Q3 2024 Crexendo Inc Earnings Call
Good afternoon, ladies and gentlemen. Please remain on line your conference. We'll begin in just a few moments. Please remain on the line your conference will begin in just a few moments.
Speaker Change: Good day and welcome to the crescendo third quarter to 2024 earnings call. At this time, all participants are on a listen only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the floor over to Jea Zio and Chairman Jeff Korn, the floor is yours.
Jeff Korn: Thank you Kelly and good afternoon everyone.
Jeff Korn: Welcome to the Prasendo 23-2024 Conference Call. I am his Kelly just told you Jeff Korn, Chairman of the Board and CEO. On the call with me today or Doug Gaylor or President and CEO, Ron Vincent, Darcea, though, Jon Brinton, R.C.R.O. and Onembus, R.C.S.O.
In a moment, Jon will read our safe harbor statement. After that, I will give some brief comments on our performance for 2-3. Ron will then provide more detail on the numbers before handing over the call to Doug to provide a business and sales update.
After that, we'll open the call of questions. Jon, would you please read the say harbor?
Jon Brinton: Thank you, 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.
Jeff Korn: 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.
Jeff Korn: 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 these discussed here today.
Jeff Korn: These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission, including the Form 10-K for 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.
Jeff Korn: I'd now like to turn the call back to Jeff. Jeff? Thank you, Jon.
Jeff Korn: I'm pleased and excited to report that Crescendo again delivered exceptionally strong financial results for the third quarter of 2024. This reflects our commitment to providing premier cloud communication software and services and continuing our organic growth trajectory.
Consolidated revenue grew 13% year-over-year, driven by a remarkable 25% growth in our software division. Our year-to-date numbers are equally strong, well ahead of internal and external expectations. And I'm excited about the momentum we are seeing.
This performance reflects the dedication of our entire team to deliver the best cloud communication software and customer service in the industry. Our scalable software platform and relentless focus on meeting the rising demand for comprehensive cloud solutions continues to drive our growth.
Jeff Korn: I am also proud to mention that we maintained our streak of GAAP profitability now for the fifth consecutive quarter and non-GAAP net income for the 24th consecutive quarter.
G2 continues to rank us number one in 18 customer satisfaction categories in G2 Spring 2024 reports, marking the fifth consecutive quarter that Crescendo has led in multiple satisfaction categories.
Jeff Korn: This is a very competitive advantage to us as we tend to rank much higher than our competitors and our customers know that support is exceptionally important to us and they are putting our resources behind the support so that we are there when our customers need us.
Jeff Korn: Our focus on customer service should be a strong growth driver now and into the future.
Jeff Korn: This quarter's financial results includes revenue of $15.6 million, up 13% year-over-year.
Jeff Korn: GAAP profitability of $1.2 million and non-GAAP net income of $5.7 million for the nine months ended September 30, 2024, or $0.22. Basic common share reflects our focus on regularly delivering profitable growth and creating value for our shareholders.
Jeff Korn: As we look ahead, we continue to reinvest in Crescendo to drive our future growth and efficiency.
Jeff Korn: We've increased our headcount in engineering, service, and support. We've made substantial investments in Oracle Cloud Infrastructure, OCI, which is already providing us with a significant competitive advantage, particularly in Europe, where we are seeing robust growth.
Jeff Korn: Thanks to our partnership with OCI, we have the flexibility to launch instances in days, not months, and can deploy servers in any country as needed and ensure that our security protocols are current and in full compliance with local standards.
Jeff Korn: This capability allows us to be highly responsive to customer demand and enhances our competitive edge around the world.
Jeff Korn: and in Europe, where we anticipate substantial growth in the near future.
Jeff Korn: We are continuing to work on completing the migration of Crescendo Classic customers to our cutting-edge VIP system, while at the same time migrating all of our hosted customers to OCI.
Jeff Korn: When completed, we expect to close our six data centers, which will result in substantial cost savings.
Jeff Korn: We will also be able to redeploy employees whose job function is to maintain our classic system and the data centers and move them into other parts of our business, which will mean additional savings and less required new hires.
Jeff Korn: To support this progress, we're implementing an advanced accounting system to streamline our financial closings and provide real-time insights, allowing for agile, data-driven business decisions.
Jeff Korn: We are now in the position to make the necessary investments in our future, but it is my intention to continue to do that while remaining profitable.
Jeff Korn: With that said, however, I believe we can and will find acquisitions that are accretive within a quarter or two, and they will add to EBITDA even if there are intangible costs which need to be written down.
Jeff Korn: Now, with all of the positive momentum I discussed, there are things we are still working on. Our margins need to remain higher, and we are working on that.
Jeff Korn: We recently hosted our most successful user group meeting, or what we call our UGM, where we presented the latest applications from our second CodeFest, many of which leverage AI.
Jeff Korn: These applications will soon be available to our licensees through our platform, opening additional revenue-sharing opportunities to us and enterprise-level applications that will be available to all our licensees.
Jeff Korn: It always amazes me the combined energy of our team and our licensees.
Jeff Korn: Together, the energy is unstoppable and an unbeatable combination.
Speaker Change: The excitement of our licensees as to the progress we have made and the support of our future initiatives was off the charts at the UGM. Last year, my first time as CEO at the UGM was marked by people telling me what we should do better, asking for improvements and investments.
Jeff Korn: This year, it was just thanks and congratulations.
Jeff Korn: And I know this change in attitude is due to the hard work and the dedication of the entire Crescendo team, many of whom are here with me, and many more who report to the people who are in the room with me.
Jeff Korn: I'm very, very proud of the work our team has done and how they've pulled together over the past year and a half since I've become CEO.
Jeff Korn: In that time, we've gone from burning $100,000 a month in cash to being substantially cash-flow-positive, gap-positive, and substantially increased our EBITDA.
Jeff Korn: We've made necessary investments to keep us on the cutting edge and now we are in a much stronger financial position And we are starting to fire on all cylinders
Jeff Korn: The team did the work and but I couldn't be more proud and pleased.
Jeff Korn: In the software telecom sector, we continue to benefit from the instability amongst our main competitors.
Jeff Korn: Our strategic efforts to attract Cisco and Microsoft customers have been fruitful, highlighted by a recent webinar for concerned Microsoft users, which drew an impressive 180 attendees.
Jeff Korn: Former Microsoft clients who have since transitioned to Crescendo shared their substantially positive experiences, underscoring the benefits of our solutions and positioning us well for continued growth.
Jeff Korn: The ongoing industry shift presents a substantial growth driver for us. Being the number three platform provider puts us in a competitive landscape, working to our advantage as we continue to stay focused on delivering top-tier telecom software and services.
Jeff Korn: while other companies may be leveraging multiple lines of business.
Jeff Korn: Crescendo is laser focused on telecom solutions and we excel in that space. Our team comes to work every day with the singular goal of making our platform the best in the industry and we are confident that this focused dedication gives us a distinct edge.
Jeff Korn: In conclusion, I want to reiterate our expectation for double-digit organic growth. I am confident in our ability to deliver outstanding results through the end of 2024 and into 2025. The future looks bright, and we could not be more excited.
Speaker Change: With that, I'll turn the call over to Ron who will provide additional details and commentary on the numbers. Ron?
Ron Vincent: Thank you, Jeff. Good afternoon, everyone.
Ron Vincent: I'll go over our financial results for the third quarter.
Speaker Change: Total revenue for the quarter increased 13% to $15.6 million, compared to $13.9 million for the third quarter of the prior year. Service revenue for the quarter increased 6% to $8 million, compared to $7.5 million.
Jeff Korn: for the third quarter of the prior year. Our software solutions revenue for the quarter increased 25% to 5.9 million compared to 4.7 million for the third quarter of the prior year.
Jeff Korn: Product revenue for the quarter increased 9% to 1.8 million compared to 1.7 million.
Jeff Korn: Consolidated gross margins for the quarter were 61% consistent with 61% for the third quarter of the prior year. Software solutions gross margins for the quarter were 71% consistent with 71% for the third quarter of the prior year. Our telecom services segment gross margins
Jeff Korn: Of 55%, we're consistent with 55% for the third quarter of the prior year.
Jeff Korn: service revenue margins were 58% consistent with 58% for the third quarter of the prior year and our product margins decreased to 40% compared to 45% in the third quarter of the prior year.
Jeff Korn: Operating expenses for the quarter increased 15% to $15.5 million compared to $13.5 million for the third quarter of the prior year.
Jeff Korn: That's due to the investment in our employees, added headcount, additional investment in Oracle Cloud Infrastructure, and our investment in our accounting system implementation.
Jeff Korn: Net income of $148,000 for the quarter, or $0.01 per basic common share, and break-even per diluted common share. That's compared to net income of $1.7 million, or $0.07 per basic common share, and $0.06 per diluted common share for the third quarter of the prior year.
Jeff Korn: And I'll highlight that during the third quarter of the prior year, we recognized a gain on the sale of our corporate office building of approximately 1.5 million.
Jeff Korn: excluding the gain, net income is only down $97,000 primarily related to the additional investment in headcount that I've mentioned earlier.
Jeff Korn: Non-GAAP net income of $1.7 million for the quarter, or $0.06 per basic, and diluted common share compared to a non-GAAP net income of $3.3 million, or $0.13 per basic.
Jeff Korn: The common share in $0.12 per diluted common share for the third quarter of the prior year. EBITDA for the quarter was $1 million, as compared to $1.2 million for the third quarter of the prior year. And adjusted EBITDA came in at $1.7 million, as compared to $2.1 million for the third quarter of the prior year.
Jeff Korn: are cash and cash equivalents at September 30th.
Jeff Korn: was $15.5 million. That's compared to $10.3 million at December 31, 2023.
Jeff Korn: Cash provided by operating activities for the nine-month period of $4.1 million. That's compared to $887,000 for the same period as the prior year.
Jeff Korn: Cash provided by Investing Activities was
Speaker Change: Neil for the nine-month period that's compared to 3.8 million for the same period as prior year.
Jeff Korn: cash provided by financing activities for the nine-month period of $1 million compared to cash used for investing activities of $2.3 million for the same period of the prior year.
Jeff Korn: Now that primarily related to $1.4 million in net cash received from stock option exercises.
Jeff Korn: offset by $340,000 in notepayable repayments.
Speaker Change: With that, I'll turn it over to Doug Gaylor, our President and COO, for additional comments on sales and operations.
Doug Gaylor: Thanks, Ron. Q3 was another strong quarter for Crescendo, and I'm very pleased with our results for the quarter and for the first nine months of 2024. Our organic growth of 13% year-over-year in Q3 and 14% organic growth
Jeff Korn: for the first nine months of the year, along with our five consecutive GAAP profitable quarters, are the direct result of our focus on growing the top line organically and managing the fundamentals of the business.
Jeff Korn: Our gap net income of $148,000 for the quarter, or $0.01 a share, and our non-gap net income of $1.7 million for the quarter, or $0.06 per share, highlight that we are executing on our business plans extremely well.
Jeff Korn: We are reinvesting back into the business with recent hires and customer support, engineering, and sales during the quarter, so we can continue enhancing our product development and support, but do so profitably.
Jeff Korn: This was our 24th consecutive quarter with non-GATT net income, and our results for the quarter continue to highlight our improvements in processes, procedures, and sales, as well as our success in managing costs and maximizing synergies from all of our business segments.
Jeff Korn: These strong results also contributed to our strong positive cash flow for the quarter, which saw our cash position increase to $15.5 million, which is up 200% year-over-year, and 13% from the prior quarter.
Jeff Korn: We continue to see strong organic growth in both segments of our business. What's particularly exciting is that our software solution segment had another great quarter with 25% organic growth. And we have seen a 28% organic growth.
Jeff Korn: So far this year, you're to date in the software solution segment.
Jeff Korn: The 25% organic growth in our software solution segment for the quarter helped propel us past the 5 million user mark on our platform that we announced during Q3, and we are averaging over 100,000 new users added to our platform monthly.
Jeff Korn: The rapid growth we are experiencing on our platform is a combination of our existing licensees continuing their strong growth using our platform for the foundation for their business, together with our success in adding new logos coming on board.
Jeff Korn: Many of these new logos are leaving our two largest competitors, Cisco and Microsoft.
Speaker Change: We sold eight new logos on our platform during the quarter and have seen a tremendous amount of interest from Microsoft Metaswitch licensees, as Jeff had mentioned, after Microsoft recently announced end of life of their Metaswitch Max UC platform and has signaled a retreat from their platform business with recent cuts in their Metaswitch division.
Speaker Change: These moves by Microsoft have fueled many opportunities for Crescendo, and in fact, we have secured four Microsoft Metaswitch wins in the last four months and had an overwhelming turnout for a recent webinar highlighting the benefits of Metaswitch licensees moving to Crescendo.
Jeff Korn: Our software solutions segment also continues to see great success internationally as well. We recently had two press releases on major wins in Australia and just had our first win in Africa.
Jeff Korn: The international opportunities for cloud communications currently has a much lower adoption rate than here in the U.S. have us very excited about our continued growth in that part of the business.
Jeff Korn: Our Crescendo licensees, as well as our reseller agents, continue to benefit from the rapid migration by small and mid-size and enterprise-level businesses to the cloud. And in addition, affordable technology enhancements, many of them utilizing artificial intelligence, are generating more demand from the SMB market, as our technology can help these new businesses do a lot more with a lot less.
Jeff Korn: Our telecom services segment, including product revenue, grew at 6% organically for the quarter. We continue to see strong demand for our offerings from our channel partners and saw an 8% growth rate in sales for the quarter over the prior year from our channel reseller partners.
Jeff Korn: Our channel partners sell our services to their prospects and customers on a revenue-share basis.
Jeff Korn: Our telecom backlog continues to grow nicely, and it's now at $77.4 million, an increase of 22% from Q3 of 2023 and up 9% from last quarter.
Jeff Korn: And as a reminder, our backlog number is the sum of the remaining contract values of our telecom services and software solutions customers that will be recognized on a sliding scale over the next 60 months.
Jeff Korn: and this number is a strong indicator of our future success and in fact the number for 2025 is now sitting at north of 29 million dollars in backlog already queued up for next year.
Jeff Korn: Gross margins remained strong in our software solutions segment at 71%, and our telecom services gross margin was consistent at 58% year-over-year.
Jeff Korn: Telecom service gross margins continue to be affected by lower margins for our Legion acquisition that has lower margins on some of their MSP services.
Jeff Korn: We also continue to enhance our offerings with software updates and additions to our platform, and that helps us expand our product offerings.
Jeff Korn: We announced our version 44.2 software release at our annual user group meeting in Nashville last month and had tremendous excitement and energy from our record attendance over the new features and capabilities being released on the platform.
Jeff Korn: And that's because of our open API 2.0 integration that allows for hundreds of third-party developers to build solutions that easily integrate onto our platform.
Jeff Korn: Our numbers for the quarter and for the first nine months of 2024 have been really strong and we continue to see a lot of momentum and demand for products for our products and our services.
Jeff Korn: We continue to execute well on our business plan for organic growth, increasing our margins, positive cash flow, and managing expenses.
Jeff Korn: eclipsing 5 million end-users on our platform and expecting to reach 6 million end-users in early 2025 highlights that there is still great opportunity for growth.
Jeff Korn: and I couldn't be more excited about our direction and our ability to continue to deliver the best solutions for our customers and the best returns for our shareholders. With that, I will now turn it back over to Jeff for any further comments.
Jeff Korn: Thank you, Doug. I actually don't have any comments at this time. So, Kelly, I'd like to open the call to questions.
Kelly: Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we poll for questions.
Kelly: Your first question is coming from Mike Lattimore with Northland Capital Markets. Please pose your question. Your line is live.
Mike Lattimore: I like her. Thank you.
Speaker Change: Hey, very good, very good. Thank you.
Speaker Change: So, um...
Speaker Change: The quarter was great. Backlog growth looked really, really nice. Interesting on the new logo. You said eight new logos, I believe. That was double sequentially, I believe. How did the – how are expansions? How many number of expansions did you have in the quarter?
Speaker Change: Great question, Mike. So, eight new logos for the quarter was significant for us. We, on top of that, had five expansions from our existing licensees. So, overall on the software solution side, again, just another stellar quarter. Nice to see all the new logos coming on board, but also nice that we had five strong upgrades from our existing partners as well.
Speaker Change: All right, great.
Speaker Change: and then I know you've been working on some tools to help manage service providers
Speaker Change: accelerate their migration off of Microsoft and Broadsoft to you guys? Can you just kind of give us status on those tools and the benefits of these smart...
Speaker Change: even further. And then there's probably a pipeline of a couple more partners as well that are in that space that are, you know, helping facilitate the migration off of some of these other platforms. So overall it's going quite well.
Speaker Change: Excellent. Excellent. And then just last on the, um, kind of the...
Speaker Change: application ecosystem, you know, it was interesting to see all the companies at your users conference, lots of interesting, you know, new applications there. Can you just elaborate a little bit on
Speaker Change: the progress over the last year and sort of building up that portfolio. And then how do you think about the potential financial impact here in terms of, you know, win rates and upsells and revenue share?
Speaker Change: Sure, sure, sure. I think a couple things. Obviously I won't touch on the revenue because I don't think we go with guidance on stuff like that because some of the stuff is seeds that we're planting. The applications that you see across the board
Speaker Change: are anywhere from automation applications to customer experience related chat bots that are being built on the platform, AI usage of customized prompts.
Speaker Change: for Unified Communications and then also verticalized applications that are going into the different vertical markets that our service providers go after in terms of the ecosystem itself.
Speaker Change: You know, we probably had 50 plus vendors at our user group meeting. We look to probably continue to grow that. We have 10 to 15.
Speaker Change: that are being onboarded at the moment with respect to revenue shares and things of that nature that we'll add to the revenue line as we go forward. But the applications are across the board. And step one is just the retention that we get.
Speaker Change: and the stickiness and the differentiation that our providers get when they're competing against the biggest players in the marketplace and we're seeing a lot of success there.
Speaker Change: Thanks very much. Best of luck for the rest of the year.
Speaker Change: Thank you, Mike.
Speaker Change: y'all
Speaker Change: Good afternoon, Eric. Hope you're doing well on the salad quarter there. Had a question regarding the, just kind of the macro environment here.
Speaker Change: The UCAS revenue, the services revenue, was up positive, you know, it was up 6%, but I saw that it was essentially flat sequentially, and just wondering, is there a macro issue at play here, or is there some unique circumstances on that services revenue sequentially in Q3?
Speaker Change: Not a macro issue, we had a little bit of an escalation and a turn during the quarter from one national account.
Speaker Change: But that impacted revenue a little bit. And then overall, the makeup between service versus product. And in the prior quarter, we had strong product. And so just from quarter to quarter, the top line on telecom services, whether or not it's coming from our service line item or our product line item, that makes changes from quarter to quarter.
Speaker Change: We're still seeing strong sales channel, big funnel, and everything's moving in the right direction.
Speaker Change: Okay, I'm not looking for a specific number in Q4, but would we expect the services revenue to be up sequentially in Q4?
Speaker Change: And we don't we don't give guidance, but yes, similar to current quarter or low sequential growth
Speaker Change: Okay.
Speaker Change: All right. And then you talked about some of the investments that you've made in headcount. I did see the operating expenses there at around $15.5 million, the gap operating expenses at $15.5 million. That includes the cost of
Speaker Change: service and cost of software solutions revenue, as well as the cost of product. But as far as the expectation, are we at kind of a run rate maybe? Let's just talk kind of SG&A and R&D. Are those at kind of a run rate or is there a ramp that we should kind of bump that up?
Speaker Change: Eric, on a macro basis, there will be the continued expense on both OCI and the Oracle accounting system.
Speaker Change: additional headcount as much as we can considering the fact I discussed that once we're on OCI we will have a number of employees whose functions we can move.
Speaker Change: and so we're trying to defer hiring as long as we can to move those people into the open positions we have, but we will make the necessary investments.
Speaker Change: And then lastly, you touched on the competitive landscape, and I was just curious, from the NetSapiens user group meeting, just the key takeaways, do you feel like versus a year ago that that
Speaker Change: I guess the pipeline of people interested or maybe even just showing up at the user group meeting, were there new faces there or is it kind of more enthusiastic response from people who've come in the past years?
Speaker Change: Eric, it was both. We had the largest UGM we ever had. We had new faces, we had new logos, and we had more people coming from people who've been there before. And as I said, the difference between last year's UGM and this year's UGM...
Speaker Change: was just amazing. And I'll just add a little bit to it, Eric, about over 30% of our attendees were first-time attendees. One thing about that conference...
Speaker Change: that you must be a licensee to attend. So it's not a prospect event, but from a community and enthusiasm level, like Jeff said, we had records across the board on every metric, tons of first-time attendees and just excellent feedback overall.
Speaker Change: The excitement in the room is because everybody else is seeing that same level of excitement in their business and seeing increases in sales and opportunities. And so it really is a.
Speaker Change: an area for us to share best practices and so when they get with the other members of the community and they talk about What's working in Florida or what's working in Idaho or what's working in, Texas? You know they can share best practices with all the other vendors
Speaker Change: and all the other licensees and then they go back and implement that and when their sales pick up, our sales pick up. We did have attendees from eight countries and four continents this year so it is becoming more of an international event as well.
Speaker Change: Eric, last year I felt like I had to hide. This year I was thrilled to go talk to anybody who wanted to talk to me. I understand. It's nice to see that reversal. Thanks for taking my questions.
Speaker Change: Thank you, Eric. You have a great afternoon.
Speaker Change: Your next question is coming from Ryan Kuntz with Needham & Company. Please pose your question, your line is live.
Speaker Change: Hi Ryan, how are you? I'm doing great guys, how are you?
Speaker Change: I'm going to go back.
Speaker Change: Super, great quarter. With regards to the expense of the migration and kind of double paying for private cloud and public cloud migration, can you quantify the gross margin headwind on COGS that you're feeling this year or this quarter?
Speaker Change: Ron, you want to take a shot at that? Yeah. So, you know, right now we're in the process of continuing to migrate our legacy customer base to the VIP platform powered by NetSapien.
Speaker Change: Once we get that completed, which we expect to be completed at the end of Q1 of next year, then we'll be able to shut down data centers and start to see that cost savings.
Speaker Change: which we expect to be 1-1.5% of those costs of
Speaker Change: Sorry.
Speaker Change: As far as quantifying a percentage of revenue, I think we got about a percent, percent and a half savings.
Speaker Change: Okay, great. It's about 100-150 bips. That's great. And with regards to the great results on the software solutions business,
Speaker Change: Can you speak a little bit about where you're seeing the most near-term traction there and remind me of your go-to-market approach? I assume that's mostly U.S. rural you're seeing the most traction, or where would that be coming from in terms of markets?
Speaker Change: Yeah, we did have, now we've had good international growth. We had three new licensees internationally, but we are seeing very, we always have a...
Speaker Change: community of vendors that we take partners from. Nobody starts their first UCAS offer with our platform, but we did see excellent growth in partners converting from the Metaswitch partner community last quarter and we're continuing to see that. So of that new logo growth, the single largest chunk of them were customers that have a Metaswitch platform and they're looking for a new home and a new long-term strategy for their business. But overall we have several that we have shared donation from. We have good geographic coverage in that. Also in our international business, Doug mentioned we had our our first licensee actually in continental Africa.
Speaker Change: last quarter, so we're continuing to see good growth and expansion.
Speaker Change: Great. And remind me, these are private label partners that are bringing solutions to market to go after Metaswitch?
Speaker Change: instance.
Speaker Change: These are people that are licensing our software and either having us host it for them or hosting it in their own infrastructure. So in many cases they're telecommunications carriers, MSPs or others, but they take the software, think of the NVIDIA inside, you know, in a computer stack.
Speaker Change: You know, they take our software, deploy it in their infrastructure, put their own branding on it, have a billing engine behind it, or have us host it for them. So we're kind of the inside technology that's operating their UCAS offer.
Speaker Change: Sure, and these customers are your channel to the end users themselves? Yes, they own the relationships with the end users.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.
Speaker Change: So it feels like we've seen the US market slow a bit here
Speaker Change: Can you, can you kind of...
Speaker Change: Touch on the competitive landscape and it sounds like you're making some inroads internationally, maybe touch on it from that perspective, both U.S. and international.
Speaker Change: Thanks.
Speaker Change: Yeah, and then telecom services, we only do telecom services on the U.S. side, so we don't do direct retail offerings internationally, so just on the wholesale side is the international offering. So, on the direct side, you know, very competitive out there, you know, we continue to see competition from RingCentral and 8x8 and Vonage and then all of the licensees that are using Broadsoft and Metaswitch and even sometimes the Crescendo platform.
Speaker Change: But, overall, I mean, our biggest competitors out there, you know, we win way more often than we lose to them because of our offering and our customer service and support.
Speaker Change: We highlighted the number one rankings in 18 different categories on G2.com.
Speaker Change: you know that's significant and most of our bigger competitors.
Speaker Change: really are way down the list on the rankings on that. So, you know, a lot of, you know, two years ago, Ryan, 80, 85, 90% of our customers were coming from legacy. Today, it's probably maybe about 60% coming from legacy and 40% coming from other cloud providers. So as other cloud providers continue to struggle with good service and support, that creates opportunity for us. So the competitive landscape right now on both the wholesale and retail side are very favorable for us because we've got a lot of unhappy customers on both sides of the equation that are looking for alternatives. And when they're looking for alternatives, Crescendo is the best solution for them.
Speaker Change: Great, thanks for the questions. Appreciate it.
Speaker Change: Thanks Ryan.
Speaker Change: Your next question is coming from Matthew Mass with Bea Riley. Please pose your question, your line is live.
Speaker Change: I'm out of here.
Matthew Mass: Hi, this is Matthew filling in for Josh Nichols. Thanks for taking my question. So yeah, I just had one quick question.
Speaker Change: Yeah, thank you. So, how does the company think about balancing direct sales versus leveraging the reseller channel?
Speaker Change: I'll let Jon answer that.
Jon Brinton: Yeah, Matthew, we think of what we do through our direct sales and the Crescendo VIP brand is kind of the company store where we really interact with end customers and are able to sell them directly, get great customer feedback. But we're looking, our plan is to have balanced growth across both businesses and obviously take advantage of driving our software solutions business wherever possible because of its high margin profile, our ability to deploy that to service providers. This opportunity we've had in the meta switch community specifically is just, we're investing in that significantly. It's an area where we can grow at a higher rate than the market. So, you know, from that perspective, I would say we have a balanced approach.
Jon Brinton: We measure results tightly across every one of the go-to markets within our business, but we're investing heavily in growing our software solution sales because it does have ultimately the best margin profile and the highest software value for us overall.
Matthew Mass: Great, thanks for taking my questions, that was all from me.
Speaker Change: Thank you, Matthew.
Speaker Change: Your next question is coming from John McCulligan with Breakout Investments. Please post your question, your line is live.
John McCulligan: Hi Jon, how are you?
Speaker Change: It's actually Sam here, Sam McGoldin from Breakout Investors. Yeah, I had a lot of my questions answered already, but perhaps just one last one is that I was wondering, you've had a webinar that was aimed at Metaswitch customers who are kind of going through their own transitions. I wonder if you can kind of provide any...
Speaker Change: qualitative feedback we got through that session or after that session or any outcomes or things that happened thereafter. Yeah.
Speaker Change: As I mentioned, we had 180 people on the webinar.
Speaker Change: A number of customers who've migrated over to us who told everybody what a great job we have done and what
Speaker Change: impressive service we provide.
Speaker Change: There was a lot of excitement there.
Speaker Change: We have some of those in our queue to try and sell, and we have almost all of them we're working with.
Speaker Change: A lot of these are enterprise-level solutions, and those sales take a long time, as do platform sales.
Speaker Change: but we are highly excited about the...
Speaker Change: possibility and the probability, I would say, of getting a number of them onto the NetSapiens platform, but I'll let Jon give you a little more detail.
Speaker Change: And I will just fill in that on that webinar three of the panelists that we had
Speaker Change: are actually Metaswitch partners who have deployed the NetSapiens platform now as the direction of the future for their platform. And we continue to add more. We've added more partners from that community in this quarter. And our SQL webinar coming up is the Metaswitch Migration Playbook on November 19th.
Speaker Change: where we'll have a couple more partners who have legacy Metaswitch experience and a couple, Anand mentioned our ecosystem, a couple vendors in our ecosystem that help those folks to migrate to our technology. So we're going to continue to drive that. You'll see more releases, information about partners who have come over to us from that specific community. So this is, we're going to drive this theme hard, like I said before, because it's an underserved community that are looking for alternatives and we're having great success in becoming the alternative that they choose for the future.
Speaker Change: Brilliant, that's it for me. Congratulations again on a great quarter. Yep, thanks very much.
Speaker Change: Thanks for having me.
Speaker Change: Your next question is from John Roy with Water Tower Research. Please close your question, your line is live.
John Roy: Hi Jon, how are you?
John Roy: I'm doing good, doing quite good actually. So there's been a lot of discussion about the uncertainty that Microsoft has created on the platform side. If you could take a step back and maybe give us an idea, how big do you think this opportunity could work out to be for you guys?
Speaker Change: Well, there's a number of ways to answer so let me say I think the the possibility is as large as Microsoft No, obviously, we're not the only as long as Microsoft's platform obviously, we're not the only platform provider who is Trying to get people to move but I think we're the most advanced and in the best position to do so
Speaker Change: So people don't immediately have to move from that date.
Speaker Change: But I am very, very excited by the number of people who are looking at us and considering us. Some are going to move and move all of their people immediately. Some are going to move under a cap-and-grow circumstance where they will continue to put new people on and slowly migrate the people onto the platform. And we will lose some of them. But the possibility and the probability of getting a large proportion of those I think is very high. And we all here are very excited about that. But I can have Jon give you some more detail.
Jon Brinton: Yeah, I would just say that opportunity is...
Speaker Change: that that market can have a very long sales cycle, but we're excited about the funnel we have, the opportunities. Another anecdote I would give you is one of the Metaswitch partners that recently came to us had actually been in our sales funnel from becoming a marketing qualified lead for five years.
Jon Brinton: when they actually ended up purchasing. Others have purchased in three to six months. So, this is a very long-tail opportunity. There's components of this solution that go into life in April of 26.
Jon Brinton: There's other components that go end of life in 2029 and we're just going to continue to work this and grow our share of that market.
Speaker Change: Great. Thank you so much. Now, I'm kind of switching maybe directions a little bit. Yeah, I really do appreciate that you, you know, eliminated dividends so you can invest more in the company, and there's been a lot of talk of investments.
Jon Brinton: Maybe if you could just wrap it all up for us, what are your biggest investments that you're going to be making over the next year?
Speaker Change: What do you think? Well, our... Thank you, Jon. Our biggest investments...
Jon Brinton: And I think the best use of our proceeds are threefold. Obviously, we are spending money on OCI, which is going to be a huge driver for us going forward. As I mentioned before, I mean, especially as we're trying to migrate Cisco and Microsoft customers onto us, we can turn up an instance in a couple of days. So we can move as quickly as somebody wants to move. So that's a huge competitive advantage to us.
Jon Brinton: So we will continue to invest in that. We're continuing to invest in the Oracle accounting system, which will funnel and enable us to grow as fast as we need to and have accounting keep up with what we're doing.
Jon Brinton: Third, we continue to look at acquisitions as as you probably are aware when I first took first took over CEO I stopped looking at acquisitions because we needed to do a good job of Completing the transformation of the company into one company and getting all of the efficiencies out of the organizations now Well, that's always an ongoing process because there's always more efficiency You can get we've gotten to the point where I think we're ready to begin in earnest to look at substantial acquisitions next year So having the amount of cash we have is very valuable for doing that
Jon Brinton: I mean, we used to look at certain opportunities and we couldn't even get a seat at the table because they wanted to know how we were going to pay for it other than perhaps issuing cash. We now have sufficient cash that we can get a seat at any table to discuss an acquisition. So that's a very important thing for us to have and to continue to have.
Speaker Change: Thank you.
Speaker Change: Great, and congrats on the quarter. Thanks so much.
Speaker Change: Thank you, sir. Thanks, Jon.
Speaker Change: Once again, if there are any remaining questions or comments, please press star 1 on your phone at this time. Please hold the moment while we poll for any additional questions or comments.
Speaker Change: We have a question coming from Lori Vasquez with Crescendo. Please post your question. Your line is live.
Speaker Change: No, I didn't have one. I'm sorry.
Speaker Change: That's okay, I wasn't going to let you ask it anyway, so it didn't really matter, but thank you. There are no questions in queue at this time. I would now like to turn the floor back over to Jeff Korn for any closing remarks.
Jeff Korn: Thank you, Kelly, and thank everybody for their attention and for listening to the call. I know many of you were up late last night watching financial results, so I appreciate you manage election results, excuse me, and I appreciate you taking the time to join us. We're very excited about this quarter and we're very excited about Q4. We look forward to sharing that with you in March of next year and putting out press releases as is necessary. So thank you for your time and attention and we will see you soon.