Crexendo Inc. ( EXE)

Q2 2011 Earnings Conference Call

August 9, 2011 4:30 PM ET

Executives

Jeff Korn – Chief Legal Officer

Steve Mihaylo – CEO

John Erickson – CFO

Dave Krietzberg – Chief Accounting Officer

Clint Sanderson – President

Jeff Jarvey – Controller

Analysts

Neal Goldman – Goldman Capital Management

Jeff Bash [Ph]

Walter Disney [Ph]

Presentation

Operator

Good day everyone and welcome to the Crexendo second quarter 2011 earnings conference call. Today’s call is being recorded. At this time, I would like to turn the conference over to Mr. Steve Mihaylo, Chief Executive Officer. Please go ahead sir.

Steve Mihaylo

Good afternoon everyone. Today I have with us Clint Sanderson our President, John Erickson, our Chief Financial Officer, Jeff Jarvey, our Controller, Dave Krietzberg, our Chief Administrative Officer and Jeff Korn, our Chief Legal Officer.

Before we get started today, I’d like to have Jeff read the forward-looking Safe Harbor statement.

Jeff Korn

Thank you, Steve. I want to take this opportunity to remind listeners that this call will contain forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. All statements made in this conference call other than statements of historical facts are forward-looking statements.

Forward-looking statements include that are not limited to words like, 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 fiscal year ended December 31 2010 and the Forms 10-Q for the periods ending March 31, 2011 and June 30 2011.

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 any other occurrence.

I’d now like to turn the call back to Steve. Steve?

Steve Mihaylo

Thank you, Jeff. As all of you are aware, I’m sure we made a decision in the first part of July to change the way we sell our StoresOnline products to our SOHO customers, our entrepreneurs, and individuals. We are aggressively pursuing sales through online marketing, inside sales and affiliates. We have however discontinued seminar sales. We think this will be a better way to reach those customers and we also think that it will reduce our expenses tremendously.

In addition, we beefed up our customer service towards those customers so that we can even help them more in the future. Rather than going through all the numbers at this time, I just want to state that as a result of the sales from the previous quarter probably aren’t that meaningful, what’s more meaningful is the amount of cash on our balance sheet which is nearly $12 million and the net receivables which are fully reserved in approximately $24 million to $25 million.

Going forward, of course the important things are the number of sales people that we have the sales through our Crexendo, which would be our Crexendo Business Services and Web Services as well as Crexendo Telecom and of course the number of customers that we have in our StoresOnline division.

At this point what I’m going to do is, turn the meeting over to John Erickson to go over all of the granularity and the individual information.

John Erickson

Thank you, Steve.

Steve Mihaylo

You bet.

John Erickson

In order to provide you more clarity on what to expect from our operations in coming quarters as a result of our decision to suspend seminar operations

I’d like to provide detail of our revenue and cost by channel and provide guidance on what remains after the suspension of the seminar channel and what no longer exists. But what you will see is that we are eliminating approximately $11.5 million in revenues based upon actual Q2 results and approximately $15.3 million in expenses. Here are the details.

From a revenue perspective, we had approximately $17.5 million in revenue for Q2 which is broken down as follows. Crexendo Web Services revenue was $550,000 which grew at a quarter-over-quarter rate of 15% from $479,000 and a year-over-year rate of 51% from $365,000. This revenue remains and is expected to grow in the future, our rate of growth will be dependent upon our ability to hire sufficient qualified sales reps and increase the productivity of our current sales reps.

Today we have 15 sales reps and hope to hire an additional three to four reps per month.

StoresOnline revenue was $16,928,000 which grew at a quarter-over-quarter rate of 20% from $14,89,000 in Q1. The increase from Q1 is primarily due to the seasonal nature of the StoresOnline business and that we don’t conduct seminar events in January. We also had a slight decrease year-over-year in StoresOnline revenue of 1% from $17,83,000 last year.

StoresOnline revenues broken down as follows; cash sales at our seminar events were $9,558,000. As a result of the suspension of our seminar sales channel this revenue will cease. During the second quarter we saw an improvement in our cash as a percentage of sales from the first quarter to 39% in Q2 from 29% in Q1. Historically, we found that we really need to be at about 50% cash percentage in order to have sustainable profitability.

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