Please standby, we are about to begin. Good day. And welcome to the Crexendo Fourth 2013 Quarter Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Chief Executive Officer, Steve Mihaylo. Please go ahead, sir.

Thank you, Amber, and good afternoon, everyone. I’m Steve Mihaylo, CEO and Chairman of Crexendo. I want to welcome all of you to the Crexendo 2013 year end conference call. With me today are Doug Gaylor, our President and COO; Ron Vincent, our CFO; Satish Bhagavatula, our CTO; Jeff Korn, our Chief Legal Officer; and Kim Reitz, our Controller. I am going to ask Jeff to read our Safe Harbor statement after that I will give a brief overview of the quarter and some operational highlights. Ron will provide some color on the numbers, Doug will provide a business and sales update and then we will open up the call to question. Jeff, would you please provide the Safe Harbor statement.

Yes. Thank you, Steve. I want to take this opportunity to remind listeners that this call will contain forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1935. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. All statements made in this conference call other than statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to words like, belief, expect, anticipate, estimate, will and other similar statements of expectations identifying forward-looking statements. Investors should be aware that any forward-looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today. The 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, 2013. Crexendo does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. I’d now like to turn the call back to Steve. Steve?

Thank you, Jeff. I want to take this opportunity to briefly discuss some of what I believe are the very exciting things that we as a company have completed. I will be brief as we are purposely trying to keep the prepared statements short so that we can answer specific questions that you may have. I want to make clear that I am very committed to and very optimistic about Crexendo. My belief in this company was founded on actions that have occurred by my seeing the enthusiasm of both our employees and our customers. I am very pleased that with the ability to report that I believe we have completed the transaction of the company from the old business model to our world-class cloud services business. As you know, this was no small task and we have done this with being able to continue to provide quality products to our customers including our legacy customers. We have kept the best of the old business and continue to develop what I believe will be a world-class web builder platform, our new builder Slingshot, we have began trials of Slingshot, initial comments from web developers have been very positive, I have high expectations for this product. We have continued to improve and streamline the business. We recently revamped our sales force. We have reduced the number of direct sales people and kept what we believe our top producers. We have also reduced some of the costs associated with our direct sales force. We've also reduced cost related with the University program as maintaining that expense until Slingshot is fully and running was not cost effective. This reduction in cost has substantially reduced our cash spend. I believe we will be [lead us to] profitability in the near future. We are convinced…

Yeah. Thank you, Steve. For the fourth quarter of 2013, we had consolidated revenue decreased 32% to $2.1 million compared to $3.1 million for the fourth quarter of 2012. Net loss for the fourth quarter of 2013 was $1.8 million or $0.17 per share -- per diluted share, compared to a net loss of $3.2 million or $0.30 per diluted common share for the fourth quarter of 2012. Financial highlights for the year ended December 31 2013, our consolidated revenue for the year ended December 31st decreased 40% to $10.3 million compared to $17.2 million for the year ended December 31, 2012. Net loss for the year ended December 31, 2013 was $5 million or $0.46 per diluted common share, compared to a net loss of $3.9 million or $0.37 per diluted common share for the year ended December 31, 2012. As of December 31, we had cash and cash equivalent, including restricted cash of $3.6, million compared to $8.9 million at December 31, 2012. Subsequent to year ended December 31st, we entered into a sale leaseback transaction with Steve Mihaylo, our CEO as Steve mentioned earlier, which allowed us to generate $2 million in cash to fund future operations. Cash used for operations for the year ended December 31, 2013 was $5.4 million compared to $446,000 for the year ended December 31, 2012. Cash provided by investing activities and financing activities for the year ended December 31, 2013 was $1 million compared to cash used for investing and financing activities of $772,000 for the year ended December 31, 2012. The cash provided by investing and financing activities primarily related to $1 million released from restricted cash. Working capital as of December 31st was $2.8 million compared to $6.3 million as of December 31, 2012. Working capital excluding deferred revenue…

Thanks, Ron. Good afternoon, everybody. Well, we continue to see very favorable sales and revenue trends for our Network Services division as we finished the quarter and fiscal year 2013. Our decision in Q3 to exit the web marketing and SEO divisions with the exception of our larger SEO accounts, allowed us to focus all of our sales and marketing efforts on our core competency, Crexendo’s hosted telecom offerings. We had record sales bookings during Q4, with sales bookings increase of 32% over Q3 and 26% over our previous high watermark, or sales that occurred in Q1 of 2013. Sales bookings for the fiscal year were up 61% over sales bookings in 2012. Our continued focus on selling Crexendo’s award-winning hosted telecom solutions combined with the cost savings benefits that the majority of our customers realize from our solutions continues to raise the bar for our sales and revenue numbers for the division. As Ron mentioned, backlog for the division also continues to grow at a nice pace with our fourth consecutive quarter of at least 23% quarter-over-quarter backlog growth. Our current revenue backlog of $7 million is a 35% increase from our backlog from Q3 and the 291% increase from Q4 2012. Revenue for Network Services also continues to see a steady increase as we posted revenues of $385k in the first quarter, $491k in the second quarter, $696k in the third quarter and now 4798k in the fourth quarter. So we continue to see a nice increase there. With the increased sales contributions from our growing partner sales channel, this trend should continue to see nice double-digit growth. The overall revenue for the division saw 194% increase, year-over-year, finishing 2013 with $2.4 million in revenue. Our partner sales channel continues to grow and is having increased numbers with…

Thank you, Doug. Greetings everyone. I’m glad to report that we made significant improvements to our products and technology during 2013. These enhancements have been in the areas of increased operational efficiency of our cloud services, improved features and new functionality in our telecom platform, maintenance of our current web hosting platform and heavy emphasis on the development of our new web platform called Slingshot. As we continued to increase our telecom customers, we see a remarkable growth in the traffic and network infrastructure. We continue to make more improvements regards to the growing needs of storage, computing, quality of service and high availability of our solution. We continue to plan and improve our data network connectivity by evaluating our existing carriers that reach and their availability to allow us to better reach our prospects and existing customers throughout the public Internet. We invested heavily in adding enhanced monitoring capabilities to our platform and availability of services vital to our cloud offerings for both telecom and web. This continuous analysis and the evaluation process better prepares against outages in public Internet upstream from our telecom carriers upstream from us and faulty equipment within our infrastructure. Our solution to protect Crexendo cloud infrastructure against distributed denial-of-service attack is already proving to be a great value add. This solution allows us to visualize and see the threat occurring on the Internet, which in turn hopefully allows it to devise solution against such attacks. Large DDoS attacks are common for service providers in the industry and our goal is to preserve and maintain a state-of-the art cloud infrastructure to protect it. Our stores 7.0 platform continues to service most of our web hosting and ecommerce conference today. Although, we have cease to add major new features to our 7.0 platform, we continue to…

Thank you, Satish. Amber, we are ready for questions.

(Operator Instructions) We will go first to Craig Samuels with Samuels Capital Management.

Good afternoon, Craig. Are you there?

Yes.

We are here. Good afternoon, Craig.

Hey, Steve, how are you?

Good.

Can you talk about overall corporate revenue for Q3 versus Q4 and Q4 was $2.1 million? What was just the telecom piece sequentially? Was there growth sequentially?

Absolutely. I am going to let Ron Vincent answer that one, but we’re averaging around 26% quarter-over-quarter.

Yes, that’s right, Steve. Our revenue for the fourth quarter was $798,000 compared to the September 30th quarter of $696,000. So, we are seeing that continued growth quarter-over-quarter.

Yes.

We’re growing right now at over 100% a year in the telecom division. Once we get Slingshot that we’ll start seeing our hosting revenue increase there and we’ll also pick up more banner ads on new websites or affiliates.

How many sales reps did you have in Q3 and how many sales reps in Q4?

Well, it was approximately 16 in both quarters, but we did do a reduction in force to call out the sales people that weren’t performing at our expectations. In addition to that, we added two more sales people in our dealer group, so it was a net reduction of six people, plus people that were involved in SEO and link building. We’ve made the decision as we announced previously that SEO and link building will only be done for our enterprise customers and all of the smaller stuff is being turned over to a company, that’s very competent in that area and will bring commissions on the deals that come to us by default.

So in Q4, you had 16 reps and in Q1, you will have how many on the payroll?

We will have a total of 11, 3 in our dealer program and 8 in our direct program. But as you know, we are adding dealer partners at a very fast rate, we are at 51 dealer partners as of today and that’s up from, how many a year ago Doug?

That was up from 34 at the end of Q3 -- 34 at the end of Q2 and 43 at the end of Q3.

Okay. Were you able to hear that?

Yes. So the question is, you’ve invested two years in a direct sales force and it looks like you’re kind of unwinding the direct, is that, I mean, you are down to 8 after two years?

No, we are not unwinding it at all Craig. What we’re finding is larger sales are being done by our direct people and the smaller sales are being done by dealers. Our infrastructure is so that it’s designed to support larger sales, not smaller sales. We spent as much time trying to sell on 8 or 10 front dealers. We do a 1,000 front deal. We think that we’re best equipped in this industry to handle large accounts, which makes that a natural for a direct sales force. We saw the same thing at my previous company, Inter-Tel. About 40% of the sales were accomplished by dealers, even though we had almost 5,000 dealer sales people, about 500 dealers with about 10 sales people each and we had about 300 or 400 direct sales people that were doing 60% of the sales. So, less than 10% of the sales force in our direct and 60% of the sales. So we’re just trying to see the same thing here. In the last quarter, can you tell us exactly what the ratio was and backlog from dealers versus direct, Doug?

I will have that exact rate down Steve, but we’re seeing more and more dealer sales coming through the channel. We’re seeing, as Steve said, all of our bigger sales coming through our direct channel and the underperforming direct sales people, approximately half of those have actually signed on that become dealers post-Crexendo. So we still get the benefit out of sales opportunities. We don’t have the cost out there unproductive facets when they are not selling.

Right. So at point down the road, will you star to increase your direct sales force again, perhaps as the revenue increases?

Well, that’s true, but more importantly, we want to have positive cash flow before we do that. And all of our budgets and everything that we have currently shows positive cash flow either late this year or early next year, that's with no acquisitions that just with organic growth. So we are pretty excited about the future. We have got one account that we are in the process of implementing currently which has over 700 desktops in it. The revenue from that alone will make an impact in the second quarter, I mean, yes, the second quarter of this year. So these are the kind of accounts that really had helped and I think, currently, we probably have, we just said those an accounts that are over 500 desktops.

That's accurate and compared to a lot of our competitors, in a short period of time we have got more larger accounts, lot of our competitors have had that, they are doing this for years and years and years. Our average transaction for the year is [Audio Gap] is in the single digits pretty essential, I think actually around [6 phase or 7 phase] if I am correct. So we are about double the average size transaction of some of our larger competitors.

How many installed customer seats do you guys have at present?

I don’t know the exact number, Craig, but we have an installed base which is bigger than our web hosting base and we have about 12,000 websites that we are hosting.

So at some point, given on a percent base, it’s 26% sequential, but you are off a low number, when you would expect, Steve, to really start to accelerate from 798, 1.3 to 2 to 3 to just that, it doesn’t look like you hit mark speed yet?

Craig, I know that everyone is interested in that and I am more than anybody. I have got biggest stake in this business. I can tell you this we are seeing tremendous growth in our dealer program, once we get Slingshot shop launch, I expect to see tremendous growth in our web hosting and our affiliate program which is the marketing and the feeder stock for our sales.

Who will be selling the web builder product, is that dealers?

Say again?

I’ve said what sales channels will be selling the web builder product?

That will be done with the developers, as soon as we get that product launch which we expect the launch before the end of this month. We are going to start going out to developer their trade shows, so that will be sold by developers that are building websites and then it will also be sold through the University program.

Got it. And then last question on the M&A front? Can you talk about your pipeline?

I can’t really talk about it, but we do have candidates in the pipeline and I would expect that we will see two or three acquisitions before the end of this year.

Good deal. So far so good. Thanks, Steve.

Craig, thank you. I appreciate your support buddy.

(Operator Instructions) And we will go next to Neal Goldman with Goldman Capital Management.

Hi guys.

Hi, Neal. How are you this afternoon?

Good. First question on StoresOnline, when you collect this 545,000, is that other than hosting certain of those clients, is that the end of the StoresOnline segment?

Well, that's the end of the StoresOnline segment, from the standpoint of the contracts that were sold through seminars. We still have a little bit of revenue coming in from SEO and Link Building but primarily for larger customers we will also see some commissions through smaller customers that we outsource. But, yes, that's basically up. The only other thing that remains the web hosting which we are going to enroll as we get Slingshot launched.

Okay. In terms of the current cash burn, what are you running at now on a monthly basis?

Well, you know...

I know it will change but as of the year end when you look at the budgeting, what are you currently running?

Well, we have $1.3 million and negative cash burn I believe in the fourth quarter, but with the changes we have made in January with the improved sales with expenses that are falling off from the StoresOnline, I would expect our cash burn to be around $1 million this quarter and I am looking at Ron Vincent and he is kind of shaking his head, down a little.

I don’t know the exact number but...

Which way is he shaking, Steve?

Right. We are going to start, it’s going to start…

Yeah. And then it will sequentially keep dropping each quarter. I would hope that the cash burn is below $300,000 or $400,000 a quarter by the end of the year.

Okay. In terms of the Slingshot, in terms of the pricing model, how do you view it?

We give the product away. We have different levels of hosting revenue. We haven’t quite finalized that but our single page to our static website will probably be under $10 a month. A very complex ecommerce website could be as much as $2,000 or $3,000 a month. So that’s the model.

Okay. At what sort of level of sales between the various segments where you need to be at the cash flow breakeven?

It’s kind of been a moving target. I have said all along, it’s around $1 million a month for both telecom and web hosting. I think it’s a little bit higher than that, maybe $1.1 million or $1.2 million.

Okay. And then the incremental margin, I assume is in the 70 plus percent after that?

Yeah. Once you have breakeven, the margins are probably even higher than 70%. It depends on how many people buy devices outright in the telecom division and how many lease them. If they lease them, the margins are going to be very high over 70%.

Right.

If they purchase them outright, the margins will probably be a little bit under 70%.

Okay. Are you doing the leasing or that’s going to be done by a third party?

No, we were doing the leasing and at Inter-Tel, we have huge credit lines. We don’t have that luxury right now because of the continuing problems in the economy and plus the fact that Crexendo is really a startup company. I mean, you guys are seeing a laboratory experiment here. We passed the experiment stage but you’re still seeing a startup company as a public company which is very rare and very unusual. Most of the time company start them up and they get up and running and then they go public. We redeployed our assets from the old business into the new model. So you’re saying a brand new business here.

Okay. All right, Steve. Thank you. Good luck.

Thank you, Neal.

(Operator Instructions) It appears that there are no further phone questions in the queue at this time. I’d like to turn it back over to the speakers for any additional or closing remarks.

I will just have one more thing I want to point out and that is, there is two metrics that you need to be looking up, well actually three. You need to be looking at backlog. You need to be looking at quarterly increases in sales. And you need to be looking at how well we manage our expenses. And we have a laser focus on all three of those areas. I’m prepared to put more money in to this, if I have to in the way of debt, convertible debt, common equity, preferred shares. But, I really don't think that's going to be necessary. I think the money that I paid to acquire the building that we are in is sufficient to fact that I’m exchanging common stock for rent, reduces the cash burn. All of those things are positive factors and I'm very, very optimistic. And I think I speak for the rest of our management team when I say that. With that, I’m going to wish you a good afternoon and a good evening. And we will see at the end of this quarter that ends this month and it will probably be what, sometime in May that we have our conference call. All right. Thank you everyone.

Thank you everybody.

Thank you. That does conclude our conference. You may now disconnect.