 2017 8% compared to the first 9 months of 2016. This is also due to the hard work of the entire team who watches every penny of shareholder money as if it were their own. We run a highly effective and efficient business. These metrics contributed to a substantial improvement in non-GAAP loss, which was $0.02 net loss per diluted common share ended September 30, 2017, compared to the $0.11 net loss per diluted common share ended September 30, 2016. We cut the net of the non-GAAP net loss 80% and reached cash flow breakeven, a very substantial quarter. As many of you know, we took this company and turned it from its prior business model to essentially a start-up. We built from the ground up what I am convinced as the best Cloud Telecommunications UCaaS service business in the industry. We have remarkable service, remarkable products and remarkable people. The fact that we have been able to bring the company and the cash flow breakeven in a relatively short period of time is a remarkable accomplishment. I don't want to spend too much time crowing about our results because it's not mission accomplished. This is step one of a long-term plan of continued improvement and a sustained profitability. As I have discussed before, we have made changes, which I believe are improvements to our sales process and procedures. I also believe we have made a substantial hire in adding Neil Lichtman to the management team. Neil is an experienced industry executive with a proven track record. I'm convinced that he will continue to upgrade our sales processes, and this will result in continued improvement and long-term GAAP profitability. While adding Neil and others to the team is an expense, we see this as a long-term investment in the business, which will continue to provide dividends in the future. While we have reached the point where it is necessary to make additional investments in the business, we will never lose the vigilance that got us there in the first place. We will strategically and carefully make additional investments, and we will watch every penny we spend. However, we will take the actions necessary to sustain this momentum and increase sales to allow us to GAAP profitability. We also are working to continue to upgrade our partner channel. I'm convinced there will be continued growth in both partner sales and direct sales. I'm very proud of the Crexendo team. Every day, everyone works to make sure that our products and services are second to none. We never forget that our growth is dependent on our customer-centric focus in providing the solutions in the business -- the solutions that businesses need. I have said this before: If people give Crexendo's Ride The Cloud UCaaS services and products a try, they will be convinced that there is no better solution on the market. And in most cases, they will see -- they will save a substantial amount of money every month, while increasing their productivity. I continue to believe in the company, and we will continue to grow the business through our direct sales and our partner channel. Also, we are always reviewing appropriate accretive opportunities, and believe if the right opportunities come along, then we will be a -- that they will be a way to further accelerate our growth. I continue to be a strong believer in the future of Crexendo. With that, I will turn the call over to Ron.

Thanks, Steve. We reported consolidated revenue for the third quarter 2017, $2.7 million, that's an increase of 15% compared to $2.3 million reported for the third quarter the prior year. Approximately 90% of the revenue for the quarter was contributed by our Cloud Telecommunications segment, which contributed $2.4 million for the quarter. That's an increase of 21% compared to $2 million contributed for the third quarter the prior year. Our service revenue increased 18% to $2.3 million compared to $1.9 million reported for the third quarter the prior year. And our product revenue for the third quarter decreased 1% to $385,000 compared to $387,000 for the third quarter the prior year. On a year-to-date basis, consolidated revenue increased 11% to $7.5 million, and that's compared to $6.8 million reported for the same period the prior year. The Cloud Telecommunications segment contributed 89% or $6.7 million of that revenue. We continue to watch expenses very closely. Our consolidated operating expenses for the third quarter 2017 decreased 7% to $2.7 million, and that's compared to $2.9 million reported for the third quarter the prior year. Year-to-date, consolidated operating expenses decreased 8% to $8.3 million compared to $9 million reported for the same period the prior year. Our net loss decreased $432,000, or 70%, to $189,000 for the third quarter 2017. That's a $0.01 loss per diluted common share, compared to a net loss of $621,000 or a $0.05 loss per diluted common share for the third quarter the prior year. Year-to-date, we've reduced our net loss to -- by $1.3 million or 55%, down to $1 million loss for the 9 months ended September 30, or $0.07 loss per diluted common share. And that's compared to a loss of $2.3 million or $0.17 loss per diluted common share that we reported for the same period the prior year. On a non-GAAP basis, we reported net income of $56,000 for the first -- for the third quarter, and that's breakeven per diluted common share compared to a non-GAAP net loss of $340,000 or $0.03 loss per diluted common share for the third quarter the prior year. Year-to-date, the company reported non-GAAP net loss of $223,000 or $0.02 loss per diluted common share. That's compared to a non-GAAP net loss of $1.4 million or $0.11 loss per diluted common share that we reported in the prior year. EBITDA for the third quarter was a loss of $28,000 compared to a loss of $573,000 for the third quarter the prior year. Our adjusted EBITDA for the quarter was $61,000 income compared to a loss of $362,000 for the third quarter the prior year. On a year-to-date basis, EBITDA was a loss of $727,000, and that's compared to a loss of $2.1 million reported for the same period the prior year. Adjusted EBITDA for the 9 months 2017 was a loss of $208,000, and that's compared to a loss of $1.5 million that we reported in the prior year. Our growth in revenue, coupled with our ability to control operating costs, has contributed to an increase in cash and cash equivalents during the quarter. At September 30, our cash and cash equivalents increased to $1.2 million, compared to $929,000 reported at June 30, 2017, and $619,000 reported as of December 31, 2016. Cash provided by operating activities for the 9 months ended September 30, 2017, was $177,000. That's compared to $737,000 used for the same period in the prior year. Cash provided by investing activities were $252,000, and that's compared to $11,000 provided in the same period the prior year. During the period, we sold $252,000 certificates of deposits and that long-term asset was moved to our cash and cash equivalents. And our cash provided by financing activities for the 9 months ended September 30, 2017, was $159,000 compared to $83,000 for the same period the prior year. During the period, we received proceeds from stock option exercises totaling 1.1 [indiscernible]. With that, I'll turn it over to Doug Gaylor, our President and COO, to discuss some sales and operation results.

Thanks, Ron. I am pleased to report that we had a very strong Q3 and we're able to achieve some significant accomplishments and successes during the quarter. As previously mentioned, our overall revenue growth of 8% and telecom revenue growth of 10% quarter-over-quarter was a nice increase, and we were pleased that we were able to achieve positive cash flow for the quarter as well as non-GAAP profitability for the quarter. Our team has been diligently focused on increasing sales, managing expenses and improving margins, and this quarter was a true testament to their efforts. We are also very excited about adding industry veteran Neil Lichtman to the team as Executive Vice President of Sales and Marketing to help better develop and grow our 2 sales channels. Neil's expertise and knowledge in the telecom sales arena is a great addition to our team and should have a strong impact on our sales efforts. We are already opening up new opportunities that should lead to positive results in the future. Our cost management measures continue to help us get closer to GAAP profitability. We reduced our operating expenses 8% year-to-date compared to the first 9 months of 2016, while increasing overall revenues 11% during that same period. At the same time, we were are able to increase our gross margin on telecom from 64% to 66% quarter-over-quarter and that's compared to 57% for the same quarter Q3 in 2016. Our Crexendo UCaaS solution continues to improve and impress as an industry-leading solution. Our in-house engineering team has added tremendous new capabilities this year, including web collaboration with videoconferencing; enhanced ACD reports, texting and chat capabilities; speech-to-text and text-to-speech translation, powered by IBM Watson; and enhanced Cisco and Polycom device support to name just a few of the great enhancements that we've added to our platform. The strength and depth of our platform earned us the 2017 INTERNET TELEPHONY Excellence Award in September. This is the fifth consecutive year that we have won this prestigious coveted award, this time honoring us for the overall Crexendo-hosted platform suite of offerings. Our partner channel continues to grow. And during Q3, we added larger partners that have substantial sales teams and customer basis to sell the Crexendo UCaaS solution into. Many of these new partners have already successfully been onboarded and have started adding great sales contributions right out of the gate. Our pipeline of opportunities through the partner channel has never been stronger, and our focus on growing and improving our partner program is constant. Crexendo presented at the Rodman & Renshaw Investment Conference in New York City in September, and we received very high praise for our business model and financial improvement from many of the attendees. We have posted a link to the investor presentation that we did at the conference, and that's on our website. And you can find that presentation at www.crexendo/investor. We're also very excited that we will be presenting at an upcoming conference in Los Angeles, and that conference is the LD Micro investor conference that has highlights many of the most influential companies in the microcap space. That conference will be held in Los Angeles on December 5-7. We're very encouraged by the stronger results that we posted in Q3, and we're very confident that our revenue growth and our overall financial improvements will continue to accelerate. Our continued progress and growth make me more confident than ever the Crexendo is on the right track. I'm extremely excited about the new additions to our management team and the continued momentum we are building and we will continue to execute our business plan for growth and profitability. I'll now turn it back over to Steve for any additional comments.

Thank you, Doug. I have no additional comments, except I'm very proud of our entire team that's led by Doug Gaylor. With that, Becky, I'd like to open it up to questions, if there are any.

[Operator Instructions] And we'll take a question from [ Kevin Walsh ], private investor.

I've got a question, what is -- could you tell me what backlog is right now?

I'm sorry, what is?

The backlog.

Oh, backlog. I'm going to ask Ron to handle that one.

Yes, backlog increased just a little bit to $18.12 million, I believe, is the number. I'm not -- I don't have it in front of me, Ron's is looking it up. But it increased about 1% from previous quarter.

$18,264,000.

Okay.

Did you get that?

I got it. I got it. And can you tell me, do you anticipate any more need for an equity infusion to stop a going concern opinion by year-end?

We can't speak for what our independent auditors are going to do. But we have every expectation that that'll all probably be dropped at the year-end.

Okay. So possibly no additional dilution from the need for more equity until the next quarter maybe?

Yes, I haven't done it by diluting. I've done it by giving a guarantee that if the company needed more money, I'd lend it to them. But that hasn't been necessary.

Terrific. And by the way...

We actually -- if you look at our cash flow, we cash-flowed $276,000 in the quarter. Obviously, some of that was balance sheet management, and roughly $60,000 of it was from operations.

Okay. I've got another question, and believe me, I'm very, very long-term investor and very supportive of what you've personally done to keep this company afloat and keep us going. But I'm curious, what is it going to take to get significant sales growth? I kind of thought the market was so big that maybe we would be growing faster.

Well, we had a lot of cleanup to do, [ Kevin ], in the previous business. That's behind us now. We still get a little drag from attrition from our previous business, but it slowed down significantly. As Doug pointed out, we're putting on bigger and bigger partners, but we're just in the process of getting them trained. We expect to see acceleration in growth next year. But we could see an acceleration the quarter we're in, the fourth quarter. Doug, do you want to comment on that?

Yes. If you look at the 26% year-to-date increase on telecom sales, year-over-year, I mean, that's a testament that we are growing that channel, but we realize that there's a tremendous more amount of opportunity out there. We estimate that there's still 75% to 80% of the businesses out there that are still not on the cloud. So that is ripe for picking for us. The addition of Neil Lichtman to our team is going to really help enhance our sales focus. He comes to us with a tremendous amount of wealth of experience in the industry. And his focus on growing the channel will be considerable moving forward. So I'm extremely excited about us being able to ramp up ourselves even more so than what we've been doing up to this point.

And [ Kevin ], just remember, nobody's more interested in seeing our growth accelerate than I am.

Amen. I fully understand it and appreciate it.

[Operator Instructions] We'll go next to Kevin Dede with H.C. Wainwright.

Congrats on the cash flow. Great to see that. Congrats to you, too, Doug.

We predicted that about 2 quarters ago, so we're right on track.

Yes, good to see. Good to see. I was just hoping that Doug could elaborate a little bit on how his responsibility and Neil's will be a little bit different, where the focus will be on the partner channel and whether or not there's that channel change in strategy and tactics in the sales and marketing function. I guess I just -- put a little -- yes, just a little more color on how you see your efforts changing?

Yes, I'm going to let Doug answer that one, Kevin.

Great question. And as you look at managing the business and running the day-to-day responsibilities, as well as the operations and the sales efforts, only so many hours in the day. And so one of the things I've found myself most challenged with is trying to grow the business at the same time of managing every aspect of the business. As we look at some of the changes that we've made and some of the focus that we wanted to have with our partner channel, with our direct channel, I didn't have as much time to spend on the day-to-day management of everything that was going on in the sales channel. And that means when we bring on a partner, you've got to be in that partner's face, you got to be the squeaky wheel of that partner to make sure that the launch and the training on them is successful and that we can grow that partner channel. Once we bring a partner on, that they're accretive to our efforts and not just another partner that we can claim. A partner's not a partner from my perspective unless they're putting up good sales numbers. And so as we look at bringing on Neil, it's really evident as we continue to look at our need to have rapid growth that we really needed to have an extra level of sales, training and management in there to really manage the day-to-day. It's amazing when we think about how many partners we've got out there, and the percentage of them that have an opportunity to grow with us, we really got to drill down on that. So Neil is going to bring that extra level of value to our team because he'll help mentor the sales team that we've got today and help focus on growing the partner channels, but also direct channel. So I'm extremely excited about the growth that he's had in his previous organization, and he'll bring that same focus and attention to the sales management process here at Crexendo to help us grow to phenomenal numbers in 2018.

Okay, Doug. So I guess, just synopsis is that he -- do you expect him to introduce a little more discipline in, I guess, within the partner channel to raise their level of awareness and, I guess, tactical knowledge? Is that sort of a good takeaway?

Yes, that's a great analogy. Also, he brings a lot of relationships to the table that we will hope -- hopefully be able to take advantage of some of the prior relationships he had with the bigger associations and organizations. His focus on training will allow us to bring his wealth of knowledge to the team from an additional training and support perspective. So yes, obviously, all of those will help contribute to our sales efforts. And again, that -- if we look at -- Steve commented earlier about making potential accretive acquisitions, that'll give me more time to focus on some bigger opportunities from an acquisition perspective, focus more on some key and really important and instrumental relationships that we can -- focus in on, on the national account and on a reseller type basis, which we've got discussions going on in those areas. But it will help me concentrate more on some of the big picture items.

Okay. I'm glad you brought up the M&A opportunity. I'm hoping to ask question about that in a sec. But before we get to -- can you peel the onion back a little on the service revenue growth drivers? Is it -- I mean, if you look at it, is it -- do you think just more subscriber growth? Or is it a combination of subscriber growth and applications? I mean, how would you look at sort of the -- how would you look at it from sort of an ARPU perspective?

Well, again, I'm going to let Doug answer that question since he is the person driving the company here.

Yes, more subscriber growth, definitely, Kevin. So if you look at our continued revenue growth, a majority of that is coming out of additional subscriptions. We've got extremely, extremely low churn. So when we look at what we're bringing on, all of that is accretive for us. So when we look at bringing on -- the amount of customers that we're bringing on quarter-over-quarter, all of that goes to our revenue growth. When we look at adding applications and capabilities on our system, that obviously increases our average revenue per user out there. So as we bring on things like collaboration and web conferencing, that's a critical component. And that's going to obviously help us expand that average revenue per user out there.

Okay. Do you see, I guess, maybe more growth from the application side as your -- I guess, as the length of time that your customer is with you increases?

Yes, so applications are obviously bigger part of the equation today than they ever have been. So when we're out there on a competitive environment, we've got to have the applications to be able to convince the customer that it's the right investment for them to make to grow their business. So we've got to have the applications that are to help make their business more productive and more efficient. So applications are a bigger, bigger part of our solution. If you look at the nice part of that, our platform today, is that a lot of the applications that we continue to enhance and build into our platform are very affordable from an end-user perspective. So when we look at where those applications are as far as our revenue growth. Those applications will obviously help us sell more of the opportunities upfront, therefore helping increase our revenues. But I don't look at our applications as a driver towards revenue growth. We're selling a lot of add-ons to our existing customers, for example, the web collaboration. We've got thousands of customers out there that don't have our web collaboration tools. So obviously, making a proactive focus on our existing customers. They may not be aware that we've added some of these new capabilities allows us to increase our revenue and our application sales to them by going out and saying, "Hey, by the way, we've got this great new applications. They would help your business, consider them." So when you look at our web collaboration as an example, we can easily go out and replace a customer who's using WebEx or GoToMeeting, save them a considerable amount by moving to our WebEx platform -- I mean, to our collaboration platform.

Another thing that should be considered is as we add applications, we get to a point where, I would say, we compare quite favorably with most of our competitors being BroadSoft and MetaSwitch or whoever else might be out there. That's going to free up some time, people-wise, to start developing the changes we need to do in order to license our technology and sell it that way. I can't predict when that's going to happen, but it will happen sometime next year. And that will also expand sales.

Okay. Yes -- no, thanks for the extra color on that. Really, really appreciate it. All right, just back to -- if I may, just back to the M&A environment that you touched on, Doug. What are you seeing out there? I mean, obviously, the big news with BroadSoft. Just, I guess, sort of on the -- maybe the smaller second and third tier service providers. What do you see -- do you still see some rampant consolidation? Do think things are stagnant? And do you think there's sort of a window that you have to pounce on to take advantage of timing?

Yes, there's definitely some excitement out there in the industry. The industry has got a lot of opportunities. To use [indiscernible] analogy, we're kissing a lot of frogs out there trying to find our prince or princess. So when we look at the opportunities out there, there's definitely a lot of them, but we have to do a lot of diligence to find out the right fit. [indiscernible] we want to add an accretive acquisition to the organization as quickly as we can, but we also want to find the right acquisition to really have the right synergies to help grow our business. And so there's a lot of opportunities out there. The -- when you look at the valuations, the Cisco valuation on BroadSoft as an example, a lot of the smaller type organizations see some of the valuations that Cisco or Vonage pay for some of the most recent acquisitions. And they get little bit delusions of grandeur on what they think their organization is worth. So we're very, very diligent on what -- how we do our valuations on these organizations. And if we look at an organization and our valuation is drastically off from their valuation expectation, we'll walk away from that deal. So -- and as Steve said, we're constantly looking at opportunities, but we're looking for the right opportunities. And our valuation model, as Ron and Jeff have put together, are great models. And we're going to follow that, we're going to find the right opportunity that fits with our organization.

And one other thing you have to keep in mind, Kevin, right now, the valuations are a little crazy. And these organizations, I'd say, instead of second and third tier, they're more like fourth and fifth and sixth tier. They don't have the discipline necessary to build their businesses with high profitability. And once that changes -- and it will change, whether it happens in the next 12 months or 24 months, the valuations are going to come into line and the discipline in the companies that are available will come into line, and that will mean more opportunity for us. So whether we do an acquisition, say, in the next 6 months or 12 months or 18 months, it will be the right acquisition and it will be one that we can digest quite easily, instead of one that's a challenge and very risky to us. And we don't want that.

Okay, yes. Fair enough, Steve. Could you kind of characterize the channel? I mean, do you think you have something done may be in the next 6 to 12 months?

In what...

Or the pipeline, I guess, is -- sorry.

Well, the pipeline, as the Doug pointed out, is growing as we speak. We're in the process of training a lot of our bigger partners, and they haven't kicked in very much yet. But we know how this works. It takes 3 to 6 months to really see it kick in. And instead of partners that have 1 or 2 salespeople, we're talking to partners now that have 50, 60, 80 salespeople and it takes a while to get them trained. Once they do, we're going to start seeing a lot more business. Do you want to add something to that, Doug?

Yes, Steve's correct. Kevin, I hope that was answering your question. I wasn't sure if your question was more related to the partner channel or to acquisitions. So...

Yes -- no. Yes, I appreciated hearing color on the partnership side, so thanks for that, Steve. But I was kind of wondering, yes, how you were looking at your pipeline of M&A deals and what you think investors should expect.

Well, I personally -- and I've been accused of being too optimistic, but I personally think we'll find our princess here in the next 12 months. And it'll probably take 3 or 4 months to integrate it once we find them. But it has to be something that's accretive from day 1. It has to be priced right. And it has to be a business that has some degree of predictability. And I firmly believe we're going to find something like that in the next 12 months.

[Operator Instructions] And we have no more questions at this time. So I turn the call back over to Steve Mihaylo for any additional or closing remarks.

Okay. Well, thank you, Becky. I just want to reiterate what we've been saying at these financial conferences and what we'll be saying at the LD Micro conference over in California in the beginning of December. We expected to be cash flow positive in the third quarter. We expect to be either -- well, we were actually non-GAAP, earnings-wise, positive this quarter. We can't predict with total certainty whether we're going to be GAAP positive next quarter or -- well, when I say next quarter, in the fourth quarter or the first quarter of next year. But it'll happen in one of those 2 quarters. I think we're building great momentum. Everyone is certainly focused here. We're working to get our own productivity up, which we've been doing. We've increased our gross margins. We increased our gross margins about 2 percentage points quarter-over-quarter this past quarter. And it looks like we should be able to do the same thing in the fourth quarter. So our margins are going to be very close to 68%, 69% in the fourth quarter. We're just working our plan. And I've said it all along, we're going to work it and we're going be one of the most profitable companies in our industry, and we're going to see our growth accelerate probably towards the second half or the second quarter of next year. With that, I'm going to say, everyone, have a nice evening. And of course, we're praying for all of our friends in New York that had the terrorist attack here yesterday. And we'll talk to you next quarter. Thank you and good evening.

Thanks, everybody.

That does conclude today's conference. We thank you for your participation.