Crexendo - Earnings Call - Q1 2021
May 11, 2021
Transcript
Speaker 0
Good afternoon, ladies and gentlemen, and welcome to the Crescendo First Quarter twenty twenty one Earnings Conference Call. At this time, all participants are in a listen only mode and the floor will be opened for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Steven Mihaylo. Sir, the floor is yours.
Speaker 1
Thank you, Catherine. Good afternoon, everyone. I'm Steve Mihaylo, Chairman and CEO of Crexendo. I want to welcome all of you to the Crexendo first quarter twenty twenty one conference call. On the call with me today are Doug Gaylor, our President and COO Ron Vincent, our CFO John Britton, our Chief Revenue Officer and Jeff Korn, our General Counsel.
The people with me today make up the best executive team I've ever had the pleasure of working with, but that is not the entire team. I also want to point out that the rest of the management team includes Nishith Chudasama, our VP of Engineering Teresa Weitzel, our head of channel sales Joe Seeler, our controller and Benjamin and Brian Spitler, our VP of operations. These individuals all have an undergraduate degree, and some have a master's degree with an average of over twenty years' experience. In addition, we also are excited that we will be adding from NetSapiens to our senior executive management team, Anand Butch, CEO and Co Founder of NetSapiens with a degree in electrical engineering and an MBA David Wong, cofounder and chief architect of the NetSapiens platform, who is also a degreed engineer. David also participated in drafting the standard in the FrameRelay form IEF or TF and ETSI, and we will also be adding Jim Murphy, NetSapiens' executive vice president who holds an MS double e degree and has spent most of his career in telephony.
The senior management of NetSapiens all have over twenty years of experience. This is a merger that is perfect for both companies. I am going to ask Jeff to read our safe harbor statement, and after that, I will give some brief general comments about the quarter. Ron will provide more detail on the numbers. Doug will provide a business and sales update, and then we will open the call up to questions.
Jeff, would you please read the safe harbor agreement?
Speaker 2
Yes, 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 the 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 such as believe, expect, anticipate, estimate, will and other similar statements of expectation identifying forward looking statements.
Investors and listeners 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 ks for fiscal year ended 12/31/2020, and the Forms 10 Q as filed. 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 circumstance. I'd now like to turn the call back
Speaker 1
to Steve. Steve? Thank you, Jeff. This is an exciting time for the country and for Crexendo. People are starting to get back to a more normal life, and business is coming back.
Business has changed, but we are in a great space as Crexendo is particularly suited to captivate capitalize on the new business order of work from anywhere. This was an amazing quarter for us. I would have liked to have kept our streak of GAAP profitability going. We knew the expenses associated with the NetServience merger would make that difficult, if not impossible. Even with the GAAP loss, we remain non GAAP profitable, achieving non GAAP net income of $308,000 or $02 per diluted and basic common share.
We are continuing to grow the business. UCaaS service revenue for the first quarter of twenty twenty one increased 21 compared to the first quarter of twenty twenty, and consolidated service revenue increased 19% year over year. These are very promising trends. While we do not give financial guidance, and this is my opinion, I have told the entire team that I believe we can accomplish better. And I won't be satisfied with anything less than 40% or more of annual growth for the next two or three years.
The revenue increase is not the most important story. As you know, we have already signed the merger agreement with NetSapiens. Our proxy is out for our shareholders and the NetSapiens shareholders have already received their information. We have received more than a majority of the votes of the Crexendo shareholders approving the merger and that Sapiens has advised us that a majority of their shareholders have approved the merger. As such, we have only the formality of our shareholder meeting and then closing, and we are hopeful that the merger will be closed by the end of this month.
This merger is a game changer for both companies. We eat, sleep and live telephony. Our team will work closely with the NetSapiens team to make certain our customers and the NetSapiens community have the best in telephony service. Crexendo's customers also benefit as we'll be able to offer them the NetSapiens video collaboration solution and mobility solutions, which I am convinced are the best in the industry, even better, in my opinion, than the current leader. Our combined company, I am sure, will be a big win for our shareholders.
SAPIENS was recently spotlighted in Frost and Sullivan's UCaaS report as the third party platform with the fastest growth rate in the North American market. And the report also ranks NetSapiens at four in UCaaS seats in the North American market. This merger increases both our footprints. Our combined company pro form a consolidated revenue for 2020 of $27,800,000 is nearly a 20% increase to the $23,300,000 for 2019. This strong growth represents this merger as a benefit for all of our shareholders.
A primary hallmark of Crexendo is running our company efficiently, and we will watch every single penny of shareholder money. With that said, we will make necessary investments to continue to improve and grow the company. We have followed our plan carefully. We brought the company to profitability. We organically were able to uplist to the NASDAQ.
We were able to successfully have a public offering, and we have grown the company both organically and through acquisitions. We will, I am certain, continue delivering on our plan. I have never been more convinced of our future. 2021 will continue to be spent on growth. With that, I'll turn the meeting over to Ron.
Ron?
Speaker 3
Thank you, Steve. Consolidated total revenue for the first quarter increased 17%, as Steve mentioned, to $4,500,000 compared to $3,900,000 for the first quarter of the prior year. Our consolidated service revenue for the first quarter increased 19% to $4,100,000 compared to $3,500,000 reported for the first quarter of the prior year. Our consolidated telecommunications segment service revenue for the quarter increased 21% or $691,000 to $4,000,000 as compared to $3,300,000 reported for the first quarter of the prior year, offset by a 26% decrease or $40,000 decrease in our Web Services segment service revenue. Product revenue for the first quarter decreased 3% or only 11,000 to $368,000 compared to $379,000 for the first quarter of the prior year.
Our consolidated operating expenses for the first quarter increased 45% to $5,300,000 compared to $3,700,000 for the first quarter of the prior year. During the first quarter, our acquisition related expenses accounted for $684,000 of additional general and administrative expenses, making up a large part of that increase. Net loss for the first quarter of $715,000 or $04 per basic and diluted common share compared to net income of $140,000 or $01 per basic and diluted common share for the first quarter of the prior year. On a non GAAP basis, net income for the first quarter of $308,000 or $02 per basic and diluted share as compared to $275,000 or $02 per basic and diluted common share for the same period of the prior year. Our EBITDA for the first quarter was a loss of $721,000 as compared to earnings of $284,000 for the same period of the prior year.
Adjusted EBITDA for the first quarter was income of $245,000 as compared to $389,000 for the same period of the prior year. Our cash, cash equivalents and restricted cash balance at March 31 was $16,200,000 as compared to $17,700,000 at 12/31/2020. Operating activities utilized $248,000 of cash, cash equivalents. Our investing activities utilized $2,200,000 of our cash, cash equivalents and financing activities provided $965,000 of cash, cash equivalents and restricted cash, primarily provided by proceeds from stock option exercises. I will now turn the call over
Speaker 4
to Doug Gaylor, our President
Speaker 3
and COO, for additional comments on sales and earnings recoveries.
Speaker 4
Thanks, Ron. We had a strong Q1 to begin the year with a 17% year over year total revenue increase and a 21% increase year over year in our UCaaS service revenue. On top of the strong revenue numbers, we announced our exciting merger with NetSapiens that will add a strong increasing revenue recurring revenue stream along with a tremendous UCaaS platform that currently supports north of 1,700,000 end users. We also made significant investments in our UCaaS offerings and are prepared to launch our new Crexendo VIP platform this month that will enhance our current offerings with a concentration on VIP, which stands for Video, Interactions and Phone. I believe this offering will be a game changer for us, and I will highlight more on that in a moment.
Our solid revenue growth year over year, despite the headwinds from the pandemic and slowdown in the economy, is a testament to the strength of our UCaaS offering and the need for our work from anywhere capabilities that most businesses need to survive in today's new business environment. While our growth for the quarter did not produce GAAP income for the first time after eight consecutive quarters, we expected that due to the nearly $700,000 in acquisition related costs, combined with our investments made for our new Crexendo VIP offering and additional investments in our sales and support teams. Our non GAAP net income was $308,000 or $02 per share, continues to show that we are managing the business well as we continue to grow and improve. The costs associated with our acquisition of NetSapiens are a significant investment in our future growth and our success. As you are aware, we have been spot on with following up on our plans.
We committed to managing a profitable business, and we're successful in that endeavor for eight quarters in a row. We committed to uplisting organically to a major exchange and completed that in July of last year with our listing on NASDAQ. We committed to raising funds to help our growth through accretive acquisitions, and we were successful with that with our S1 offering in September. We're committed to using those funds to invest in strong acquisitions to help spur our growth and our offerings, and that commitment will be met shortly as we close on our merger with NetSapiens in the coming weeks. The NetSapiens acquisition adds a UCaaS platform provider that experienced 30% revenue growth from 2019 to 2020, along with tremendous growth in end users utilizing our platform to a total of over 1,700,000 end users, and that propelled them to the fourth largest UCaaS platform provider in The U.
S, according to a recent Frost and Sullivan report. Not only are we acquiring a strong and increasing revenue stream from a solid UCaaS platform, but we are also adding a terrific video collaboration tool that we will own as opposed to white labeling our current collaboration tool that has lower margins and less capabilities. We have already started marketing the new collaboration tool as Crexendo HD and have had great reviews and early success. We are also extremely excited about working within the Sapiens team. We are committed to ensuring that their platform is the best offering in the UCaaS industry and are committed to their partner community and our customers.
The platform will be the core foundation for our Crexendo VIP offering, with a concentration on video with our collaboration tool interactions with our strong suite of text, chat, messaging, and faxing options, and phones with our Crexendo branded desktop phones with lifetime warranties along with our cell phone capabilities for computers and our mobile phone applications for cellular and tablets. We will have an offering that customers, partners and resellers will all love. As we integrate the two organizations, there are a lot of benefits that the combined company will recognize, including the aforementioned technology, along with a great personnel resources and industry experience that will help us maintain strong growth with healthy EBITDA and strong cash flow. We're excited to get the merger finalized and start implementing our combined plans, which are already in the designing stages and planning stages. Until the merger is consummated and afterwards, as a combined company, we will continue to manage our cost and reinvest in our organization.
There's still tremendous opportunity in the UCaaS market, and the need for work from anywhere solutions for businesses will only continue to grow and intensify. We are well positioned to take advantage of this growth as a stand alone entity, but with the combination of Crexendo and SAPIENS, it will be a significant force to be reckoned with in the industry. I'm excited about our past performance and even more excited about our future. We continue to execute on our plans and commitments for our shareholders, and our strategy for continued organic growth and growth through acquisitions will only gain more traction in the months and years ahead. With the opportunity to increase our market share not only here in The U.
S. But in previously untapped international markets as well, we are positioned extremely nicely to deliver for our shareholders. And with that, I will turn it back over to Steve for any additional comments.
Speaker 1
Thank you, Doug. That was a wonderful report. I have no additional comments except to echo what you've heard so far. Catherine, we're going to open it up for questions, if you have
Speaker 0
Your first question is coming from Josh Nichols. Your line is live.
Speaker 4
Yes. Thanks for taking my question.
Speaker 3
How's it going?
Speaker 1
Very well.
Speaker 4
Thank you. Good.
Speaker 3
It's great to hear the merger is all but closed at this point with the majority of the
Speaker 4
shareholder vote. Could you just elaborate a little bit on the integration timeline? Because you're already in the planning stages. And what do you
Speaker 3
think the nearest opportunities are post merger in terms of cross selling, up selling?
Speaker 1
I'm going to let Doug handle that, but I do wanna make a couple of comments. First of all, we were working on this merger probably eighteen months ago. Part of it is the bureaucracy we had to deal with and new rules that the SEC and the accounting folks had us up against. But we've been doing the integration work for the last couple of months, and John Brinton and Doug Gaylor and the entire team for that matter have been preparing for this. With that, I'm going to turn it over to Doug, and he's going to fill in the blanks for me.
And you?
Speaker 4
Yep. Yeah. Great. Thanks, Josh, and good talking to you. So, yeah, obviously, the integration discussions are already well underway.
So departmental meetings, planning sessions, planning strategies, we anticipate our shareholder meeting on Monday of next week. We'll get everything formally approved. And then it's just a matter of crossing the Ts and nodding the Is. And as Ron mentioned earlier, we anticipate to have everything closed hopefully by the end of this month. From that point, it's really working on the synergies between the two organizations and growing both organizations consistently.
So as I mentioned, with our 20%, twenty one % growth on the UCaaS side in the last quarter and NetSapient thirty percent in the last year, we anticipate being able to continue to grow both sides of the equation. So we're extremely excited about putting the organizations together. The NetSapiens management team is extremely excited as well. And so it's, as Steve said earlier, just a perfect match and a perfect fit for both organizations.
Speaker 1
You, Doug. That answer your question, Yes, it did. Thanks. And then
Speaker 4
just as a follow-up, I'm curious as to the trends you're seeing in business communication spend. Has that been improving post COVID? And then also any commentary about backlog, seat growth or anything that you're seeing on the business side? I'm going
Speaker 1
to let Doug handle that one.
Speaker 4
Yes. So I think that we are seeing businesses coming back to the office. That's spurring on a need for them to reinvest in their communication platforms. The whole pandemic for the last fifteen months has been a little strange in the fact that businesses were a little hesitant in a while and then realizing that they had to move forward. So we've seen kind of a little ebb and flow in the sales traction there.
But I think we're seeing businesses today coming back, reopening their offices and needing more and more communication tools. So I think that the work from home environment is not going to change. It may continue to shrink a little bit, but it's going to be well above what the pre pandemic work from home environments were. And the need for collaboration and the tools that we bring to the table with our UCaaS offerings are only going to become more and more prominent in today's business society. So that being said, our backlog was up year over year.
We continue to see strong demand out there for our products and our platforms. We've got a lot of interest from our partners in the new VIP platform that's going be rolling out and some of the new capabilities with our collaboration tool. So I am extremely, extremely excited and extremely bullish on the future.
Speaker 1
Thank you, Don. Thanks, guys. All right. Catherine, do you have any more for us?
Speaker 0
Yes. Your next question is coming from Catherine Trebnick. Your line is live. Thank you for taking my call. Congratulations.
Nice print and the acquisition also.
Speaker 1
We're obviously very excited about the future.
Speaker 0
Definitely. Doug, I got a question for you. OpEx trended up. It's Obviously, G and A with the acquisition, but marketing sales and marketing was up. Did you procure any new tools in marketing, run any specific marketing programs that had trended up?
And how should we think about that for the rest of the year?
Speaker 4
Yes. Great question. So yes, we're obviously reinvesting in sales. We've hired new additional salespeople, additional channel managers. Obviously, putting a marketing pitch in and building the new Crexendo VIP platform.
We've had a lot of marketing initiatives. I'll let John Britton, our Chief Revenue Officer, add a little bit more color on that because he's really spearheading the VIP rollout. And so we did obviously have some additional sales and marketing expenses as we queue up for that, and we put some additional incentives out there as well to keep sales excited and keep the partner channel excited.
Speaker 1
Yes. So hi, Catherine. Good to talk to you.
Speaker 5
A couple of investments that we've made over the longer term, I think, that are important for the program as we look to expand, especially with the launch of the VIP platform and just the great tools that this gives us to reach out to a new community of selling partners is we did invest in SaaS quote to contract tool that we've been deploying over the last three months and have just released called MasterStream. And basically, what it does is if we have a channel partner who's got a sales rep that gets up in the morning and has an appointment at 10:00, they can log in, price and propose our solutions, be able to get all our collateral marketing material and have that able to be electronically or physically presented So that's one area that we've made some improvements into our sales and marketing processes to kind of remove friction from that environment. And the other area is just the preparation for the launch of the VIP platform. We do I mean, that's one of the things that I'm just thrilled with about the NetSapiens acquisition is this is just great technology.
Being able to it's the question we had about how does it change in the workplace. More and more meetings that we have permanently, some people that are not in those meetings will not be present with us at the room. So while more of us may be back together, there's still the requirement to bring in people who are not there and have an immersive environment. And with this platform and the technology that we're getting through this acquisition, we've positioned it as Crexendo VIP platform. We've made some investments in preparing for that launch, and we're going to continue to drive it because we really think it changes the dialogue that we can have with our partners and within customers that are prospects for Crexendo.
Speaker 0
Next, Telfer. Next question is coming from Charles Ronson. Your line is live.
Speaker 6
Hello. Hi. Good afternoon. Steve, best congratulations to you and your team and your new team as well. This quarter was really great.
And I just have to say that in addition to do aside from just doing a significant acquisition, revenues have continued actually better looking at the trade lines than before. So
Speaker 4
Yes.
Speaker 6
You know, I'm I'm out of shock.
Speaker 1
One of the things I'd like to add is if you just just do the math, what we've already got in place is going to be 50 or 60% ahead of last year. And that's, you know, hopefully, the low mark.
Speaker 6
I wouldn't be a bit surprised. I haven't had time to do the math yet, to be frank. But you well. We only got a couple of minutes before the call began. But, look, it's been great.
I looked at the pro formas, you know, the two organizations together. The trouble with the pro formas, you know, they're static, and here I'm dealing with two really dynamic organizations. Now I realize you're gonna be making investments, obviously, which you have to do. Just on a sort of a static thing, how much how many expenses do you think you can actually cut from historic just by having the two companies together? And, also, to the extent you're capable of saying so, what sort of projections would you care to put out right now?
And I'm not trying to put you on the spot.
Speaker 1
We're we're not gonna put out any projections. We don't do that.
Speaker 6
But That's not
Speaker 1
you think about this thing, there's two accounting departments. There's only gonna be one eventually. There's multiple data centers. And right now, we we may have one too many. So that'll be eliminated over time, but it's probably gonna take twelve to eighteen months.
You have to understand that our sales are gonna be growing every single day into the future. So we'll either grow into those data centers or we'll optimize them. Those are just a few of the of the synergies. And, of course, you know, we watch every single penny at Crexendo, and we're gonna spend more and more money on training to make sure that our cultures align with each other. I would say by the end of this year, based on what I'm hearing, the NetSapiens folks and the Crexendo folks are going to be pretty much in lockstep.
We're all A players. We all expect to win, and that's just in our DNA. And you're gonna see more and more of that and more and more improvement. And it isn't gonna be a straight line. It It may look like a stair step or a jagged line, but net result is going to be onward and upward.
Do you want to add anything to that, Doug?
Speaker 4
No, I think that's great comments, Steve. Again, when we look at combining the two organizations, they've both been extremely well run. And so we're excited about seeing where there's extra opportunities to cut costs. And those are areas like software applications and dual applications that we may be running and they're running. So there's definitely some good upside opportunity.
But most importantly, it's growing the top line revenue. And so we'll be reinvesting on both sides of the equation to make sure that we're growing the top line.
Speaker 6
That's the most exciting part of the entire transaction, I agree. Guys. Thank you very much for a great quarter and looking forward, and I'll keep on top of the company.
Speaker 1
Thanks, Chuck. Thank you, Chuck.
Speaker 0
Next question is coming from Damon Finaldi. Your line is live.
Speaker 1
Good afternoon, guys. Nice to
Speaker 4
meet everyone. Damon. Hi, Damon. It was Damon. Hi, guys.
This message is for John question is for that's okay. For John and Teresa.
Speaker 1
About the twins.
Speaker 4
I've seen a lot more of our national competitors looking to buy market share through increased SPIF amounts. How are you guys combating that yourselves, and what are your plans to handle SPIFs?
Speaker 1
Well, let me me just comment on this. This is one of the largest markets in the world. Even the leaders in this business only have about 1% of the market. I think there's room for growth for decades, not just today and tomorrow, but for decades. I'm excited about this because we are going to have one platform.
It's slightly better than our platform, or it does a little bit more. But more important than that, we added a whole bunch of a players to the team. I'm just thrilled with this merger, and I believe it's going to propel us into the first class. But you have to understand, we're gonna grow organically and through mergers forever. That's the way we've done it in our former business, and that's the way we're gonna do it going forward.
This is not a strategy. It's a way of life. And
Speaker 4
Doug, do you want
Speaker 1
to add anything to that?
Speaker 4
Yes. I'll add just a little bit, then I'll have John add a little color as well. So obviously, spits are something that's always been out there. We want to obviously earn end users businesses, and so we're always out there making sure that we've got something that's a competitive offering. So it's something that we're not prepared to go out there and buy the business at all costs.
I think you look at our competitors that are doing that, and they continue to bleed money. So just in the last few days, the results of some of our competitors continue to show massive losses. And so we're going to do it prudently, and we're to go out there and earn the business. John, do want to add some more color to that?
Speaker 5
Yes. No, thanks for the question, Damon. And I'll just say one of the things is with this merger, I really believe that combined Crexendo and NetSapiens will have about the broadest opportunity for potential channel partners to be able to do business with us. If you look at NetSapiens' model of selling the building platform, selling the software and then what they do now with the SnapXL model, where they actually host it for their service providers and then also in our model, where we give people an opportunity to interact with agent. So we have a better story across the whole portfolio of commercial offerings for agents in a while.
And don't deny that there's a certain level of pay to play and some of the incentives that are out there. You always look at things like the ease of doing business, reliability and things of that nature. So in our case, to Catherine's question earlier, that's part of the reason why we chose Master Stream as a SaaS tool for our agent community to be able to price and propose our solutions. It takes a lot of friction out of the sales process. One of the things we're doing with the VIP platform, which is a direct result of the merger with NetSapience that we're deploying, is we placed 100% uptime guarantee on it for maximum reliability for customers.
So we are looking at the places that we can add additional value and build long term relationships and get away from some of the areas where the market can be slightly promotional. Not to say that we have no incentives for partners, but we're not really feeling pressure to have the largest incentive or to be trained to match some of the things you see in the market right now because of the overall benefits of the program.
Speaker 0
Your next question is coming from Ronald Saul.
Speaker 1
Maybe this question is for Ron. On the income statement, we said there were $684,000 of SG and A related to the merger. But in the cash flow statement, it shows a business acquisition of $2,163,000
Speaker 3
Yes. So those are separate transactions. That $2,100,000 on the statement of cash flows relates to business acquisition costs directly related to a small acquisition we completed during the quarter that was not significant to the business. So it wasn't called out specifically.
Speaker 1
Okay. And maybe one more question. Will the people from the Sapiens be moving? Will any of them be moving to Arizona? I mean, I assume they're going
Speaker 4
to keep most of their
Speaker 1
present structure in La Jolla. I'm gonna answer this one. We are a virtual company, and that's what we sell. You don't see it right now and we probably won't be able to use it, but we'll use it internally. All of our video conferencing and everything is better than the current leaders out there.
And with that, we'll be able to work together as if we're in the same room with each other. It just happens that Onan Bush has relatives here in the Phoenix area. Whether he moves or not, that's not for me to decide. That's for him to decide. Whether any of his people move or don't move, that's for them to decide.
I would think that with virtual communication like we are in, the UCaaS business, it's not really necessary. But, of course, if they wanna move, that's their business. They're more than welcome to. Did you wanna add anything to that?
Speaker 4
I'm just looking forward to the hundred and fifteen degree days in Phoenix when I can go over to San Diego and spend some time in La Jolla and business meetings because it gets a little warm here in Phoenix.
Speaker 1
Yes. You know, most people get out of knowledge in the summertime.
Speaker 4
Any thoughts on?
Speaker 1
No, I'm good. Thank you. Thank you. Catherine?
Speaker 0
Your next question is coming from Edward Gilmore. Your line is live.
Speaker 3
Hi, Edward. How are you? Good. Hi, Steve and hi, Doug. Congrats on the quarter and getting this merger almost to the finish line here.
I just had a couple of quick questions on pricing and sales. I was wondering if you could maybe comment a little bit on expected gross margins for the VIP solution and the Crexendo HD solution.
Speaker 1
Well, I'm going to let one of the guys jump in on this one. Yes.
Speaker 4
We think that we anticipate strong gross margins. I mean, obviously, we'll own the platform with the merger with NetSapient. So having our own platform today with the Crexendo current platform. We've got strong margins and continue to have strong margins because we own that platform. The hardware aspect of it is that we've spent a little bit lower margins, but combined, our gross margins have always been strong.
So we anticipate the Crexendo VIP platform continue to be strong margins and that Sapient runs on a strong margin on their side of the equation as well. So we anticipate strong margins going forward on both sides of the equation. The Crexendo HD and the collaboration offering from MedSapiens again is in house technology that was designed and developed by the MedSapiens team. So obviously, there is tremendous margins there as well as we continue to see more and more demand there. So we're extremely excited about the fact that we're going to have more technology and better technology and, again, strong margins with that technology, able to roll it out and being extremely competitive out there in the marketplace.
Speaker 1
And by the way, margins are one of the things that I looked at very carefully. Right now, we're in a building mode. But once we get over about $100,000,000 in revenue, I would expect our margins to creep up 1%, two % and eventually pop out at maybe 74, 70 five percent. I think they can actually go a little bit higher than that, but we like to offer our customers the best service out there, and that requires a little bit lower margins in order to do that.
Speaker 3
Okay. Thanks, Steve and Doug. And then just a follow-up question.
Speaker 4
Do you all
Speaker 3
have a sense yet of how many customers you may be able to onboard to the NetSafient solution, I guess, the HD solution per month or quarter or however you're going to model that?
Speaker 4
Yes. So again, two sides of the equation there. So if you look at NetSapient, NetSapient has brought on about 24 new partners selling their platform just last year. So we anticipate those numbers to continue and be maybe higher numbers in 2021. That's obviously from a platform perspective.
When you talk about us onboarding customers, obviously, anticipate continuing growing our sales. And so onboarding more and more customers onto the VIP platform, that's going to start in June, and we anticipate that taking off like a rocket. And then from a Snap HD, from a Crexendo HD and the collaboration tool, that's going be part and parcel to our offering on the VIP platform. So we'll have different licenses, and one of the licenses will be inclusive of the video application. So as we anticipate, we'll see a lot of adoption for licenses that will have the Crexendo HD collaboration tool built into it.
Great. Thanks, Doug.
Speaker 1
Thank Doug.
Speaker 0
Your last question is coming from Grayson Hillman. Your line is live.
Speaker 4
Yes. Hi. This is Grayson Hillman. Hi, Doug. Hey.
I was just reading a few of the documents for the merger. And number one, it says that NetSapiens was interested in in a potential merger or sale. Why were they interested in a potential merger or sale, you know, as you could ascertain? Yeah. I think that when you look at both organizations, growth obviously was a major component for both organizations.
So Crexendo obviously has been looking for growth, and NetSapiens is looking for growth. Obviously, being public, we had the access to the public markets to go out and raise that capital. NetSapience being private didn't have that same luxury to be able to go out and raise capital. And to be able to grow in this market, it's extremely competitive. And to get the right talent and the right people on board, it's an expensive endeavor.
And you probably know that, Greg, because we've been talking for quite some time in the industry that this is a very competitive industry, so it takes a lot to get the profitability. So NetSapiens was looking to grow. And for them to be able to grow, they had to find a good partner. And for us to continue to grow, we had to find the right partner. So as Steve said earlier, it really is a kind of a marriage made in heaven or in the clouds, so to speak, no pun intended or actually pun intended.
So when we think about the combination of the two organizations, this industry telecom industry has been ripe with M and A for quite some time because it is so competitive. And so for NetSapiens to continue to grow their platform, they needed a partner, and Crexendo was the perfect partner for them. And Crexendo to grow the way that we want to grow, NetSavings was the perfect fit for us. Okay. And some of the major verticals that NetSavings going after included new contact centers of service and also some, you know, offerings to education.
You know, I noticed that they're they signed up Kaplan University. Are they new areas for new verticals that you haven't been in before? Yes. So good question. So when you think about verticals, yeah, we've always talked about the fact on the UCaaS side that every business out there has got a phone system, and most of them need our service.
And so whether it's a school, whether it's a doctor's office, whether it's a car dealership, you know, we sell from an end user perspective to all different verticals. NetSapient selling platforms, they sell to UCaaS providers very similar to Crexendo. So the UCaaS providers that NetSapient sells to obviously sells to all different types of verticals out there. Kaplan is a unique proposition in the fact that they're not actually a reseller of the platform, but they actually purchased the platform for their own internal use, which is a really, really unique aspect in that Sapiens is a platform, but it's also a system that for large enterprises, that's a very, very good opportunity for us and one that Sapiens has just begun starting to explore and probably will have many opportunities to explore that further. So if you think about Fortune 500, Fortune 1,000 type companies that have huge infrastructure, buying their own platform makes a whole lot of sense.
And so that's definitely not off the table. That's definitely an option that could be pursued from a vertical that's going after large enterprises to allow them to have their own platform version. Okay. And then contact center as a service, does Crexendo sell that offering already? Yes.
So both organizations have contact center applications built into their platform. So Crexendo had a contact center solution as did MedSapiens. And so again, combining the two organizations, the exciting part for me is taking the best of both platforms and the engineering talents that we've got on both sides of the equation to build a better mousetrap. And so it's only going to get better from here. So the offerings that both organizations had and both platforms had were great offerings, and they're only going to continue to get better with that focus and being able to cross migrate technology.
So where there is maybe a weakness on one side of the equation, whether it was Crexendo or NetSapiens, we'll be able to fill that void with the strength from the other side of the organization.
Speaker 1
Yes. And one thing I'd like to add, Greg, is it's very, very expensive to have more than one platform. We will have one platform in about, you know, twelve to twenty four months from now, and we will be able to optimize all kinds of things, expenses, margins, you name it, people. But the bottom line is we're growing, so we're gonna become more and more efficient. And I I don't think that once we optimize the two organizations, we're gonna need every person that we have.
It's not a case of, you know, cutting out expenses and then you never grow after that. We're a growing, breathing, living organization, And everybody in this organization thinks the same way. We want to win. And as Doug pointed out and Ron or I mean, John, Breton pointed out, we're going to win. It's just a matter of time.
It's not a question of if. So, everyone around here is shaking their head up and down. Yes.
Speaker 3
You
Speaker 4
know, Steve, is the NetSafings team, like, you know, like their founder, is he does he spend a % of his time on the company, or is he does he have a lot of other ventures that he's involved with?
Speaker 1
No. I think he spends a % of his time. You know, whether you have other ventures, as long as you're spending a hundred time and when you take a shower or a bath in the morning, you're thinking about Crexendo,
Speaker 4
we don't care about all of that. And I can tell you, Greg, that, you know, the the executive team at, I mean, that is 100 their core focus just as it's a % our core focus on the executive team here at, Crexendo. So, you know, they they live, breathe, and die the growth and the success of their organization as we do. And as I said, you know, I can't be more excited about the commonalities between our teams because we have the same work ethic, the same ideals and the same goals and dedication to make this thing a tremendous success. Okay.
Doug, I don't think I've got to the right page yet in the document, but who else who's going know what percentage of the combined companies between NetSavings and Crexendo? Ron can probably give a better breakdown on percentages there. But I think after the merger is complete, Ron?
Speaker 3
Yes. I believe and you'll find the document that the NetSafety and shareholders of the outstanding shares will only 14% of the combined entities outstanding common shares. A large portion of the purchase price is the exchange of our common stock options for their stock options. So all employees or majority of employees will be option holders in the combined entity.
Speaker 4
Okay. Is there a table that shows the owners, what percentage they have somewhere, the combined entity in the document?
Speaker 3
That's the ownership table in the document, yes.
Speaker 4
Well, it's it's in the proxy, Greg. So I'm not sure what page it is, but there is a beneficial ownership page in that that phone book that you have.
Speaker 1
Yeah. Greg, one of the things you have to remember is Crescendo was more like a a private company because of my ownership. My idea is to become diluted and diluted and diluted to the point where we have a gigantic float or a gigantic percentage of the float. We're probably never going to have the number of shares out that a lot of our competitors have. That works better for shareholders.
If you read I have a website. I haven't updated it in probably ten years, but my philosophy is the same today as it was ten years ago. You've got four constituents, shareholders, and I'm gonna list them in a number of importance, employees, vendors, and customers. And you see actually, I think I would put customers in front of vendors. But other than that, they're all equal except the shareholders are a little more equal than the the and I'm, thankfully, one of my, key guys provided me with a website here.
I can't read it. The font's too small. But you'll get to see who you're dealing with. And we consider our shareholders to be the number one constituency that we have to provide for. And what we wanna do is get a bigger float out there so that it's easier to trade our stock.
And you're gonna have that when NetSapiens' lockup period expires. It just happens naturally, and it happens as we offer more employees, even 500 shares of options. And they either do a cashless exercise and part of those shares get sold to pay for it, or they sell all of them and they buy a house or they buy something. The important thing is is everyone benefits from this. We have a community of people, and that's all we have is shareholders, employees, customers, and vendors, and all of the people that make that happen.
And that's what we want to improve everyone's life with. We want everyone to share in the wealth of this business. And if I get diluted down to nothing, to zero, it'll probably happen when I'm dead, but I don't intend to die anytime soon. So everyone around the table is laughing. But the point is we're going to make sure that our shareholders are number one, and I've been way too wordy, so I'm going to shut up.
You have another question, feel free to ask it.
Speaker 4
No, I think that's it. Thanks, Doug and Steve.
Speaker 1
Thanks, Greg. Appreciate it. You bet. Thank you.
Speaker 0
We have no further questions from the lines at this time.
Speaker 1
All right. Thank you, everyone, and thanks for being on the call. And we've had the most questions we've ever had. We ran for just about an hour today, and, we look forward to seeing you or hearing from all of you, in July. And by the way, we know what our numbers are a week or two before we release them, but we're trying to be sensitive to our shareholders and our analysts and all of the folks that make it possible for us to exist.
So we've been having our conference call a a week later than most of our competitors. But, you know, if they get their act together and they have their conference call a little early, we'll rebut the whole thing a day or two after them. So thank you, and we look forward to seeing you next quarter. And in the meantime, we're going to work very, very hard for all of you. Thank you.
Okay, Eddie. Appreciate it.
Speaker 0
Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.