Crexendo, Inc.

Greetings. Welcome to the crescendo fourth quarter and year-end 2024 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Jeff Korn. Please proceed.

Thank you, John, and good afternoon, everyone. Welcome to the Crescendo Q4 2024 and year-end conference call. I'm Jeff Korn, Chairman of the Board and CEO. On the call with me today are Doug Gaylor, our President and COO, and Ron Vincent, our CFO. In the room with us are John Britton, our CRO, and Anand Bush, our CSO. In a moment, John will read our Safe Harbor Statement After that, I will give some brief comments on our performance for Q4 and the year. Ron will then provide more detail on the numbers before handing the call over to Doug to provide a business and sales update. After that, we'll open the call for questions. John, would you please read the safe harbor?

Thank you, Jeff. I want to take this opportunity to remind listeners that this call will contain forward-looking statements within the meaning of the Securities Act of 1933. and the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. All statements made in this conference call, other than statements of historical fact, are forward-looking statements. Forward-looking statements include but are not limited to words like believe, expect, anticipate, estimate, will, and other similar statements of expectation identifying forward-looking statements. 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 fiscal year ended December 31st, 2024, and the forms 10-Q as five. Crescendo does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. I'd now like to turn the call back to Jeff. Jeff?

Thank you, John. I'm incredibly pleased with our results and could not be more excited about the direction Crescendo is heading. We continue to execute our strategic vision delivering strong performance while making meaningful investments into the business. Our ability to grow while remaining profitable is a testament to the strength of our team, our competitive advantages, and the immense opportunities they have. While the UCAS market is highly competitive, we continue to grow at more than twice the rate of our public health competitors. And in the case of our software solution segment, at nearly four times the rate of our competitors. We remain committed to expanding our market share in a disciplined and profitable manner. We do not engage in price wars that erode profitability simply to gain short-term market share. Instead, we leverage our superior service and support as key differentiators. Our aggressive efforts are yielding results, and we fully expect continued growth in our NCaaS business. I am particularly pleased with the continued strong growth in our software solutions business. and I fully expect that growth to continue. Crescendo is currently the third largest UCaaS platform provider behind Cisco's Broadsoft and Microsoft's Metaswitch. In December, Microsoft announced that they are selling off the Metaswitch division, creating a lot of fear and concern with Metaswitch licensees and creating substantial opportunity for Crescendo to take advantage of this disruption in the market. I am absolutely convinced that with the disruption, We, across all platforms, play to our strengths and our advantages. I am convinced we will win a substantial share of the market because we offer substantial competitive advantages that position us for long-term success. Our model, our people, and our products drive our success. We retain significant advantages over our competitors, including our sessions versus seat advantages. A sessions-based pricing model offers customers the flexibility to migrate at their own pace without committing to rigid seat-based licensing structures. This is a clear advantage of a Microsoft Metaswitch and Cisco Brasoft customers looking for a cost-effective and scalable transition strategy. The savings we provide are compelling, and our product is second to none. We also have price advantages. Our pricing remains highly competitive, yet we provide superior value for our service, support, and product differentiation. And we are focused on attracting customers who appreciate value. We give choice in our deployment. Our ability to offer both facilities-based and cloud-based solutions, excuse me, give customers the flexibility to choose what best fits their needs. This becomes even more important as MetaSwitch customers face a cloud migration decision. We are uniquely positioned to serve them with a solution tailored to their requirements. We have flexible contract terms. We offer both perpetual and monthly MRC contracts, providing an edge in negotiations. While we are shifting toward an MRC-heavy model, the flexibility we provide continues to be a key selling point. Additionally, our MRC supports requirements for professional contracts, strengthens our recurring revenue base. We have open API and vendor programs. Our open APIs give our licensees the abilities to build customized application, similar to how the Apple App Store enhances the iPhone experience. To fully capitalize on this advantage, we are committed to making further investments in software development UX enhancement, and business development efforts. Our recently launched ecosystem vendor partner program, or EVP for short, has gained traction, and we are very excited about the potential growth. Our community of licensees and software developers design and develop strategic applications, which are sometimes broad-based and other times targeted to specific market segments. By adding these third-party development solutions to our EVP program, We gain revenue from a revenue share, and our customers get a wide variety of options to make the platform their own. I am convinced this will become a substantial revenue driver for us and a continued competitive advantage. Our results are particularly compelling because we are achieving growth while simultaneously investing in our business. We continue to enhance our product offerings and implement cost-saving initiatives that drive long-term profitability. One major milestone was a recent move out of our old building and the transition to the servers that were located there, which are now housed in a co-location facility. Additionally, we are progressing well on migrating our remaining Glacendo class of customers to the state of our arm at SAPI and VIP customers with completed expectation by Q3, which will allow us to close the co-location. We are in the process of closing data centers and migrating to the Oracle Cloud Infrastructure, OCI, a transition we expect to complete by year-end. These actions will generate substantial cost savings, free up resources, and allow us to reinvest in our business for continued profitable growth. I am proud to report that we've maintained our streak of GAAP profitability for now the sixth consecutive quarter and non-GAAP net income for the 25th consecutive quarter. We continue to be ranked number one in customer satisfaction categories in T2 reports, continuing our streak of leading in multiple satisfaction categories. This is a significant competitive advantage, and our superior customer support remains a key driver for growth. We remain focused on delivering profitable growth and creating value for our shareholders. Our results were excellent, highlighted by our net income for the year of $1.7 million and non-GAAP net income of $7.7 million. Our revenue increase of 14 percent for the year to $60.8 million and our fourth quarter revenue increase of 15 percent to $16.2 million give me great optimism for the future growth of Crescendo. Looking ahead, we continue to reinvest to drive future growth and efficiency. Our increased investment in engineering service and support, along with our strong partnership with OCI, gives us significant competitive edge, particularly in Europe, where we are experiencing strong demand. We are also making strategic investments in automation and financial systems to improve operational efficiencies, ensuring we can continue to make data-driven decisions quickly and effectively. I have never been more confident or proud of our team. Over the past two years since I became CEO, our entire team has transformed Crescendo into a profitable, high-growth company. As the telecom software sector continues to evolve, we are positioned better than ever to capitalize on industry shifts and customer needs. We will remain laser-focused on our core strengths, continue to execute our strategic vision and drive substantial growth in the years ahead. I am incredibly excited about what the future holds, and I want to thank our entire team for their dedication and hard work. I am confident in our continued growth and expect to continue to see at least double-digit growth over the next year and beyond. With that, I'll turn the call over to Ron to provide additional details and commentary on the numbers. Ron?

Thank you, Jeff. Good afternoon, everyone. We had a great fourth quarter and year ended December 31st, 2024, and I'm happy to share the results with you here today. Our financial results for the fourth quarter are as follows. We reported total revenue for the quarter increased 15% to $16.2 million, compared to 14.2 million for the fourth quarter of the prior year. Our service revenue for the quarter increased 4% to 8 million, compared to 7.7 million for the fourth quarter of the prior year. Our software solutions revenue for the quarter increased 32% to 7 million, compared to 5.3 million for the fourth quarter of the prior year. Product revenue for the quarter increased 4% to 1.2 million, compared to 1.2 million for the fourth quarter of the prior year. Our gross margins for the fourth quarter compared to the fourth quarter of the prior year are as follows. Service revenue gross margin was 57%, consistent with the fourth quarter of the prior year. Our software solutions revenue gross margin increased by 2% to 68%. Our product revenue gross margin increased by 1% to 42%. And our consolidated revenue gross margin increased by 2% to 61%. Net income of $507,000 for the quarter. That's two cents per basic and diluted common share compared to net income of $61,000 or zero cents per basic and diluted common share for the fourth quarter of the prior year. Non-GAAP net income of $2 million for the quarter. That's seven cents per basic common share and six cents per diluted common share compared to non-GAAP net income of $1.6 million or six cents per basic and diluted common share for the fourth quarter of the prior year. EBITDA for the quarter was $1.5 million compared to $916,000 for the prior quarter. Adjusted EBITDA for the quarter came in at $2.2 million compared to $1.7 million for the fourth quarter of the prior year. Now I'll highlight the highlights for the full year ended December 31st. We reported total revenue for the year, which increased 14% to $60.8 million compared to 53.2 million for the prior year. Service revenue for the year increased 7% to 31.8 million compared to 29.7 million. Software solutions revenue for the year increased 30% to 23.4 million compared to 18 million reported for the prior year. Product revenue for the year increased 2% to 5.6 million. Our gross margins for the full year are as follows. Service revenue gross margin increased by 1% to 59%. Software solutions revenue gross margin increased by 2% to 71%. Product revenue gross margin increased by 4% to 43%. And our consolidated revenue gross margin increased by 3% to 62%. Net income for the year was $1.7 million. That's $0.06 per basic and diluted common share compared to a net loss of $362,000 or $0.01 loss per basic and diluted common share reported for the prior year. Excluding the $1.5 million gain on the sale of our building recognized in the prior year, net income increased approximately $3.5 million from the prior year. Non-GAAP net income of $7.7 million for the year. That's $0.29 per basic. common share and 26 per diluted common share compared to non-GAAP net income of 6.7 million or 26 cents per basic and 24 cents per diluted common share reported for the prior year. EBITDA for the year was 5.2 million. That's compared to 1.9 million for the prior year. Adjusted EBITDA for the year was 8.2 million compared to 5.7 million reported for the prior year. Our cash and cash equivalents at December 31, 2024, was $18.2 million compared to $10.3 million reported at December 31, 2023. Cash provided by operating activities for the year was $6.3 million. Cash used for investing activities for the year was $27,000. And cash provided by financing activities for the year was $1.6 million. With that, I will turn it over to Doug Gaylor, President and COO, for additional comments on sales and operations.

Thanks, Ron. I'm extremely pleased with our record Q4 and year-end numbers and very excited about our strong momentum as we start 2025. Our 15% year-over-year increase in Q4 revenue, along with our 14% year-over-year increase in annual revenue, were the direct result of our focus on growing organically and profitably. Our top-line growth combined with our dedication to managing costs, allowed us to achieve GAAP profitability for our sixth consecutive quarter, as Jeff mentioned, and exceeded both our internal and our external targets for the year. We had GAAP net income of $507,000 for the quarter and GAAP net income of $1.7 million for the year, and we had very strong non-GAAP net income of $2 million for the quarter and $7.7 million or $0.29 for the year. Our results for the quarter and for the year continue to highlight our success in managing the fundamentals of the business and making a strong effort to maximize and recognize synergies within the business. Our entire team is continually working to improve business processes and make our company more efficient, and we believe we'll continue to see more efficiencies and cost synergies as we continue our growth. We are very honored that we have been recognized by leading firms like Frost & Sullivan and Deloitte, in recognizing our success. The tremendous demand in the UCaaS industry has propelled Crescendo's growth past 5 million end users. Our efforts have earned Crescendo Frost & Sullivan's 2024 North American Strategy Leadership Award, which highlighted Crescendo as the fastest growing UCaaS platform provider in the country. In addition, Deloitte recently pronounced Crescendo as one of the fastest growing companies in North America in their highly acclaimed 2024 Deloitte Technology Fast 500 report that was released in November. We saw tremendous organic growth of 30% from our software solution segment. Fueled by uncertainties created by our two largest software solutions competitors, Cisco and Microsoft, we continue to see very strong demand for our UCaaS platform offering. Cisco has increased pricing, decreased support, slowed future development on their Broadsoft platform, while Microsoft announced end of life of their Metaswitch Max UC offering before deciding to completely divest that division of their business as they announced in December a planned sale of the Metaswitch division. These disruptive actions helped convince seven Microsoft Metaswitch licensees and three Cisco Broadsoft licensees to make the move to Crescendo in 2024. And the pipeline of additional Microsoft and Cisco licensees is very strong. Our unique pricing and support model for our software solutions platform, combined with our robust feature set, allows us to differentiate ourselves from the rest of our competition. We had great success in the year in adding 17 total new licensees in 2024 and expect strong new logo acquisitions in the year ahead. The software solution segment of the business also continued to see strong traction in our international efforts, as well where we saw a 39% organic increase in our international revenues, mainly concentrated in the European Union, Australia, and our first new licensee in Africa. Our telecom services retail segment grew at 7% organically. We saw strong growth demand for our offerings from our channel partners and saw 18% growth and our sales for the year from our master agent technology services distributors. General partner resellers sell our services to their prospects and customers on a revenue share basis, and we saw exciting growth from our existing general partners. In addition, we successfully added 24 new resellers to the program over the course of the year. These general partner resellers and agents have great confidence representing our Crescendo VIP offering because of our 100% uptime guarantee combined with our best-in-class customer service and customer satisfaction results, which Crescendo consistently ranks number one. We continue to add new and larger agent partners to the program and are excited about the opportunities in the funnel that these new agent partners are bringing to the table. Our remaining performance obligation, also referred to as backlog, continues to grow, and at the end of the year is now at $85.6 million, And that's an increase of 34% from the end of 2023. Our remaining performance obligation or backlog is the sum of the remaining contract values of our telecom services and software solutions customers that will be recognized on a sliding scale over the next 60 months. And it's a very strong indicator of our future revenue stream. Of that 85 million that's still in our remaining performance obligation, 38.5 million is currently slated to be recognized in 2025. We continue to focus on improving our gross margins, as Ron mentioned, which is beginning to show success as we saw increases across the board. Those consolidated gross margins increasing from 59% to 62% is a great increase for us. Our software solution segment margins improved from 69% to 71% for the year. and our telecom service segment gross margins improved to 59%, which continue to be affected by lower margins from our acquired MSP offerings. We're confident that we will continue to see gross margin improvements in the year ahead. Crescendo's amazing engineering team continues to add to and improve our award-winning technology. We were ranked by G2.com, which is the premier business software and services review site, as the number one easiest-to-use solution in the hosted telecom sector for the Winter of 2025 category. Prashenda was also honored in 2024 with the Unified Communications Excellence Award, the Generative AI Expo Product of the Year Award, and Internet Telephony's Product of the Year Award, further highlighting the strength of our platform and of our products. In addition, we recently released our version 44.2 software to great reviews. Our new software offering introduces a suite of groundbreaking AI features at its core, enabling users to create, engage, and analyze business communications effectively, efficiently, and affordably using artificial intelligence. We currently have a variety of AI solutions available for end users, including our Contact Center AI that's powered by ChatGPT that enables the system to interact and answer commonly posed questions using AI without the need for a live body. We also have AI-powered call recording solutions with summary analysis and sentiment analysis that not only records conversations, but can provide summaries and sentiment analysis immediately with any and all calls. And our new NetSapiens Video AI Studio that offers service providers an advanced AI-driven video conferencing solution with call summation and analytics. As we start 2025, I couldn't be more excited about the future direction and opportunity for Crescendo. Over the past three years, we have more than doubled our revenue while improving our bottom line significantly and have now posted six consecutive quarters of gap profitability. We are positioned perfectly with the combination of strong demand for our product offerings along with great solutions and a very disruptive pricing model and the best and most talented workforce in the industry to continue our strong growth and our success. We are committed to delivering the best UCaaS, CCaaS, and CPaaS offerings in the sector to our customers and our partners and the best returns for our shareholders. As the fastest-growing platform solution in the country, supporting over 5 million end users, we are focused on enhancing our solutions, improving our efficiencies, and continuing to return strong results. With that, I'll now turn it back over to Jeff for any further comments.

Thank you, Doug. I actually don't have any further comments at this time, so John, we'll open the call up to questions.

Absolutely. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, please press store one if you have a question or a comment. The first question comes from Jesse Sobelson with DeBoro Capital. Please proceed.

Hi, Jesse.

How are you doing today? Hey, guys. I'm good, but I think you guys might be doing better. Great quarter. Good to see the success here. Yeah, you know, I wanted to point out and highlight, you know, I see cash reserves here, you know, they've almost doubled versus last year at 18 million or so. What are the priorities for capital allocation right now? Is Crescendo evaluating acquisitions to bolster its AI capabilities? Or are you still just focused on expanding your telecom services footprint? And, you know, alternatively, I'm just curious, will capital be more directed towards R&D or potentially you can give it back to shareholders through maybe share repurchases? Thanks.

Jesse, all of those things are on the table, to be perfectly honest. We look at acquisitions regularly, primarily in our space. Over the last year to year and a half, there has been a very wide delta between what sellers and buyers believe UCAS companies are worth on the smaller companies. On the larger ones, it makes sense. The delta seems to be moderating and is getting closer to the value that we believe it is compared to the value that we get on Wall Street. So that is on the table. An AI company, if the right one came along and was small enough to be on the table, we would not invest we probably would not buy a huge AI company. Share repurchase if the market begins to deteriorate would be something we're interested in because we know the value of this company. We think it's undervalued at current. And if the market were to continue to be under pressure, that would be something we would look at strongly. But, but all of those uses are on the table, Jesse.

Great. Great. And then, um, Great to hear it. And just switching gears slightly, and then I'll hop back into Q, but one big one for me is just, you know, you highlighted Cisco, Microsoft's, you know, reduced focus on certain cloud communication segments for their strategies. Could you potentially quantify the number of clients that migrated from these competitors in the quarter, or at least elaborate on what the onboarding process has been like? And, yeah, that's it for me.

Do you want to take that one?

Sure. As I mentioned, for the year, we brought over seven Microsoft Metaswitch licensees and three Cisco Broadsoft licensees. The evaluation timeframe for these licensees to switch platforms sometimes can be a matter of months, sometimes can be a matter of years. It just depends on where they're at in their evaluation cycle. But we see a very, very full pipeline of opportunities. And as I mentioned, it's mainly because the two largest performers in that area, Cisco that bought Broadsoft six years ago and and Microsoft about Metaswitch four years ago, have been pretty disruptive in not being able to fulfill the needs of their licensees out there. And so those licensees, and we estimate that between Cisco and Microsoft, there's probably close to about 2,000 licensees out there using either platform. And so we estimate that over time, if those licensees are looking for another alternative, Crescendo is the best alternative for them. So we're extremely excited about the disruption that they're creating, and that's creating a tremendous opportunity for us. In terms of what those licensees are worth to us, I think for the year, the average software solutions licensee came in close to half a million dollars, about $475,000 per licensee in what the total contract value is. capability they've got with us. But some of these are smaller and some of these are larger. So as we look at the opportunities out there, I don't have an exact number for each Microsoft Metaswitch licensee or Cisco licensee, but these are very large opportunities for us. And when we see them coming over, they're very sticky customers. Our churn on the software solution side is negligible. So when we look at these licensees, when they come over to us, they're typically with us for forever and ever.

Great. Thanks for the detail there. And congratulations again. Thank you.

The next question comes from Mike Lattimore with Northland Capital. Please proceed.

Hi, Mike. How are you doing this afternoon? Hey, great, great.

How are you? We're great. Thank you. Congrats on the strong quarter end of the year here. That's good. I guess just sticking with the Metaswitch topic, you know, that announced acquisition occurred, did you see any change in, you know, sales cycles because of that, you know, as it relates to Microsoft Metaswitch, you know, customers? You know, did they, you know, maybe accelerate the sessions with you? Do they, you know, extend it a little bit because, you know, they're just trying to figure things out here? Like, how is that sales cycle looking for Microsoft partnerships?

Mike, it's all over the place. Some people are looking a little more quickly because they're concerned. Some people are taking a little more time to see what's going to happen. But as both Doug and I mentioned in our prepared remarks, disruption in the industry plays to our advantage, and this is a huge disruption. So we think even the people who are sitting and waiting to see what will happen will still take a good, hard look at us, and we are convinced that we will win our good and substantial share of these customers.

Yeah, I think the reality is that the platform hasn't been improved or worked on much. Microsoft had laid off almost half of the Metaswitch staff over the course of the last year and a half. And so the fact that it was announced as end of life, they reeled that back when they announced the sale of the division. But when you stop developing a product and you end of life a product and you bring it back to life and then you sell it off, you know, that creates a lot of fear and certainty and doubt in the licensees' minds out there. And as Jeff said, that just creates opportunity for us. So as Jeff said, it is all across the board, but we're anticipating a lot of traffic and a lot of opportunity created from that acquisition.

Great, great. And in terms of migrating Custom Review 1, you know, off MetaSwitch and off BroadSoft to Crescendo, I know you've added some tools to improve that. Can you talk a little bit about just kind of, you know, that onboarding process and if you can quantify, you know, how that's changed over the past year? That would be interesting too.

Our scripts continue to improve, Mike, and we have scripts to move various types of customers. Every customer is a little bit different, and we have a really great engineering team that can work on it. And as we discussed earlier, our model of sessions, not seats, really allows us an advantage because it's a great way to cap and grow and move on to our platform as you wish to progress at your own speed. So all of that plays to our advantage.

Yeah, yeah. That's good. Okay. Great. Thanks a lot. Looks good. Thanks, sir.

The next question comes from Eric Martinuzzi with Lake Street, please proceed.

Good afternoon, Eric. Yeah, the software solutions business, they're being up 30%, just really on fire this year. I was curious to know if there were any seven-figure transactions in the year for software solutions. I know you said the average deal was around $475,000. I don't believe so, but I'll defer to Ron on that.

This is John, and we did have some when you look at the total contract value over the life of the licensee that were seven-figure transactions. So that is a little bit more of an outlier, but there were a couple of those in the year. And that generally is true every year, so it's not materially different to the past.

Gotcha. All right. And then as I look out to my own model, the expectations for this year – You guys had talked about a double-digit growth trajectory for 2025. That's kind of where the street is right now. What do you expect as far as what you do with that 10% growth? Are we talking about relatively flat on the adjusted EBITDA versus the $8 million or so that you did in 2024, or would you look to increase the profits?

Do you want to check that?

Yeah, we've always talked about reinvesting, but we also like to grow the bottom line at the same time. And so we expect some improvement to continue on the adjusted EBITDA margins as well.

Okay. Right. And then the, you know, I did see the MetaSwitch acquisition actually closed today. Alianza As far as them as a competitor, it looks like they're talking about offering a quote-unquote modernized service to the 1,000 service providers that they now have access to in that MetaSwitch install base. Have you heard any chatter about whether that means kind of a forced migration, or is it they're going to support the legacy as well as the more modern service?

Eric, we've heard some rumors that there's going to be a forced migration, but you know as much as we do.

Got it. Okay, well, congrats on the year.

Thanks, Eric.

The next question comes from Tim Horan with Oppenheimer. Please proceed.

Can you describe... Hi, guys. Alianzo, how does your product kind of compare to theirs? You know, the full suite of offerings or any kind of color on that would be great.

I'm going to let Anand answer that. I'm going to tell you ours is better, but I know you're going to expect me to say that, but I'll let Anand get to work in depth.

Thanks, Jeff. Yeah, so let me touch on it a couple different ways. Alianzo's focus historically has been on the residential markets and kind of next generation UCAS. You know, certainly not one to kind of bash on the competition, if you will. But I think that's an area that they have focused on historically because we saw them, you know, head-to-head in some of these markets where for next-generation business applications, even over the last 10, 15 years, that's actually where. acquisition for them, because it was done when it was done, I think there's a lot of catch-up to be done. So, I think we don't know. As Jeff pointed out, we know as much as you guys know about that. But in terms of the markets we plan, we're very much more focused on the business and the enterprise market relative to that.

Jim, I will add that I can tell you from personal experience, it is very expensive. and difficult to maintain multiple platforms. And at some point, you probably have to zig or zag.

And maybe just the relative size of where you're at now versus Alianza on a legacy basis. Do you have a sense of that?

We honestly don't have a point of comparison. As you understand, Alianza is private, so it doesn't have to release results. Metaswitch was not material to Microsoft, so... We don't have any actual numbers. We have some estimates, which I'll let Doug talk to if he knows. It's not – we'll just go on. Yeah, I'm not comfortable. Again, as we described, we just don't know because Allianz is private and Mediswitch was not material Microsoft. So we'd just be guessing.

And can you maybe, just at a high level, you know, what percentage of – legacy service provider lines you think have kind of, you know, moved over to offerings like yourself and cloud? Where do you think we're in the process? And related to that, do you have a sense what's going on with ARPU both at the end user level and at the wholesale level? I know you said Cisco's raising prices. You know, any trends on both of those would be great.

Yeah, so on the legacy, was that a question on the retail side or was that more on the wholesale side?

Both, both.

Okay. On the retail side, you know, the estimates still show that probably around 40% of the businesses out there are not on the cloud for their communications today. And that number is, you know, fast shrinking. And so if you look at Gartner's reports and other reports out there, you know, it shows that, you know, within the next two to three years, that number will be down probably close to the single digit. So we still see great adoption. You know, my comment is always that if you're not on the cloud today, it's not a matter of if you move, it's when you move. And so those businesses are still migrating over. Avaya just announced that they're going to basically abandon the SME market and really concentrate on the enterprise market. So that's going to give more emphasis for these small and midsize folks that are hanging on to their legacy systems to move over. Mitel continues to have challenges out there. So those are the two largest legacy platform or premise-based providers out there. And so we still see that there's tremendous opportunity on the retail side for these legacy customers to move to the cloud. And we're going to be the ones to take advantage of that.

You know, when we talk about the – Yeah, on the pricing of the ARPU, you know, side, both at wholesale and at the end-user level.

Yeah, so on the retail side, on revenue per user, you know, our revenue per user has been – pretty consistent around that $20 range. I don't know if Ron's got the exact updated number, but, you know, it's been pretty consistent around $20 per user. And it's because we continue to add more features and enhancements and capabilities into that price point. So instead of lowering the price and then charging extra for feature enhancements, we just continue to add those features into our standard offering license. So, for example, AI Studio is one of the applications that we've got today. We offer that as a standard offering for our end users.

And at the wholesale level?

On the wholesale level, our average, we do that on more of an average revenue per session as opposed to an average revenue per user. But our average licensee today is paying us almost $6,000 a month. on a consistent basis. So when we look at that, that's our average revenue per account on the licensee side. On the user side, it's more of an average price per session as opposed to an average price per user because our licensees aggregate that. They buy it from us on a session basis and then they may charge the end user on a seat basis. but our pricing to the licensees is based on concurrent calls or sessions, not on actual seats. And so it's hard for us to get an actual average revenue per user on the wholesale side, but we can give you the average revenue per user for the licensees, and that's upwards of about $57,000 to $6,200 per licensee. Well, and I guess with that,

With Cisco raising prices, I mean, can you raise prices also?

Yeah, so when we see Cisco and Microsoft raising their prices out there, that puts those licensees in a bind. We have had price increases, but we've got a very tight community of licensees out there. They have contracts, and those contracts, we can't raise those contracts when they're under a set fee. But we have had some additional cost increases over the last year or two. And so that is something that's fairly consistent. So I think we're keeping track of that. And, you know, we know that as we need to reinvest back in the platform and put more money into research and development, our licensees understand that that's going to come at a cost. And so when we do have a cost increase, it's always being put back into the platform.

Thank you. Yeah. And actually, if I had to dive in, Tim, this is on, and I think one of the key points here that was mentioned as well, and I think Doug brought this up, is the business model that we go to, our wholesale providers, is actually a big differentiator, and I think Jeff has pointed this out as well. That's actually what drives the underlying growth, the extensibility of the platform so that providers can actually build products in their own image and differentiate in the space. That's a clear advantage against the likes of Alianza and and Microsoft in the past, and Cisco, for example, who are really trying to drive towards their own brand. So in the market, to what Jeff is saying in terms of expanding market share, those are the biggest differentiating drivers as well as an extensible platform that folks can actually build in their own image that also can be deployed based on their choice, whether it's in their facility, whether it's in the cloud.

Well, and it sounds like you're really well positioned to gain market share. So it sounds like the time to do that. And thank you.

Once again, if there are any remaining questions, please press star one on your touchtone phone. The next question comes from Matthew Moss from B Riley securities. Please proceed.

Hi Matthew. How are you doing this afternoon?

Hi. Hi. I'm great. I'm filling in for Josh Nichols. So in terms of my, yeah, in terms of my first question, I was just wondering, um, You know, given the strong software growth, I was wondering how much of that you credit to the sunsetting of Metaswitch versus international growth and how you see that momentum playing out for this year and beyond.

International growth has been strong, Matthew. It's still just barely material to us. I think it's just about 5% run. I see the growth internationally continuing to grow because there's frankly less competition. And there was a distrust of Microsoft quite a bit in Europe. How that will play with Alianza, I don't know, but I think it will continue to play to our advantages. So I expect continued substantial growth in Europe while we will be fighting for every single service provider in the United States.

Got it. Thank you. And then you mentioned that for the legacy services, For the data center closing, I think you mentioned that being for the year end. And I'm pretty sure previously you mentioned you were expecting about 100 to 150 basis points of savings on that. So I'm wondering, do you think most of that will offset some of the new hires you've been deferring? Or what do you expect that net effect to be going into the end of 2025 and 2026?

Well, it's bifurcated, Matthew. I mean, some of that will be reinvested in the business as we regularly reinvested over the last six quarters while remaining profitable. Many of those savings will go to the bottom line, and we will have the advantage of having engineers and other support people who are working on those things who we can then move to other departments where we won't have to do additional hires. So I expect to see some substantial improvement from the savings showing into 2026. Awesome.

Great. And then just last one for me. I think you guys mentioned the $85 million backlog. I'm wondering how the mix of that has evolved, if at all, since last year.

Yeah, that backlog number, as I said, was up 34%. So, I mean, that's pretty significant. And that backlog number just continues to grow. So as we sell new contracts, you know, we take the revenue as we offer the service. And so that backlog number has continued to grow because of booking numbers.

Yeah, so they – There was a 24% increase in the telecom services backlog of $10.6 million, and $11.1 million of the increase over the prior year, or 58%, was from our software solutions division.

Got it. Yeah. Yeah. Thank you. That's all I was looking for since the Q&A. Yeah. That was all for me. Thank you.

Thank you, Matthew. Okay. Up next, we have Mike Kaufman with MK Investments. Please proceed.

Hi, guys. I want to thank the team for providing an incredible quarter. And I guess one question is, with the huge disruption in the Microsoft Cisco world and possibly 2,000 licenses eventually up for grabs, is there anything we could do in terms of our resources or SPFs or... engineering talent to accelerate the movement of those people at risk to our platform?

Mike, we look at all those on a regular basis. We pay very competitively to both our salespeople and agents who are bringing people in. We always look at potentially hiring new salespeople or bringing in new agents. And if SPIS is loyal, we'll look at SPIS. Right now, it's the uncertainty of the market that's driving people to look. And, you know, that is working, but we will continue to monitor the situation and adjust as we need to.

Okay. I think you guys are doing a great job. Keep it up. And I particularly like the fact that you kind of did a podcast explaining where we're going to the outside world, which might help bring investors towards this best-kept secret, kind of a diamond in the rough situation.

I may have to send you out on the road, Mike, for us. Excuse me? I said I may have to send you out on the road for us, Mike. You're one of our best evangelists.

Well, I've been with the company for a long time, so I'm very satisfied. So keep up the good work.

Well, thank you. I appreciate that, Mike, and I appreciate your support.

Take care.

Okay, we have no further questions in queue. I'd like to turn the floor back to management for any closing remarks.

I just want to thank everybody for their time and attention. We're very pleased to bring you these results, and we'll be back with you in May when we bring Q1 results. So until then, have a great afternoon, and we look forward to speaking to you again.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.