Crexendo, Inc.
Q4 2019 Earnings Call Transcript

Published: 4 Mar 2020

[Operator:]

Good day, ladies and gentlemen, and welcome to the Crexendo’s Fourth Quarter and Year-End 2019 Earnings Call. All lines have been placed in a listen-only mode and then floor will be open for your questions and comments following the presentation.At this time, it is my pleasure to turn the floor over to Steve Mihaylo, CEO and Chairman of the Board. Sir, the floor is yours.

[Steve Mihaylo:]

Thank you, Christie. Good afternoon, everyone. I'm Steve Mihaylo, Chairman and CEO of Crexendo. I want to welcome all of you to the Crexendo’s year-end 2019 conference call. With me today are Doug Gaylor, our President and COO; Ron Vincent, our CFO; and Jeff Korn, our General Counsel.I'm going to ask Jeff to read the Safe Harbor statement. After that, I will give some brief general comments relative to the quarter. Ron will then provide more details 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 provide the Safe Harbor statement.

[Jeff Korn:]

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 1934. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements.All statements made in this conference call other than statements of historical fact are forward-looking statements. Forward-looking statements include but are not limited to words such as believe, expect, anticipate, estimate, will and other similar statements of expectation 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. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission, including the Form 10-K for the fiscal year ended December 31, 2019 and the Form 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 otherwise.I'd now like to turn the call back to Steve. Steve?

[Steve Mihaylo:]

Thank you, Jeff. This was a very exciting year for Crexendo. Our goal was to be GAAP profit on more and we achieve that. Our goal last year was to be non-GAAP profitable and we achieve that. This is not a matter of mission accomplished. These were two steps and what we expect to be a methodical process of substantially growing this business. 2019 was a verygood year, we achieved a GAAP profit of $0.08 per basic common share for 2019. This was especially exciting to considering that we have a GAAP loss of $0.02 per basic common share in 2018. We have very strong results in our cloud telecommunication segments. UCaaS service revenue for the year increased 25% in 2019 compared to the year-ended December 31, 2018.One thing we have always done well is managed our cash, our cash position is more than doubled with total cash, cash equivalents unrestricted cash being $4.3 million at the end of 2019 compared to $1.8 million at the end of 2018. Also very impressive is the increase in our current ratio that 2.0 to 1. And our shareholder equity increased by 119% in 2019. These results are even more impressive when you take into account that Crexendo remark 200,000 for bonuses in Q4 of 2019. None of this matters, if we don't continue to provide and grow the business. Sales are good but could be better. I'm going to be taking a more active role in the sales process with Doug, so we can keep this momentum going.In addition, Doug is going to take a more active role in acquisitions, so we can grow the business even faster. We're going to accelerate our marketing spend as well. We added a dedicated marketing's position yesterday that we have been searching for a very long time. Although, these are unnecessary expenditures this does not mean we will be reckless with spending. We have always watched every penny of shareholder money, but we will make the necessary investment in Crexendo to continue to grow this business.We are obviously watching the situation in China very carefully. We are in contact with our suppliers and they have told us that they are fully operational. Crexendo does not expect any disruption in our supply chain. We are also watching the current domestic situation and we do not expect any impact on our business. Our solutions are designed with intent of makingtelecommunicating or working remote was seamless. We believe the market for and the need for UCaaS services has never been greater, and we further believe that we are in a unique position to capitalize on the UCaaS market.I'm also confident that our solutions are second to none and Crexendo's support, and products are top of the line. I do not believe customers find it better -- I do not believe that our customers can find a better solution than the Crexendo read the cloud products and services anywhere. We have made substantial improvements to the company and expect these results to continue for the foreseeable future. I'm very excited about our future.With that, I will turn the call over to Ron. Ron, can you give some specifics and granularity to the information I just provided?

[Ron Vincent:]

Yes, sir, thanks, Steve. Consolidated revenue for the fourth quarter of 2019 increased 20% to $3.7 million compared to $3.1 million for the fourth quarter of the prior year. Service revenue for fourth quarter increased 20% to $3.3 million compared to $2.8 million reported for the fourth quarter of the prior year. Cloud telecommunication service revenue for the quarter increased 23%, or $599,000 to $3.2 million compared to $2.6 million reported for the fourth quarter of the prior year. Web services segment -- service revenue for the quarter decreased 19%, or $35,000 to $154,000 compared to $189,000 reported for the fourth quarter of the prior year.Product revenue for the fourth quarter of 2019 increased 20% to $397,000 compared to $330,000 for the fourth quarter of the prior year.Consolidated operating expenses for the fourth quarter of 2019 increased 13% to $3.5 million compared to $3.1 million for the fourth quarter of the prior year. Net income for the fourth quarter of $228,000, or $0.02 per basic common share and $0.01 per diluted common share, compared to a net loss of $8,000, or breakeven for basic and diluted common share for the fourth quarter of the prior year.Non-GAAP net income for the fourth quarter of $347,000, or $0.02 per basic and diluted common share, as compared to $104,000, or $0.01 per basic and diluted common share for the same period of the prior year. EBITDA for the fourth quarter was $243,000, compared to $26,000 for the same period in the prior year. Adjusted EBITDA for the fourth quarter was $349,000 as compared to $120,000 for the same period of the prior year.Now, let's take a look at year-end. We are pleased with our consolidated revenue for the year, the $14.4 million as an increase of 21%, compared to $11.9 million reported for the prior year. We continue to see tremendous growth in our telecommunication segment. The cloud telecommunication segments generate a revenue of $13.8 million for the year that's an increase of 25%, compared to $11.1 million reported for the prior year.Service revenue for the year increased 22% to $12.7 million, compared to $10.5 million reported to the prior year. Cloud telecommunication service revenue for the year increased 25%, or $2.5 million to $12.1 million compared to $9.6 million. Web services segment revenue for the year increased 20%, or $169,000 to $656,000 as compared to $825,000 recorded for the prior year.Our product revenue increased 17% to $1.7 million, compared to $1.4 million reported to the prior year. Our telecommunications segment backlog, which is anticipated to be recognized within the next 36 to 60 months, increased 13% to $26.1 million at year-end as compared to $23 million at the end of the prior year. Consolidated operating expenses for the year increased 10% to $13.3 million as compared to $12.1 million reported for the prior year.Our net income for the year of $1.1 million, or $0.08 per basic and diluted common share, compared to a loss of $223,000, or $0.02 loss per basic and diluted common share over the prior year. The company did not record any federal tax provisions related to the net income for the year after utilizing net operating loss carry forwards. The company has approximately $18.5 million in net operating loss carry forwards available at the end of 2019.Non-GAAP net income for the year of $1.6 million, or $0.11 per basic common share and $0.10 per diluted common share, compared to non GAAP net income of $287,000, or $0.02 for basic and diluted common share for the prior year. EBITDA for the year of $1.2 million, compared to a loss of $114,000 for the prior year. Adjusted EBITDA for the year of $1.6 million, compared to $324,000 for the prior year.Our cash, cash equivalents and restricted cash as Steve mentioned, increased $4.3 million compared to $1.9 million at the end of 2018. Operating activities provided $1.6 million in cash and cash equivalents. Investing activities utilize $72,000 of our cash, cash equivalents or the purchase of property and equipment and financing activities provided $765,000 of cash, cash equivalents restricted cash primarily due to proceeds from exercises of stock options.With that, I'll turn it over to Doug Gaylor, our President and COO for additional comments on operations.

[Doug Gaylor:]

Thanks, Ron. We finished 2019 with a strong Q4 and that allowed us to finish 2019 with very positive results. 2019 was a breakout year for Crexendo with strong GAAP income and healthy increase in our backlog, increased sales bookings, and a cash balance was up 126%. We've had two successive years, we were able to reach different inflection points, and we are very pleased with the results we delivered and are committed to continuing our revenue and income growth in the year ahead.We had strong sales bookings for the quarter from both our directed partner channels and finish the year with a strong total increase in sales bookings. We continue to add additional partners to our channel and are excited about the new partnerships being formed. Our direct efforts for the year saw secure some significant multi site accounts that we're willing to the six figures TCV, Total Contract Value.Our existing base of partners continues to have success and has grown more comfortable leading and positioning with the Crexendo solutions. We have launched some nice incentives in Q1 which we anticipate will help continue our growth and momentum in the channel, and our partners are equally excited about building on their success in the year ahead and we have strong funnels in the channel.Our strong sales bookings for the quarter helped to increase our sales backlog as Ron mentioned to slightly more than $26 million, which is a 14% increase over December 31, 2018. And our telecom sector gross margin remains strong at 71% in Q4. The fact that we design and manufacture our own telephone instruments along with our core platform allows for increased margins for us and higher commissions for our partners.Our increased bookings and improve margins over the course of the year allowed to suppose GAAP net income of $1.13 million for the year compared to the GAAP net loss of $223,000 for the prior year. I'm very pleased that we have successfully posted GAAP net income every quarter in 2019, as well as for the full year, and I expect our momentum to continue and results to improve.Our strong performance for the quarter in year combined with management focus on cost control of this increase our cash for the quarter are $872,000 and more than doubled our cash and cash equivalents to $4.3 million at the end of the year.Crexendo's platform also had a great year. Thanks to our in-house engineering group that allowed our solutions to be recognized with two prestigious awards during the year. The 2019 Unified Communications Product of the year awards, and the 2019 Communications Solutions Products of the year award. In addition to that, we also introduced new phone models during the quarter that have bluetooth and wireless capabilities that allows our system to be even more flexible and adaptable to customer needs and environments.So, as you can see, 2019 was a very strong year for Crexendo as we were able to show positive momentum and results in all of the mentioned financial categories, as well as continue to what I believe are the best products in the -- to deliver with the best products in the industry. We are focused on continuing to improve on all of these metrics in the year ahead and with our feature risk platform, our expanding partner program and our strong management of costs or future opportunity is never looked greater.The market for unified communications as a service the UCaaS industry is still very strong as the migration from older premise space equipment to the cloud is forecasted to have a strongest year ever in 2020. Crexendo has positioned itself extremely well to help businesses make the transition to the cloud. We are excited about the year ahead and the opportunities that exist. As we begin 2020, I am confident that we will continue to execute on our plans for revenue and income growth and that we are in a strong position to deliver.With that, I will now turn it over to Steve for any additional comments.

[Steve Mihaylo:]

Thank you, Doug. At this time, Christie, we'd like to open it up to questions.

[Operator:]

Thank you. The floor is now open for questions. [Operator Instructions] And our first question comes from Andrew King with Dorian and Company. Please go ahead.

[Andrew King:]

Good quarter. Just wanted to get an idea of what the partner contribution to revenue was for the quarter and then for the full year. And then additionally, if you comment on the number of partners that you added in the quarter and what type of partnership says primarily where that would be great.

[Steven Mihaylo:]

Good afternoon, Andrew. I'm going to let Doug Gaylor answer that question. Doug?

[Doug Gaylor:]

So, yes, thanks, Andrew. Approximately 70% of our sales came from our partner channel for the year. Our partner channel continues to grow and increase. We added 10 new partners in Q4, approximately 250 partners currently within the Crexendo platform and program. So we continue to enhance that program by adding new partners. And so the 10 additional partners and really kind of three different buckets. So we see managed service providers and data, MSPs. We see this is a business companies, we added quite a few copier companies over the course of the quarter. And then we see traditional telecom resellers out there that we added a few during the quarter. So that's a pretty even split amongst those categories. So again, managed service providers and data borrowers being one bucket of business to business type companies that are traditional telecom companies being the second bucket, and then the third bucket being the traditional telecom companies.

[Operator:]

And our next question comes from Allen Klee with National Securities. Please go ahead.

[Allen Klee:]

You started off talking about plans to increase the focus on marketing's this year. Could you maybe just expand a little of that as what's kind of the areas of focus? And what you hope to accomplish from that. Thank you.

[Steven Mihaylo:]

Sure, Allen, and good afternoon, here again, I'm going to turn this over to Doug Gaylor to answer, but the whole idea is more lead generation and quicker.

[Doug Gaylor:]

Yeah, thanks, Allen. Great question. So as we look at our marketing spend, we were committed that on our last conference call that we are in a very profitable position that we're going to start reinvesting more into the business and that includes sales and marketing. So, as I mentioned in my comments, we put some incentives in place for our partner programs. But we're also putting some major initiatives into our marketing efforts. We hired a director of marketing that just started this week. So we're excited about her coming on board to the team.We've attended a few individual trade shows already this year that have resulted in great lead generation efforts. We've increased some of our lead generation efforts through SEO and paid search on the web. And we're continuing to explore other investment opportunities for our marketing dollars to increase the visibility of Crexendo. And, as Steve said, highlighting lead generation, so the more leads opportunities that we have, our closing ratios are extremely high. And so when we find those opportunities, we stand a very good chance of landing that business. We're also investing in some marketing programs to attract new partners. So as the previous question from, Andrew alluded to, we added 10 partners in the quarter. We attended a few conferences already so far this year, that are specific for bringing on new partners, and we're seeing very nice results from those efforts.

[Allen Klee:]

Okay. And then maybe following up on that, as you're spending more on focused on marketing, and getting good returns on that, how do you see, are there any changes in the competitive environments that stand out?

[Steven Mihaylo:]

Andrew, I'm going let Doug answer that one as well. He's a lot more familiar with the sales process at this point. So Doug, can you handle it?

[Doug Gaylor:]

Absolutely. Allen. The marketing efforts are really a necessary part of our growth pattern because in our market, we see a tremendous amount of marketing spend from our competitors. So much so impact that most of our competitors haven't reached profitability because they're spending so much on sales and marketing that it's putting them in a lost position. So, we're seeing a lot of competitive forces out there with incentives and marketing programs that, again, are kind of a benefit for us because it raises the optics on migration to the cloud. So when I look at, all of our competitors out there that are seeing the same handle that everything is moving to the cloud, it really helps reinforce that with the end user customer on the fact that, it's now the matter if the customer moves to the cloud, it's win and eventually they're all going to be moving to the cloud. So, the statistics still show 65% to 78%, that hasn't converted over to the cloud. And so those marketing efforts our key.But we see our competitors like RingCentral and 8X8 and Vonage, spending tremendous amounts on their sales and marketing initiatives. We're going to follow suit but not to the extent that they are to put us into the last position.

[Allen Klee:]

Great. And then, could you maybe just discuss the factors behind your improved margins? And if you think this can continue?

[Steve Mihaylo:]

Well, this is Steve Mihaylo. I think it can continue, but, we're just about as far as we can go without getting more critical mass. The margins might expand by 1% or 2% year-over-year. But I think it'll be tough to get higher than about 75% margins. We're at about 70.5 right now. So, over the next three or four years, we might reach 75%. And the reason that's happening is we watch every penny, we're very competitive. A lot of the costs in the margins are for the redundancy that we've built into this system. I don't know do you want add anything to that?

[Doug Gaylor:]

Yes, one of things, Allen is you're well aware we design and sell our own telephones out there. And so we have lower margins on our hardware. Our service margin actually increased for the quarter in Q4. We have a little bit of a decrease in our hardware margins. So as Steve said, I think the margins will continue to improve. We're constantly working on our vendors and suppliers to work on our cost structure. And so I think that we've got a very stable margin where it is today but we will slowly see increases on that as we continue to negotiate better options out there.

[Operator:]

And our next question comes from Kevin Dede with H.C. Wainwright.

[Kevin Dede:]

So I'd like to think I know Steven, Doug, both of you well enough to know that you wouldn't have hired a marketing person, unless that person brought some interesting new initiatives with them. And I was just wondering, if you might give us a little color on your new hire and some plans that you think you might be able to execute on?

[Steve Mihaylo:]

I'm just going to make one comment. And then I'm going to turn it over to Doug. But we've been looking for this person for a long time. And obviously a marketing person is a key position in the company. We've done okay, without a lot of money being spent on marketing, but we spend a lot more than you might imagine. But this focus is the lead generation under one person, and it causes us to optimize our site, optimize all of the blogging that's being done. If you have followed me at all, I blog almost every other day on LinkedIn. And we're starting to get traction there, but we want to make sure this is coordinated properly. Doug, do you want to add anything to that?

[Doug Gaylor:]

Yes. Absolutely. So, Kevin, we're always looking at investing our money in the correct session until this person comes on-board with a tremendous amount of background over 10 years in marketing. And so, if I look at what our biggest challenges are from Crexendo perspective from a marketing perspective. And I highlight this on a lot of our investor presentations is that we're one of the best kept secrets in the UCaaS market. And being a best kept secret isn't necessarily a good thing. And so we've got a great story to tell. We've got a great brand. We've got a great product offering and support behind that product offering. And so getting that message out there is critical for us.So the marketing efforts that we're going to be focused on right out of the gate is improving our marketing materials to go out there and highlight who Crexendo is out there in the industry. If you do a Google search for top boy providers in the marketplace, we don't pop up from paid search or organic search or even on a lot of the noted list out there. And so some of those are paid to play. Some of those are really marketing oriented. So it's really a matter of getting our message out there in those type forms.From the tradeshow perspective, I mentioned that earlier with some more marketing spend. If you do a tradeshow, you got to have the right message out there, you got to have the right reason for people to stop at your booth, you got to pick the right shows to attend and make sure that you're getting a good ROI. So that's going to be a key initiative for us in the year going forward.It is being in places that aren't necessarily where our competitors are, but in places where our competitors aren't. As an example, there's a tradeshow next week for channel partners in Las Vegas, every one of our competitors and everybody in the industry will be there. And that's a saturated conference. So us being there won't or having a booth there won't be a very good spend on our marketing efforts. But having meetings set up around those type of conferences and going to conferences where our competition isn't that's going to be a much better marketing spend for us. This marketing person also has great social experience and so getting our message out on social media, through LinkedIn through other forums that business owners see and use all the time is going to be critical because again, it's not a matter of if those businesses new to the cloud it's when and we want to be first and foremost on their mind when that comes up. So, we've already got a laundry list her first day was yesterday and in two days, he's probably got a list of longer their arms to start working on. But we're going to prioritize the main initiatives so that we can make sure that we get the best bang for buck with our marketing spend.

[Kevin Dede:]

Alright, so if I was to sum it up, it sounds to me like there's a big emphasis on sort of the digital space and maybe trying to sort of coordinate a brand image that you can share across all the different, I guess all the different avenues to the market. Is that a fair way to sum it up?

[Doug Gaylor:]

Yes, it's a fair way to sum it up and one item that I would just that I fail to mention is that we now meet all the requirements with our financials at the end of the year to up list and so we're going to be starting that process or we've already started that process to up lift to the NASDAQ and so we're working on that process as we speak. So, having marketing materials for those, the up list and doing an extensive road shows in the future and any marketing materials associated with being on maybe higher exchange can be critical for us and so having somebody to help us with those initiatives will be important.

[Kevin Dede:]

Okay, so in conjunction, Doug, could you just dig in a little deeper on the sales effort per say. Can you talk to the headcount at the end of last year, and where you think it's going to go this year?

[Doug Gaylor:]

So, total headcount for the company at the end of the year was 55.5 employees. I anticipate that increasing as we look at reinvesting back in the business. So, as we look at putting initiatives in place, we've got a new sales person starting today. So, that was 55.5 at the end of last year. So, we're actually up one or two headcount from that with a new marketing person, and we had a new channel manager starting this week.So, we're looking for sales people that can come on and be accretive to our efforts right off the bat. So, when I talk about accretive we've got two types of sales we've direct sales and we've got Channel Managers. Our Channel Managers handle our channel partners each channel manager handles anywhere from 20 to 30 channel partners, and their responsibility is to bring on new channel partners and work with and assist the existing channel partners.So, we're always looking for new channel partners that one can bring a hopefully book-to-business within so potential partners they come join the Crexendo ranks. And then on the direct side, were always looking for big bag of good direct sales reps can come on board and find opportunities for us to sell from a direct perspective. So, again, those are typically going to be sales people that have experience in the industry and more importantly, have a book of business or at least a prospecting Rolodex, to use an old term thinking hit on to find opportunities for us to go sell Crexendo services here.

[Kevin Dede:]

Do you have a target in mind where you think your headcount might be in sales by the end of the year?

[Doug Gaylor:]

I would anticipate right now we budgeted for an additional three or four people to our sales efforts. But again, it's all ROI. So, if we've got sales, people that are coming on and hitting it on all cylinders, and paying for themselves will continue to add to those efforts. So, the one thing about salespeople is that they've kind of been able to build a pipeline or a funnel immediately so that we can see an immediate ROI. So, we are very cognizant of the fact that when we bring sales people on, there's no misleading on what the expectations are. The expectations are to build a pipeline and build a decent funnel of opportunities that will turn into sales. So we monitor that and measure that very-very deligently.

[Steve Mihaylo:]

Kevin, there’s another thing too. We’re encouraging, both our channel and our direct sales people to increase the size of the customer they call on. Currently we're out of about 22 desktops per customer and we'd like to increase up to 23-24 even 30. And just increasing it from 22 to 23 is an increase of 4.5%. So if we increase it to 24, that’s over 8%. So you can see that we're going for more productivity gains as well as headcount gains.

[Kevin Dede:]

Good point Steve. Thanks. Okay. My last question and my favourite. Steve, your opening remarks included commentary if I remember and understand it correctly, that would lead someone to believe that Doug's going to focus more on M&A. I know that you guys were making some good progress there. At least that's what I thought and I was wondering how that looks now what the pipeline looks like now. And whether or not you suspect you might be able to take advantage of valuation compression, given an election year, pandemic fears, those kinds of things.

[Steve Mihaylo:]

Well, first of all, I'll tackle what you said last. And move back up the other direction here. The pandemic, we don't consider that plus or minus. We don't have any problems with our supply chain. And frankly, because our product is very well designed to encourage work at home workers, if someone wants to work at home so that they don't have any fears of the pandemic, they can do that with our products. Additionally, both Doug and I are taking on more responsibility, not less. I expect him to sell just as much as he always says, and to work with our sales people. One of the things I would like to say and I felt this way for a long time is better training and both our partners and our direct sales people. As Doug and I are going to be working on that as well as working on the fact that the acquisitions will give us very nice boost in sales. For instance, if we just acquire a $2 million or $3 million company, that's almost equivalent to our growth from all and last year. If we do this in conjunction with our organic growth of about 20% or 25%, and maybe loosen up by a couple of percentage points, we could be in the 40% to 50% range. I'm saying couldn't has completed the operative here, because we have very strict requirements. We're not going to just acquire something because it moves that has to meet our requirements. And I think I've answered just about all of your questions, Kevin.

[Kevin Dede:]

Well, I was curious on how those factors play into the M&A pipeline and what you see?

[Steve Mihaylo:]

Well, first of all, blogging on LinkedIn has brought us quite a few opportunities. There's a couple of larger ones that we're looking at. All-in-all, we've got more in the hopper now than we've had in the past. So I would expect that at least one acquisition, we completed a very small acquisition of them or last year, and that's going to help our revenue going forward. But, that's a process, it's not just throw money out of it and expect that happen. And we like to get to know the people we're taking on, we have to make sure that their accounting is solid.There's a lot of different things that have to be solid here. But all that's going to increase sales.

[Operator:]

And next we'll go to Maj Soueidan with GeoInvesting. Please go ahead.

[Maj Soueidan:]

We'll you bring a new sales rep on, how long that usually you put contributed [indiscernible]?

[Steve Mihaylo:]

Well, first of all, good afternoon. I'm going to turn now over to Doug, it's moving targets just now, you’re aware of it.

[Doug Gaylor:]

Yes, as I mentioned earlier Maj, we've got two types of sales reps who've had direct sales reps or tremendous. Tremendous can be much quicker to seeing in results because they're obviously going to be inheriting partners that are already selling our products. So for example, the tremendous starting right now, she's going to inherit some channel partners that are already in her marketplace. And so those channel partners are already producing. So, she will be a great resource to those partners to give them additional help and resources. So we should be able to see those sales, hopefully increase with the partners in her territory, just by her presence.For direct sales reported, we could be looking at a 60 day window for them to get trained, get up to speed, get a pipeline to where we can start selling business. And so we hired somebody back in November and in the first 30 days had one sale in December they had another sale and in January, they are already hitting and exceeding quarter. So, at 60 day turn up for a direct rep, to fill their pipeline and get opportunities is very common. And that's really the metrics that we look forward how quickly can they fill a pipeline because their pipelines don’t think it going to turn in sales.

[Operator:]

Our next question comes from [Edward Gilmayo with Little Greatline].

[Unidentified Analyst:]

Hey guys good afternoon and congrats on the quarter. So you were mistaken here that you're blogging I'm definitely going to be checking that out. I was just curious if you could share…

[Doug Gaylor:]

Make sure and follow me Edward because if you just request that I accept your invitation I'm already have over 30,000 followers. So I can't add any more. But something that you have to follow me.

[Unidentified Analyst:]

Okay. We'll do, thanks for that. I was just curious what percentage of your sales now from inbound these and do you think that you can grow that?

[Doug Gaylor:]

Good question Ed, very little percentage comes from in that leads today. So I would say, I don't have the exact metrics in front of me. But it's going to be in the single-digits less than 5%. So if we look at the sales that we get through inbound leads, whether it be through digital media or through Collins coming into our switchboard, very few. As because again, we haven't done a very good job of getting our name out there for customers, who find us through traditional search forms. So that's obviously an effort, we were going to increase our, our efforts on marketing, to hopefully get more of those inbound leads coming in, because that's critical for us.Now, when you think about lead generation, we're also working with our partners on lead generation for them as well. So those 200 plus partners out there that are selling our services, we want to give them marketing resources to go out to their customer base and their prospects to do marketing to their prospects and their customers as well.

[Unidentified Analyst:]

And I apologize if I missed. What was gross margin in the cloud segment?

[Ron Vincent:]

So gross margin on the telecom sector for Q4 was 71%.

[Unidentified Analyst:]

And then just 2 last quick question. For the channel manager, how many channel manage, do you have in addition to the new hire? And then the last question, just I know, you put out the 8-K and January for the purchase of the office facility in Tempe, and I was curious if that creates any kind of cost savings as far as monthly expenses?

[Unidentified Company Representative:]

So in addition to the new hire that we just hired, we've got five additional channel managers, so that would make 6 total channel managers currently. And the next question was on the building, so the building purchase, that did happen in January, we purchased the building and so that will cut our operating expenses to the tune of probably approximately $10,000 per month. I'll have run expand on that, but that's pretty significant. So approximately 120,000 over the course of the year.

[Unidentified Company Representative:]

From a rent payment of a monthly rent payment of 25,000, down to a mortgage payment of $11,800 approximately substantial savings there. And obviously, along with some depreciation and recognizing those leasehold improvements now as additions to our property and equipment over the full life of the asset. We'll provide us some positive results for operations.

[Steve Mihaylo:]

That will increase our cash flow and probably half as much, when it comes to earnings. So it's a positive all the way around.

[Operator:]

And next we'll go to Michael Kaufman with MK Investments.

[Michael Kaufman:]

Is there any particularly weak competitor, because you said a lot of them standing too muchand not doing very well in terms of P&L, where you can have a concerted effort to go after that customer base?

[Steve Mihaylo:]

We're still one of the smaller ones. As you know, we've been talking about increasing spend in marketing and various other areas of the company. I think the market is so big and 65% to 70% of the end users are haven't converted to the cloud yet. So that's going to be our focus for the next year. As far as going after other competitors, we'd like to get a little bit larger before we do that. But eventually, that'll be part of what we knew, I'd say, probably a couple of years off, do you want to expand on that Doug?

[Doug Gaylor:]

So, we see a lot of opportunity in the industry as all of our competitors do so the increases in revenue, there's not too many people that are lagging and increases in revenue. So, everybody's driving higher revenue numbers, the P&L that's a challenging because a lot of these organizations are spending way too much time their efforts and not showing any profit at the end of the day. But we do see some weakness with some of our competitors via just recently announced that they're going to have a partnership with RingCentral to me that's a sign of weakness because of I could have been developing your own platform and instead gave a high rise in one of their biggest competitors to go.So, cloud services to their customer base so that, that sends up a red flag to us that, hey, those are my customers are open territory, not just for RingCentral to go after, but for us as well. So, you're going to see that probably most of our competitors is a direct target of the sector to go after those type of customers.

[Operator:]

[Operator instructions] And we'll move next to [indiscernible] with International Advisors. Please go ahead.

[Unidentified Analyst:]

The question I have is on the timing of the up listing and how long do you think that will take?

[Doug Gaylor:]

We're currently working through the listing process the application process and gather and all the data submitting that. So, after we get all the application submitted of the out of our hands and as far as the review, but actively it takes four to five weeks review process from an unfilled.

[Steve Mihaylo:]

And by the way, one of the reasons they're posting is now we qualify for it's not as if we're up listing to up list we're up listing because we qualify for it.

[Unidentified Analyst:]

Right. The other thing is, the trading volume is very low, and just wondering what kind of plans for our to expose both investors and increase trading volume through conferences and things like that?

[Steve Mihaylo:]

So, we've been going to conferences for quite some time now. And the problem is when there were on the OTC QOX, I think once we up list that will help out with the ability for folks like you and anybody else that wants to trade in our stock. Did you want to add something to that Dough or Ron?

[Doug Gaylor:]

Yes, we have been doing quite a few conferences wise so we are getting our name out there. So the OTC recognize us in the OTC best 50 or actually number 13 on the OTC QX list for 2019. So, we realized that we don't have a lot of volume in the stock. And so getting our message out there is critical for us. So we've been telling the story for quite some time now. And getting more and more following. And we've got more investors on our conference call today than we've ever had. So it's nice to be able to see so many questions and so many investors on the conference call, so we must be good at something, right? [Indiscernible]

[Unidentified Analyst:]

Great. Well, thank you very much. And I will stay tuned, and congratulations on the year-end.

[Operator:]

And there appears to be no further questions in the queue. So I'll turn it back over to management for any closing remarks.

[Steve Mihaylo:]

There are no closing remarks other than the fact that we're working hard and we're hitting on all cylinders. There always room for improvement and as we find areas to improve, we'll do that. And with that I wish you all a good evening. And we'll see on the forum will talk to you on the second quarter results. First quarter. I got ahead of myself, didn't I? Thank you and good evening everyone.

[Operator:]

And that does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. And have a great day.