Q1 2024 Crexendo Inc Earnings Call

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Operator: Ladies and gentlemen, thank you for your patience; this conference will begin momentarily. Once again, thank you for your patience, and this conference will begin momentarily. At this time, all participants are in a listen-only mode, and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to your host. Mr. Jeff Korn Sir, you may begin.

Ladies and gentlemen, thank you for your patience. This conference will begin momentarily once again. Thank you for your patience on this conference will begin momentarily.

Operator: [music].

Jeff Korn: Greetings and welcome to the Crescendo first quarter 'twenty 'twenty four earnings call.

Operator: At this time all participants are in a listen only mode.

Jeff Korn: A question and answer session will follow the formal presentation.

Operator: If anyone should require operator, operator assistance during the conference. Please press star zero on your telephone keypad.

Operator: Please note this conference is being recorded.

Jeff Korn: I will now turn the conference over to your host Mr. Jeff Corn, Sir you may begin.

Jeff Korn: Thank you, Ollie, and good afternoon, everyone. Welcome to the Crescendo Q1 2024 conference call. I'm Jeff Korn, Chairman of the Board of Directors and CEO. On the call with me today are Doug Gaylor, our President and COO, Ron Vincent, our CFO, John Britton, our CRO, and Anand Bush, our CSO. In a moment, John will read our Safe Harbor Statement, and after that, I will give some brief comments on our performance for the first quarter.

Jeff Korn: Thank you Ali and good afternoon, everyone welcome to the Crescendo Q1, 2024 conference call.

Jeff Korn: Jeff Corn chairman of the board of directors and CEO on.

Jeff Korn: Ron will then provide more detail on the numbers before handing the call over to Doug to provide a business and sales update. After that, we'll open up the call to questions. John, would you please read the Safe Harbor Statement?

Jeff Korn: On the call with me today are Doug Gaylor, our President and C. O L. One Vincent our CFO, John Britain, our CRO and all and Bush our CSO in a moment John will read our safe Harbor statement after that I will give some brief comments on our performance for the first quarter.

Jeff Korn: Ron will then provide more detail on the numbers before handing the call over to Doug to provide a business and sales update after that we'll open up the call to questions. John would you. Please read the safe Harbor statement.

John Britton: Jeff, I want to take this opportunity to remind listeners that this call will contain forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. All statements made in this conference call, other than statements of historical fact, are forward-looking statements. Forward-looking statements include, but are not limited to, words like believe, expect, anticipate, estimate, will, and other similar statements of expectation identifying forward-looking statements.

John: Jeff I wanted to take this opportunity to remind listeners that this call will contain forward looking statements within the meaning of the Securities Act of $19 33, and the Securities Exchange Act of $19 30 for the private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward looking.

John Britton: 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 limited two words like believe expect anticipate estimate will and other similar statements of expectation identifying forward looking statements.

John Britton: 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, 2023, and the Forms 10-Q as filed. Crescendo 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.

John Britton: 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.

John Britton: 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, 2023, and the forms 10-Q as filed crescendo does not undertake any obligation to publicly update or revise any forward looking statements whether as a.

Jeff Korn: I'd now like to turn the call back to Jeff. Jeff. Thank you, John.

Jeff Korn: A lot of new information future events or otherwise.

Jeff Korn: I would now like to turn the call back to Jeff Jeff. Thank you John.

Jeff Korn: I'm very excited to report that in the first quarter, Crescendo maintained its streak of achieving gap profitability for the third consecutive quarter and non-gap net income for the 22nd consecutive quarter. This performance reflects the dedication of our entire team, who work to make certain that we provide the best cloud communication software in the industry. We combine that with superb customer service, where G2 ranked us number one in 19 customer satisfaction categories in its Spring 2024 report, making the fifth consecutive quarter that Crescendo has been rated first in multiple satisfaction categories.

Jeff Korn: I'm very excited to report that in the first quarter crescendo maintained its streak of achieving GAAP profitability for the third consecutive quarter and non-GAAP net income for the 22nd consecutive quarter.

Jeff Korn: This performance reflects on the dedication of our entire team who worked to make certain that we provide the best cloud communication software in the industry.

Jeff Korn: We combine that with superb customer service, where G. Two ranked US number one in 19 customer satisfaction categories and G to spring 2024 report.

Jeff Korn: Making the fifth consecutive quarter that crescendo has been rated first in multiple satisfaction categories.

Jeff Korn: This shows that we strive for operational excellence and delivering value to our shareholders and our customers. With that said, we don't rest on our laurels, and we are always looking for ways to improve our cloud communication software and our customer service. We know there are multiple solutions, and we will continue to work to be the solution of choice, both in the software solution business and in the telecom services business. The strong financial results in Q1 included a 14% year-over-year organic increase in total revenues to $14.3 billion, which was driven by a 25% growth in the software solutions segment as well as a near double-digit increase in telecom services revenue, which equated to very solid performances across all revenue segments

Jeff Korn: This shows that we strive for operational excellence and delivering value to our shareholders and our customers.

Jeff Korn: With that said, we don't rest on our laurels and we are always looking for ways to improve our cloud communications software and our customer service.

Jeff Korn: We know there are multiple solutions and we will continue to work to be the solution of choice. Both on the software solution business and on the Telecom services business.

Jeff Korn: The strong financial results in Q1 included a 14% year over year organic increase in total revenues to $14, three which was driven by a 25% growth in the software solutions segment as well as near double digit increase in telecom services, right and yet revenue, which equated to very solid performances across all <unk>.

Jeff Korn: Revenue segments.

Jeff Korn: Our efforts are certainly bearing fruit, and this is evident by the GAAP earnings of $434,000 and non-GAAP net income of $1.9 million and adjusted EBITDA of $2.1 million. Our goal is to deliver profitable growth and create value for our shareholders. The transition of customers from our Crescendo plastic system to the cutting-edge VIP platform continues to advance effectively. We remain optimistic about completing this migration by year-end. This will allow us to vacate our current premises and move to a new location. The cost savings of not maintaining two platforms, together with the reduction in rent costs and other ancillary expenses, should result in a substantial cost reduction.

Jeff Korn: Our efforts are certainly bearing fruit and as evidenced by the GAAP earnings of $434000 and non-GAAP net income of $1 9 million and adjusted EBITDA of $2 1 million or.

Jeff Korn: Our goal is to deliver profitable growth and create value for our shareholders.

Jeff Korn: The transition of customers from our crescendo clastic system to the cutting edge VIP platform continues to advance effectively we remain optimistic about completing this migration by year end.

Jeff Korn: This will allow us to vacate our current premises and moved to a new location.

Jeff Korn: The cost savings of not maintaining two platforms together with our reduction in rent costs and other ancillary expenses should result in substantial cost reductions.

Jeff Korn: We continue to aggressively manage costs. With that said, however, we will make strategic investments in the business so that we can continue to be the cloud communication leader. Last month was a really big month for us.

Jeff Korn: We continue to aggressively manage cost with that said however, we will make strategic investments in the business. So that we can continue to be the cloud communication leader.

Jeff Korn: Last month was a really big month for US, we announced that we now serve over $4 5 million users on our platform.

Jeff Korn: We are pleased to announce that we now serve over 4.5 million users on our platform. We continue to add users at a steady pace, and I see no end in sight. Frost and Sullivan, who in their recent 2024 report awarded us the competitive strategy leadership award for excellence in cloud communications, confirmed that we are the fastest growing UCAS platform in the industry. Our team and our disruptive business model of sessions, not seats, continue to give us a competitive edge.

Jeff Korn: We continue to add users is at a steady pace and I see no end in sight.

Jeff Korn: Frost and Sullivan, who in their recent 'twenty 'twenty four report awarded US the competitive strategy leadership Award for Excellence in Cloud Communications confirmed that we are the fastest growing ucas platform in the industry.

Jeff Korn: Our team and our disruptive business model obsessions not seats continues to give us a competitive edge.

Jeff Korn: We were also given the honor of ringing the NASDAQ closing bell. Our exceptional team was able to join us either in person or by video, and many of our employees had their images splashed across the Times Square building.

Jeff Korn: We were also given the honor of ringing the NASDAQ closing bell.

Jeff Korn: Our exceptional team was able to join us either in person or by video.

Jeff Korn: And many of our employees had their images flashed on the times squares square Billboard.

Jeff Korn: I must say it was very exciting for us to share that honor with some of our licensees who joined us as we had our partner advisory council meeting at the NASDAQ office. We have partner advisory meetings every quarter to make sure that we constantly stay in touch with our licensees, and we are adapting to their needs. That's one of the ways that Crescendo excels.

Jeff Korn: I must have it was very exciting for us to share that on our with some of our licensees who joined US as we had our partner Advisory Council meeting at the NASDAQ offices.

Jeff Korn: We have a partner advisory meeting every quarter to make sure that we constantly stay in touch with our licensees and we are adapting to their needs. That's one of the ways that crescendo excels.

Jeff Korn: But it was really a thrill for us, and me in particular, to get to close the market that day. Our work with Oracle is also progressing rapidly and smoothly. As you may have seen, we put out a press release today to celebrate what I am sure will be a great winning combination. We are very excited about the growth of our hosted offering and anticipate even more positive developments. We expect substantial growth as more and more customers are looking for a more turnkey solution and seek to have us do the hosting for them.

Jeff Korn: But it was really a thrill for us and me in particular to get to close the market that day.

Jeff Korn: Our work with Oracle is also progressing rapidly and smoothly as you may have seen we put out a press release today to celebrate what I am sure. It will be great winning a great winning combination we are very excited about the growth of our hosted offering and anticipate even more positive developments, we expect substantial growth as.

Jeff Korn: More and more customers are looking for a more turnkey solution and seek to have us do the hosting for them.

Jeff Korn: Our tremendous team, working with the Oracle team, should make us the top hosted solution in the industry. With that said, we will continue to improve our non-hosted solutions and keep them the best in the industry also.

Jeff Korn: Our tremendous team working with the Oracle team should make us the top hosted solution in the industry.

Jeff Korn: With that said, we will continue to improve our non hosted solutions and keep them the best in the industry also.

Jeff Korn: Lastly, I would like to touch on our recent filing today of a shelf registration, which you should be able to find on EDGAR. While this is not for immediate use, it's a testament to our commitment to good corporate governance. This is something I've personally advocated for some time, even before becoming CEO. The shelf life is good for three years and gives us flexibility to determine when and if we use it and under what terms. We anticipate that if we use the shelf, it will be for future strategic investments, most likely in accretive acquisitions. It's just one more tool in our arsenal to effectively close deals that make sense.

Jeff Korn: Lastly, I would like to touch on our recent filing today of a shelf registration, which you should be able to find on Edgar.

Jeff Korn: Well this is not for immediate use it's a testament to our commitment to good corporate governance.

Jeff Korn: This is something I've personally advocated.

Jeff Korn: For some time, even before becoming CEO.

Jeff Korn: The shelf is good for three years and gives us flexibility to determine when and if we use it and under what terms.

Jeff Korn: We anticipate that if we use the shelf it will be for future strategic investments, most likely and accretive acquisitions.

Jeff Korn: It's just one more tool in our Arsenal to effectively closed deals that makes sense.

Jeff Korn: In conclusion, I want to reiterate our expectation for double-digit organic growth. We are poised for continued success, and I'm confident in our ability to deliver outstanding results in the quarters to come. The future looks bright, and we could not be more excited. I'll now turn over the call to Ron to provide some financial highlights.

Jeff Korn: In conclusion, I want to reiterate our expectation for double digit or Glen organic growth. We are poised for continued success and I am confident in our ability to deliver outstanding results in the quarters to come the.

Jeff Korn: The future looks bright and we could not be more excited I'll now turn over the call to Ron to provide some financial highlights Ron.

Ron: Thank you Jeff good afternoon, everyone.

Ron Vincent: Thank you, Jeff. Good afternoon, everyone. Some financial highlights for the first quarter of 2024 are as follows. Total revenue for the quarter increased 14% to $14.3 million compared to $12.5 million for the first quarter of the prior year. Our service revenue for the quarter increased 10% to $7.8 million compared to $7.1 million for the first quarter of the prior year. The software solutions segment contributed 25% growth and revenue to $5.1 million compared to $4.1 million for the first quarter of the prior year.

Ron: Some financial highlights for the first quarter of 2024 are as follows total revenue for the quarter.

Ron Vincent: Kris 14% to $14 3 million compared to $12 5 million for the first quarter of the prior year.

Ron Vincent: Our service revenue for the quarter increased 10% to seven 8 million compared to $7 1 million for the first quarter of the prior year.

Ron Vincent: Software solutions segment contributed.

Ron Vincent: 25% growth in revenue to $5 1 million compared to $4 1 million for the first quarter of the prior year.

Ron Vincent: Our product revenue increased 6% to 1.3 million compared to 1.2 million for the first quarter of the prior year. We continue to see strong gross margins for the quarter; service gross revenue, gross margin came at 60% for the quarter, product revenue, gross margin was 44%, for an overall telecom services segment gross margin of 58 percent.

Ron Vincent: Our product revenue increased 6%.

Ron Vincent: $1 3 million compared to $1 2 million for the first quarter of the prior year.

Ron Vincent: We continue to see strong gross margins for the quarter.

Ron Vincent: Service gross revenue gross margin came at 60% for the quarter product revenue gross margin and 44%.

Ron Vincent: And overall telecom services segment gross margin of 58% as compared to 55% in Q4 of last year.

Ron Vincent: That's compared to 55 percent in Q4 of last year. Software solutions gross margin was 73 percent, that's compared to 66 percent in Q4 and 59 percent or 71 percent in Q1 of the prior year.

Ron Vincent: Software solutions gross margin of 73% as compared to 66% in Q4, and 59% or 71% in Q1 of the prior year.

Ron Vincent: Overall gross margins were 63%. Our operating expenses for the quarter decreased 2% to $13.8 million compared to $14 million for the first quarter of the prior year. We reported net income, as Jeff mentioned, of $434,000 for the quarter. That's $0.02 per basic and $0.01 per diluted common share, compared to a net loss of $1.6 million, or a $0.06 loss per basic and diluted common share for the first quarter of the prior

Ron Vincent: Overall gross margin 63%.

Ron Vincent: Our operating expenses.

Ron Vincent: For the quarter decreased 2% to $13 eight nine compared to $14 million for the first quarter of the prior year, We reported net income as Jeff mentioned at 434000 for the quarter.

Ron Vincent: That's two cents per basic and one cent per diluted common share.

Ron Vincent: Compared to a net loss of $1 6 million or <unk> <unk> loss per basic and diluted common share for the first quarter of the prior year.

Ron Vincent: We also reported non-GAAP net income of $1.9 million for the quarter. That's $0.07 per basic and $0.06 per diluted common share compared to a non-GAAP net income of $625,000 or $0.02 per basic and diluted common share for the first quarter of the prior year. EBITDA for the quarter was $1.3 million, compared to a loss of $666,000 for the first quarter of the prior year. Adjusted EBITDA came in at approximately $2.1 million. That's compared to $749,000 for the first quarter of the prior year. We ended the quarter with a strong cash balance of $11 million. That's compared to $10.3 million at December 31, 2023.

Ron Vincent: We also reported non-GAAP net income of $1 9 million for the quarter.

Ron Vincent: That seven per basic and <unk> <unk> per diluted common share compared to a non-GAAP net income of 625000 or <unk> <unk> per basic and diluted common share for the first quarter of the prior year EBITDA.

Ron Vincent: EBITDA for the quarter was $1 3 million compared to a loss of 666000 for the first quarter of the prior year adjusted EBITDA came in at.

Ron Vincent: Approximately $2 1 million as compared to 749000 for the first quarter of the prior year.

Ron Vincent: We ended the quarter on a with a strong cash balance of $11 million as compared to $10 3 million at December 31, 2023.

Doug Gaylor: We used $166,000 for operating activities during the quarter, mostly to pay down accrued liabilities and accounts payable balances. Cash used for investing activities was nil for the quarter compared to $9,000 in the prior period. And cash provided by financing activities for the quarter was $859,000, compared to cash used for investing activities of $200,000 for the same period of the prior year. I will now turn it over to Doug Gaylord, President and COO, for additional comments on business and sales.

Ron Vincent: We used 166000 for operating activities during the quarter, mostly to pay down our accrued liabilities and accounts payable balances.

Doug Gaylor: Cash.

Doug Gaylord: Cash used for investing activities was nail for the quarter compared to 9000 in the prior period.

Doug Gaylord: And cash provided by financing activities for the quarter was 859000 compared to cash used for investing activities of 200000 for the same period of the prior year.

Doug Gaylor: I will now turn it over to Doug Gaylord, President and COO for additional comments on business itself.

Doug Gaylor: Thanks, Ron. We had another very strong performance in Q1, and I'm very pleased with our momentum to start 2024. Our 14% year-over-year increase in Q1 revenues, along with our third consecutive GAAP Profitable Quoter, is the direct result of our focus on growing organically and managing to the fundamentals. We had gap net income of $434,000 for the quarter, or $0.02 a share, and on a non-gap basis, we had strong non-gap net income of $1.92 million for the quarter, or $0.07 per share.

Doug Gaylord: Thanks, Ron we had another very strong performance in Q1, and I'm very pleased with our momentum to start 2024 are.

Doug Gaylor: Our 14% year over year increase in Q1 revenues, along with our third consecutive GAAP profitable quarter.

Doug Gaylor: Were the direct result of our focus on growing organically and managing to the fundamentals. We had GAAP net income of 434000 for the quarter or two cents a share and on a non-GAAP basis, we had strong non-GAAP net income of $1 $92 million for the quarter or <unk> <unk> per share and this was our 20 <unk> consecutive quarter with non.

Doug Gaylor: And this was our 22nd consecutive quarter with non-gap net income. Our results for the quarter continue to highlight our success in managing costs and recognizing significant synergies from our acquisitions, allowing us to quickly leverage the opportunity to grow our business. Our entire team worked tirelessly together to improve business processes and make our company more efficient, and we believe we will continue to see more efficiencies and cost synergies as we continue our growth.

Doug Gaylor: non-GAAP net income our results for the quarter continue to highlight our success in managing cost and recognizing significant synergies from our acquisitions, allowing us to quickly leverage the opportunity to grow our business.

Doug Gaylor: Our entire team worked tirelessly together to improve business processes and make our company more efficient and we believe we will continue to see more efficiencies and cost synergies as we continue our growth.

Doug Gaylor: We had significant organic growth in both segments of our business for the quarter. Our software solution segment achieved 25% organic growth year-over-year, while our telecom services segment saw a 9% organic growth rate for the quarter. The combined 14% organic growth rate highlights the growing demand for our products and services. The 25% organic growth rate in our software solution segment allowed us to eclipse the 4.5 million users mark on our platform during the quarter.

Doug Gaylor: We had significant organic growth in both segments of our business for the quarter.

Doug Gaylor: Our software solutions segment achieved 25% organic growth year over year, while our while our telecom services segment saw a 9% organic growth rate for the quarter. The combined 14% organic growth rate highlights the growing demand for our products and services.

Doug Gaylor: 25% organic growth rate in our software solutions segment allowed us to eclipse the $4 5 million users Mark on our platform during the quarter.

Doug Gaylor: The rapid growth we are experiencing on our platform was further highlighted by Frost & Sullivan awarding us their 2024 North American Strategy Leadership Award during the quarter and highlighting our outstanding 36% user surge in 2023, which was nearly double the industry average. Our Crescendo licensees and agents continue to benefit from the rapid migration by small and mid-size and enterprise-level businesses to the cloud, and our licensees continue to grow, and as they do, they need additional services and increase their spend with Crescendo.

Doug Gaylor: The rapid growth we are experiencing on our platform was further highlighted by Frost and Sullivan awarding us through 2024, North American strategy leadership award during the quarter and highlighting our outstanding 36% user surge in 2023, which was nearly double the industry average or.

Doug Gaylor: Crescendo licensees and agents continue to benefit from the rapid migration by small and midsize and enterprise level businesses to the cloud and our licensees continue to grow and as they do they need additional services and increase their spend with crescendo.

Doug Gaylor: Our telecom services segment grew at 9% organically, and we continue to see strong demand for our offerings from our channel partners, and we saw an 85% growth rate in our sales from our master-agent partnerships compared to Q1 of 2023. Our channel partners sell our services to their prospects and customers on a revenue-share basis, and we continue to see nice growth from our existing channel partners, who have great confidence in our solutions because of our 100% uptime guarantee and our best-in-class customer service and customer satisfaction results.

Doug Gaylor: Our telephone our telecom services segment grew at 9% organically and we continue to see strong demand for our offerings from our channel partners and so on 85% growth rate in our sales from our master agent partnerships compared to Q1 of 2023, our channel partners sell our services to their prospects and customers on a revenue share.

Doug Gaylor: Basis, and we continue to see nice growth from our existing channel partners, who have great confidence that our solutions because of our 100% uptime guarantee and our best in class customer service and customer satisfaction results and that was further highlighted by our 19 first place awards in Q1 from the leading industry review site.

Doug Gaylor: And that was further highlighted by our 19 first-place awards in Q1 from the leading industry review site, G2.com. Our backlog continues to grow and is now at 67.4 million, an increase of 41% from Q1 of 2023. Our backlog number is the sum of the remaining contract values of our telecom services and our software solutions customers that will be recognized on a sliding scale over the next 60 months, and it's a strong indicator of our future revenue stream.

Doug Gaylor: <unk> Dot com.

Doug Gaylor: Our backlog continues to grow and is now at $67 4 million, an increase of 41% from Q1 of 2023.

Doug Gaylor: Our backlog number is the some of the remaining contract values of our telecom services and our software solutions customers that will be recognized on a sliding scale over the next 60 months and it's a strong indicator of our future revenue streams.

Doug Gaylor: We continue to focus on improving our gross margins and saw a nice increase from 69% at the end of Q4 to 73% in Q1 gross margins in our software solutions segment. And in our telecom service margins, they increased from 60% compared to 58% at the end of 2023. And the telecom services gross margins continue to be affected by the lower margins for our Legion acquisition that really focuses on MSP services.

Doug Gaylor: We continue to focus on improving our gross margins and saw a nice increase from 69% at the end of Q4 to 73% in Q1 gross margins and our software solutions segment.

Doug Gaylor: And in our Telecom service margins, they increased from 60% compared to 58% at the end of 2023 and the Telecom services gross margins continued to be affected by the lower margins for our Allegiant acquisition.

Doug Gaylor: That really focuses on MSP services, but without that.

Doug Gaylor: But without that, we're still seeing nice growth in our gross margins. And our telecom services product margins were also up quarter over quarter from 44% compared to 40% at the end of last year. We recently released version 44.1 of our software on our platform that continues to enhance and expand our product offerings. With our enhanced API integrations, we're seeing more and more artificial intelligence applications being developed and deployed on our platform. With hundreds of third-party developers building solutions to integrate on our platform, we're on the leading edge in regards to delivering AI-type solutions that every end-user and every end-user business can use and afford.

Doug Gaylor: Still seeing nice growth in our gross margins and our telecom services product margins were also up quarter over quarter from 44% compared to 40% at the end of last year.

Doug Gaylor: We recently released our version 44 Dot one software on our platform that continues to enhance and expand our product offerings with our enhanced API integrations, we're seeing more and more artificial intelligence applications being developed and deployed on our platform with hundreds of third party developers building solutions to integrate on our platform.

Doug Gaylor: We're on the leading edge in regards to delivering AI type solutions that every end user and every end user business can use it afford.

Doug Gaylor: As we've mentioned previously, our past acquisitions have been remarkably successful, and we are proactively looking for our next synergistic acquisition to complement our organic growth. We're optimistic that our efforts will result in significant inorganic growth opportunities in the near future. We started 2024 with a strong first quarter and had a lot of momentum, and I couldn't be more excited about the future direction and opportunity for Crescendo. We continue to execute well on our plan for organic and inorganic growth, increasing margins, and managing expenses.

Doug Gaylor: As we've mentioned previously our past acquisitions have been remarkably successful and we are proactively looking for our next synergistic acquisition to complement our organic growth. We are optimistic that our efforts will result in significant inorganic growth opportunities in the near future.

Doug Gaylor: We started 2024 with a strong first quarter and had a lot of momentum and I couldn't be more excited about the future direction and opportunity for crescendo, we continue to execute well on our plan for organic and inorganic growth and increasing margins and managing expenses.

Doug Gaylor: Our rapid end-user growth highlights that there is still great demand for our product offerings and solutions, and the future enhancements and developments around AI will ensure that that demand continues. We're also committed to delivering the best UCAS, CCAS, and CPAS offerings in our sector to our customers and our partners, and the best return to our shareholders. And that's evident from our continued growth and our continued success. I'll now turn it back over to Jeff for any further comments.

Doug Gaylor: Our rapid and user growth highlights that there is still great demand for our product offerings and solutions and the future enhancements and developments around AI will ensure that that demand continues.

Doug Gaylor: We're also committed to delivering the best Ucas Sea gas and C pass offerings in our sector to our customers and our partners and the best return to our shareholders and that's evidenced by our continued growth and our continued success I'll now turn it back over to Jeff for any further comments.

Jeff Korn: At this time, I don't have any further comments. So, Ali, I'd like to open the call to questions, please.

Jeff Korn: At this time I don't have any further comments, so Ali I'd like to turn the open the call up to questions. Please.

Operator: Thank you. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question key, and you may press star two if you would like to remove your question from the list. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the steering wheel. One moment, please, while we pause for questions. Thank you. Our first question is from Mike Latimore with Northland Capital Markets. Your line is live.

Ali: Thanks <unk>.

Speaker Change: At this time, we will be conducting our question and answer session.

Mike Latimore: If you would like to ask a question. Please press star one on your telephone keypad.

Mike Latimore: A confirmation tone will indicate your line is in the question queue.

Mike Latimore: And you May press Star two if you would like to remove your question from the queue.

Mike Latimore: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: One moment, please while we poll for questions.

Mike Latimore: Thank you.

Operator: Our first question is coming from Mike Latimore with Northland capital markets Your.

Mike Latimore: Your line is life.

Operator: Yes.

Mike Latimore: All right, great. Great to see the strong results and also the growth in the backlog at the same time here. Thank you, Mike. The service gross margin moved up nicely here sequentially. I guess, can you talk a little bit about... What happened there, and is that a sustainable level? Well, historically.

Mike Latimore: Alright, great.

Mike Latimore: Great to see the strong results and also the growth in the backlog at the same time here.

Speaker Change: Thank you Mike.

Mike Latimore: Pete.

Mike Latimore: Service gross margin moved up nicely here sequentially I guess can you talk a little bit about.

Mike Latimore: What happened there and is that a sustainable level.

Doug Gaylor: Well, historically, we've seen our gross margins in that segment anywhere from 66, which was the low in Q4, but typically, it bounces around 71, 72. So at 73, we had a strong quarter with the 25% growth, and it's very strong, but we think it is very maintainable in that 72, 73% range.

Mike Latimore: Well historically, we've seen our gross margins in that segment.

Doug Gaylor: From 66 was the low end.

Doug Gaylor: Q4, but typically it bounces around $71 72. So it's 73, we had a strong quarter with the 25% growth and it's very strong, but we think it is a very maintainable and that 72% to 73% range.

Doug Gaylor: Yeah.

Doug Gaylor: Suffer solutions okay.

Speaker Change: Great and then.

Doug Gaylor: Um, great. You mentioned the I think it was 85% growth in the master agent channel. I guess, Can you talk about that a little bit? You know, these master agents have a pretty broad portfolio. You clearly are outperforming their mix there, and maybe give a few highlights on how you're working with those channels.

Doug Gaylor: You mentioned the I think it was I think it was 85% growth in the Master agent Channel I guess.

Doug Gaylor: Can you talk about that a little bit.

Doug Gaylor: Master agents, they have a pretty broad portfolio clearly are outperforming.

Doug Gaylor: They're mixed Eric and maybe give a little highlights on kind of how you're working with those channels.

Doug Gaylor: You know, I'll start with a little bit of that, and then I'll have John add a little bit more color. So, the master agents that we've worked with out there, we've got a couple of them that we work extremely, extremely close with. And you're right, Mike, there are a lot of competitive factors out there. And so, we really believe that, you know, highlighting our customer satisfaction and our customer surveys out there on G2.com probably sets us apart from all of the other competitors out there.

Speaker Change: I'll start with a little bit of that and then I'll have John add a little bit more color. So the master agents that we've worked with out there. We've got a couple of them that we work extremely extremely close with and you're right.

Doug Gaylor: Mike There's a lot of competitive factors out there and so we really believe that our highlighting our customer satisfaction and our customer surveys out there on <unk> dot com probably sets us apart from all of the other competitors out there. So although these master agents have the choice to pick from anybody.

Doug Gaylor: Although these master agents have the choice to pick from anybody, if they're going to hang their hat on somebody's recommendation, they're going to highlight the fact that we've got the best customer satisfaction out there. And so, that's really helped us improve those sales with those agents. It takes a lot of work to get these agents to recognize the benefits of Crescendo over the competition, but once we get them hooked, then they're sold on Crescendo, and we see a lot of repeat business from them. So, John, do you want to add a little color to some of the success that we've seen over the course of the last year? Yeah.

John Britton: They're going to hang their hat on somebody's recommendation theyre going to highlight the fact that we've got the best customer satisfaction out there and so that's really helped us improve those sales with those agents. It takes a lot of work to get these agents to recognize the benefits of crescendo over the competition.

Doug Gaylor: But once we get them hooked a than they are sold on crescendo and we see a lot of repeat business out of them. So John do you want to add a little color on some of the success that we've seen over the course of the last year, Yes, Hi, Mike. So this is an area that.

John Britton: Yeah. Hi Mike.

John Britton: We've invested in a lot over the last couple of years I would tell you we have a great team that supports this channel and when you take that some of the programs, we run and as Doug mentioned the G to customer satisfaction ratings. It's just an area that we continue to see great growth in and we're going to continue to drive for growth.

John Britton: This type of partner in this opportunity. So we've we've expanded this program a bit we've got awesome people that are involved in supporting those partners and we're excited to see the continued success there.

John Britton: So, this is an area that we've invested in a lot over the last couple of years. I would tell you we have a great team that supports this channel, and when you take that, some of the programs we've run, and, as Doug mentioned, the G2 customer satisfaction ratings, it's just an area that we continue to see great growth in, and we're going to continue to drive for growth through this type of partner and this opportunity. So, we've expanded this program a bit. We've got awesome people that are involved in supporting those partners, and we're excited to see the continued success there.

Mike Latimore: Great. Great

Speaker Change: Okay great.

Anand Bush: And then just last one for me on the software business. I think you talked about expecting kind of steady subscriber count growth there. You know, as you look forward, is it mostly coming from your base, or are there going to be increasing kinds of replacement opportunities here? Maybe just talk about, you know, the source of that growth.

John Britton: Last one for me on the software business I think you talked about expecting kind of steady.

Anand Bush: Scriber count growth there.

Anand Bush: Yeah.

Anand Bush: As you look forward is it mostly coming from your base or are there going to be increasing kind of replacement opportunities here, maybe just talk about.

Anand Bush: The source of that growth that you expect.

Anand Bush: Mike, I'll let Anand answer that for you, but in general, it's both. Yeah. Hey, Mike.

Speaker Change: Mike I'll, let on and answer that for you, but in general it's both yeah, Hey, Mike Yeah.

Anand Bush: Yeah, that's exactly right. I mean, if you look at the 220-plus service providers that we have, they themselves are kind of growing at twice the industry average, on average. And then at the same time, obviously, the new logos that we bring on, they have a variety of different strategies from cap and grow, or they're migrating people off pretty dramatically into our platform. So the reality is it's actually both, and we continue to see that.

Anand Bush: That's exactly right I mean, if you look at the 220 plus service providers that we have.

Anand Bush: They themselves are kind of growing at twice the industry average on average and then at the same time, obviously, the new logos that we bring on they have a variety of different strategies from cap and grow or they're migrating people off pretty dramatically into our platform. So the reality is it's actually both.

Anand Bush: And continue we continue to see that now with the new logos, obviously, depending on what their strategy is there a ramp is a function of how they're migrating and bringing on new.

John Britton: Now with the new logos, obviously, depending on what their strategy is, their ramp is a function of how they're migrating and or bringing on new providers. But the folks that are already in play that have been with us for multiple years are just steadily increasing their pace. Mike, hold on; John wants to add something. And I just want to add to that, Mike, we talked before about really having good success and growth in the legacy Cisco Broadsoft and Microsoft Metaswitch partners, who tend to have larger bases, and, as Anand discussed, we see some of them now choosing to migrate customers to us over time. So there's organic growth in the base of partners that we have, but there's some opportunity there for a share shift that is part of what the formula is that we're using.

John Britton: Do you think it'll skew more towards that share shift over time, or is the balance going to be similar?

John Britton: Providers, but the folks that are already in in play that have been with us for multiple years are just steadily increasing pace.

Speaker Change: Mike hold on John once Dan I'd, just add to that Mike we've talked before about really having good success in growth in the legacy Cisco Broadsoft and Microsoft Meta switch partners, who tend to have larger basis and is on and discussed we see some of them now choosing to migrate customers to us over time, so there's a.

John Britton: Organic growth in the base of partners that we have but there are some opportunity there for share shift that is part of what the formula is that we're using there.

John Britton: Okay.

John Britton: It will skew more towards that share shift over time or is it the balance going to be similar.

Mike Latimore: Well, as mentioned in the comments, Frost and Sullivan benchmarked us at growing at about double the rate of the market, and we see us continuing to do that using that same formula of organic growth and then some migration from existing, from legacy providers.

Speaker Change: Well. It is we mentioned in the comments Frost and Sullivan benchmark just grown at about double the rate of the market and we see us continuing to do that using that same formula or organic growth and then some migration from existing from legacy providers.

Speaker Change: Okay Alright.

Mike Latimore: All right, thanks very much. Best of luck. Thank you, Mike.

Speaker Change: Alright, thanks, very much best of luck.

Speaker Change: Thank you Mike.

Mike Latimore: Yes.

Operator: Thank you. Our next question is coming from Josh Nichols with B Reilly. Your line is... Good afternoon, Josh.

Mike Latimore: Thank you. Our next question is coming from Josh Nichols with B Riley. Your line is good afternoon Josh.

Josh Nichols: Afternoon, great to see another profitable quarter with some nice margin expansion. I want to ask, just because I think you touched on it really briefly on the call, whether the company has got back to consistent gap profitability. But are you thinking about maybe investing a little bit more to capitalize on some of these opportunities? I know OPEX was down slightly year over year in the first quarter, but I'm just curious how you're thinking about balancing profitability versus growth for the remainder of the year?

Josh Nichols: Afternoon, great to see another profitable quarter with some nice margin expansion.

Josh Nichols: I wanted to ask just because I think you've touched on it really briefly on the call. The company has got back to a consistent GAAP profitability.

Josh Nichols: But are you thinking about maybe the inverse.

Josh Nichols: It's been a little bit more to capitalize on some of these opportunities I know opex was down slightly year over year in the first quarter, but I'm, just curious how you're thinking about balancing profitability versus growth.

Josh Nichols: During the year.

Jeff Korn: Well, it's a double-edged sword. Obviously, if we start doing acquisitions, the intangible costs associated with that will knock us out of GAAP profitability. While we are going to consistently make investments into the business, and that runs from quarter to quarter, different investments we make, we would hope the investments would not challenge GAAP profitability. But if there was something that we needed to do to make a game changer,

Josh Nichols: It's a double its a double edge sword, obviously, if we start doing acquisitions.

Jeff Korn: We will the intangible cost associated with that will knock us out of GAAP profitability, while we are going to consistently make investments into the business and that runs from quarter to quarter different investments we make.

Jeff Korn: We would hope the investments would not challenge the GAAP profitability, but if there was something that we needed to do to make a game changer or to solidify our position.

Jeff Korn: We would make that investment.

Speaker Change: Okay. Thanks.

Josh Nichols: Thanks. And then just looking...

Speaker Change: Thanks, and then just looking.

Josh Nichols: The margins here overall, you know, 63 plus percent growth margin, very, very healthy, supported by software, but also the services piece of the business, getting north of 60%. One question is, do you think that that margin level is sustainable for the remainder of the year? And then two, if you could kind of elaborate a little bit on what kind of impact do you think getting it moved over to the Net Sapiens VIP platform by the end of this year could have in terms of potential savings?

Josh Nichols: The margins here overall.

Josh Nichols: <unk> three plus percent gross margin very very healthy supported by software, but also the services piece of the business.

Josh Nichols: North of 60%. One is do you think that that margin level is sustainable for the remainder of the year. Then two if you can kind of elaborate a little bit on what kind of impact do you think getting that one over to midnight sapiens VIP platform by the end of this year it could happen in terms of potential savings.

Josh Nichols: <unk>.

Ron Vincent: I'll speak to the margins. Overall, gross margins at 63% are a nice improvement over the prior quarter. If you look back to Q3, we were at 61%. So, we bounced around between 59% and 63%. We think the 60 plus is the right spot to be, and we've seen margin expansion both in telecom services revenue, our product revenue, as well as in software solutions. So, we're seeing across the board. And that's why we think that's a sustainable amount somewhere in that 60 range, the low 60 range.

Speaker Change: So I'll speak to the margin so.

Josh Nichols: Overall gross margins at 63% is a.

Ron Vincent: Nice improvement over the prior quarter. If you look back to Q3, we were at 61%. So we bounce around the 59% to 63%. We think the 60 plus is the right.

Ron Vincent: To be and we've seen.

Ron Vincent: Margin expansion, both in our telecom services revenue or product revenue as well as software solutions. So we're seeing it across the board and that's why we think that's a sustainable amount somewhere in that 60 range low 60 range on the migration fronted Josh we're probably closing in on 80% of our classic customers migrated over to art.

Doug Gaylor: And on the migration front, Josh, we're probably closing in on 80% of our classic customers migrated over to our VIP platform. And as we get to the final 20%, we anticipate, as Jeff said, being completely migrated by the end of the year. And that'll make huge savings for us because we won't have the dual cost of running two platforms, two data centers, and the extra resources required to manage the data center here in our Phoenix office for our classic system.

Doug Gaylor: The IP platform and as we get to the final 20%, we anticipate as Jeff said being completely migrated by the end of the year and that'll pick up huge.

Doug Gaylor: Living scores because we won't have the dual cost of running two platforms to data centers.

Doug Gaylor: Extra resources required to manage the data center here.

Doug Gaylor: And our Phoenix office for a classic system. So we anticipate that migration continuing on track we've got great success going on with it right now and when we get completely off of it we will see some significant cost pick up there not to mention on top of that we have staff and engineers that are working strictly on the classic system, which we will.

Doug Gaylor: So we anticipate that migration, you know, continuing on track. We've got great success going on with it right now. And when we get completely off of it, we'll see some significant cost pick up there. Not to mention on top of

Jeff Korn: Not to mention on top of that, we have staff and engineers that are working strictly on the classic system, which we will be able to morph over to the VIP or hosted version. So, it will give us better staff distribution on top of all the cost savings. So we're very excited about that.

Jeff Korn: Be able to morph over to the VIP or hosted two so it will give us it will give us better staff distribution on top of all the cost savings. So we're very excited about that.

Jeff Korn: Okay.

Josh Nichols: Great. Thanks. I appreciate it.

Speaker Change: Great. Thanks, I appreciate it.

Operator: Thank you. Once again, ladies and gentlemen, if you have any questions, please indicate so now by pressing star 1 on your telephone keypad. Our next question is coming from Eric Zrzmartinuzzi, from Lake Street. Your line is live.

Speaker Change: Thank you once again, ladies and gentlemen, if you have any questions. Please indicate so now by pressing star one on your telephone keypad.

Eric Zrzmartinuzzi: Our next question is coming from Eric Suezmax Newsy.

Eric Zrzmartinuzzi: With Lake Street your line is life.

Eric Zrzmartinuzzi: Good afternoon, Eric.

Eric Zrzmartinuzzi: Hey, good afternoon, guys. Good quarter. I had a question. You know, you've talked about 2024 anticipating double-digit growth. I know sometimes a quarter to quarter can be a little bit squirrely, especially on the software solution side, but is the expectation that Q2 would be up sequentially versus Q1 based on what you see in the pipeline?

Eric Zrzmartinuzzi: Hey, good afternoon, guys. Good quarter I had a question you've talked about 2020 for anticipating double digit growth I know, sometimes quarter to quarter can be a little bit squirrelly, especially on the software solutions side, but is the expectation that Q2 would be up sequentially versus Q1 based on what you're seeing in the pipeline.

Speaker Change: Yeah, It's a little it's a little early in the quarter for us to answer that to be perfectly honest.

Jeff Korn: It's a little early in the quarter for us to answer that, to be perfectly honest. But as I said, we fully expect double-digit growth over the year, and you're right, particularly on the software solution side, because that's a much longer sales cycle. We see some variance from quarter to quarter, but looking at what we have in the pipeline for the year, I'm still quite confident of double-digit growth.

Jeff Korn: But as I said, we fully expect double digit growth over the year as youre right, particularly on the software solutions side, because that's a much longer sales cycle, we see some variance from quarter to quarter, but looking at what we have in the pipeline for the year I'm still quite confident of double digit growth.

Eric Zrzmartinuzzi: Okay, and then I wanted to, I didn't know that I completely understood the Oracle cloud relationship. What part of the business is this impacting? And then, you know, what could we see as a potential benefit, whether it's gross margin or customer service?

Jeff Korn: Okay.

Jeff Korn: And then I wanted to I didn't know that I completely understand the Oracle cloud relationship.

Eric Zrzmartinuzzi: What part of the business is impacting and then what could we say as a potential benefit whether it's gross margin or customer service.

Jeff Korn: Well, it shouldn't affect customer service; it's strictly on the software solutions side of the business. Essentially, they are going to be taking over all the hosting for us. While there are some initial costs up front, this will be a substantial cost savings to us as we go over the cost, as we go over the years.

Speaker Change: Well it shouldnt affect customer service, it's strictly on the software solutions side of the business essentially they are going to be taking over all the hosting for us. While there were some initial cost upfront. This will be a substantial cost savings to us as we go over the cost as we go over the years, we have a large staff, we're managing all of the data centers we have.

Jeff Korn: We have a large staff who manage all the data centers we have. We have to have them available to troubleshoot and deal with things. That, like moving classic to VIP, will enable us to move some of those staff to things where they can be doing something much more customer-facing and customer-centric. We expect it will be a game changer in that we will be providing completely reliable service. Some of the other benefits are that they are masters at security.

Jeff Korn: We have to have them available to troubleshoot to deal with things.

Jeff Korn: Is that like a moving classic to VIP will enable us to move some of those staff, the things or where they can be doing something much more customer facing and customer centric. So we expect it will be a game changer and that we will be providing completely a reliable service and some of the other benefits are they they are they are masters at security, we have a staff of watches.

Jeff Korn: We have a staff who monitors it, we're good at it, but we're not as good as they are. They have other ancillary services they provide that they are better at than we are. What we decided was a division of the work.

Jeff Korn: We're good at it we're not as good as they are they have other ancillary services. They provide that they are better at than we are so what we decided was a distribution of the work theyre going to do what theyre great at we're gonna be we're gonna be providing the rest of the platform and we're going to continue to be the top platform in the country and hopefully the world soon.

Anand Bush: They're going to do what they're great at, and we're going to be providing the rest of the platform, and we're going to continue to be the top platform in the country and, hopefully, the world soon. Ana, do you want to add anything to that?

Ana: Anna do you want to add anything to that are very scalable and we talk about the international markets are you know, we're seeing a lot of growth there in the international markets. This allows us to penetrate international markets that we haven't even touched yet and be able to bring them up fairly quickly.

Doug Gaylor: It's very scalable when we talk about the international markets. We're seeing a lot of growth there in the international markets. This allows us to penetrate international markets that we haven't even touched yet and be able to bring them up fairly quickly.

Speaker Change: Got it.

Anand Bush: No, I think Doug hit it right on the head. I mean, I think expansion and scale are very, very important and to be able to do it very quickly and efficiently. I think that's a big driver for what we're doing based on the demand that we see from the marketplace.

Ana: Now that I think I think Doug hit it right on the head I mean, I think the expansion and scale is a is very very important to be able to do it very quickly and efficiently.

Anand Bush: I think that's a big driver for what we're doing based on the demand that we see from the marketplace.

Anand Bush: Yeah.

Eric Zrzmartinuzzi: Scott, thanks for taking my questions.

Speaker Change: Got it thanks for taking my questions.

Scott: Thanks, Eric.

Operator: Thank you. Our next question is coming from Chris Sakai with Singular Research. Your line is live.

Eric Zrzmartinuzzi: Thank you. Our next question is coming from Chris Sakai with singular research your line of sight.

Operator: Afternoon.

Chris Sakai: Yes, hi. Good afternoon. Just sort of wanted to comment and ask about the international expansion that OCI will help with. Where are you seeing the most potential for international expansion and where is this possibly already being used?

Chris Sakai: Yes, hi, good afternoon.

Chris Sakai: Just sort of wanted to comment and ask about the international expansion.

Chris Sakai: That OCI will help with.

Chris Sakai: Where are you seeing the most potential for the international expansion.

Chris Sakai: And where is this being possibly already being used.

Anand Bush: So, Chris, where we see it, obviously, we already have data centers out in both Amsterdam and London. We have customers in Germany and the UK. We also see footprint expansion, I think we talked about this last time as well, in Australian markets as well and now into APAC and some of these other areas. So, what, you know, Oracle allows us to do is, in essence, extend our existing infrastructure out very easily into those particular localized markets.

Chris Sakai: So so so Chris where we see it obviously, we already have data centers out in both Amsterdam and in London, we have customers out in Germany, and the U K.

Anand Bush: We also see footprint expansion I think we've talked about this last time as well and the Australian markets as well and now into APAC.

Anand Bush: And some of these other areas. So what Oracle allows us to do is in essence extend extend our existing infrastructure out very easily into those particular localized markets.

Chris Sakai: Okay, great. Thanks. Thanks for the answer. And by the way, they will speed up the process.

Anand Bush: Okay.

Speaker Change: Great. Thanks, Thanks for the answers.

Jeff Korn: And by the way, they will speed up the amount of time that we can do an installation considerably because of all the services they provide. So that will also be a beneficial game-changer for us, and particularly for us when competing in Europe and other parts of the world.

Speaker Change: And by the way they will speed up the amount of time that we can do an installation and considerably.

Jeff Korn: Because because of all the services. They provide so that will also be beneficial game changer for us and particularly competing in Europe and.

Jeff Korn: Other parts of the world.

Speaker Change: Okay. Thanks for that.

Operator: Thank you. As we have no further questions on the lines at this time, I will hand it back over to Mr. Corn for any closing remarks he may have. Thank you, Allie.

Speaker Change: Thank you as we have no further questions on the lines at this time I will hand, it back over to Mr. Corn for any closing remarks, you may have.

Jeff Korn: Thank you, Ali. I just want to thank everybody for their time and attention. We're very excited to have announced the results we did today, and as soon as we finish this call, we're all going to roll up our sleeves and get back to work and try and continue to keep this train running. So again, thank you very much, and we look forward to talking to you when we announce our Q2 results. Good afternoon, everybody.

Corn: Thank you Ali I, just want to thank everybody for their time and attention.

Operator: Thank you. This concludes today's conference call, and you may disconnect your lines at this time. We thank you for your participation.

Jeff Korn: We're very excited to have announced the results we did today and as soon as we finish this call. We're all going to roll our sleeves up and get back to work and <unk>.

Operator: Try and and continue to keep this train running so again. Thank you very much and we look forward to talking to you when we announce our Q2 results good afternoon everybody.

Speaker Change: Thanks, everybody.

Speaker Change: Thank you.

Operator: This concludes today's conference call and you may disconnect your lines at this time.

Operator: We thank you for your participation.