Crexendo Inc (CXDO) 2021 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Crexendo Fourth Quarter and Year-end 2021 Earnings Call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Steven Mihaylo. Sir, the floor is yours.

Thank you, Catherine. Good afternoon, everyone. I'm Steve Mihaylo, Chairman and CEO of Crescendo. I want to welcome everyone to the Crexendo year-end 2021 conference call. On the call with me today are Doug Gaylor, our President and COO; Ron Vincent, our CFO; Anand Buch, our CSO; Jon Brinton, our CRO; and Jeff Korn, our General Counsel. And you'll notice, I spelled out general counsel instead of saying CG -- CGC.

I'm going to ask Jeff to read our safe harbor statement. After that, I will give some brief comments. Ron will provide more detail on the numbers. Doug will provide a business and sales update, and then we will open up the call to questions.

Jeff, would you please read the safe harbor statement?

Yes, it would be my pleasure. I want to take this opportunity to remind listeners that this call will contain forward-looking statements within the meanings 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 may include statements that are limited to words like believe, expect, anticipate, estimate, will and other statements -- expectation, identify forward-looking statements, although no such words are necessarily required.

Investors should be aware that any forward-looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today.

The risk factors are explained in detail in the company's filings with the Securities and Exchange Commission, including the Form 10-K for fiscal year ended December 31, 2021, and Forms 10-Qs 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.

With that, I'd now like to turn the call back to Steve. Steve?

Thank you, Jeff. I want to start by thanking all of our team members and particularly, our accounting team. The effort of consolidating accounting databases, departments as well as managing to close out the fiscal year was a task that took effort and detail. Our accounting department team did a superb job, and I am appreciative of all of their efforts.

The results for the year exceeded my expectations. In a word, they were excellent. I am particularly pleased with the fact that the consolidated total revenue for the fourth quarter increased 108% and that 2021 total revenue increased 71% year-over-year to $28.1 million. These are substantial numbers and are just the start of our growth.

As a testament to that growth, Crexendo's Board declared a quarterly dividend of $0.05 per share. We did this for a number of reasons. The first is our strong cash position. The second is a way to demonstrate our belief in the future of the company and also very important consideration is the dividend allows institutional investors who are required to invest in companies that pay a dividend to start making investments in Crexendo.

The year-end results show our team did a remarkable job of integrating the 2 teams. While the process is still ongoing, the challenging work has been done. The teams are working as one. We have consolidated sales, engineering, operations, accounting and legal. We have had major advantages from the teams joining. We continue to move Crexendo telecom customers to the VIP platform. Our engineering teams work to provide the best of our Ride the Cloud and the NetSapiens platform.

The result is the best cloud system in the business. The improvements we have worked on are a benefit to -- both to Crexendo and the software solutions customers. Not only did this improve our service, this will complete -- completely save Crexendo from having to operate 2 systems, which I can -- I am convinced will improve our bottom line and margins. Our sales teams are working together. This increases our efficiencies as well as opening up bigger opportunities, such as the Mavenir partnership we recently announced.

I expect this will be the first of many partnerships that emerge from our world-class team. These types of partnerships are exciting as we are able to add products that round out our platform, make sales to enterprise customers easier while having our solutions sold to new customers.

We continue to learn from each other. We have strategically increased pricing and improved service which will continue to improve our results. We are working every day to increase the efficiencies at our market and improve our margins.

One thing we have in common is that everyone, from our delivery driver to me and the executive team wants to make sure that the best cloud services in the business is to provide the Crescendo and our software solution customers. We will settle for nothing less. My expectation of growing by 40% to 50% annually has not changed, and I am highly confident in the future of Crexendo. We continue to grow the business organically, and we also look for appropriate accretive acquisitions.

Now that integrating the teams is almost complete, we can now increase our efforts to find the right opportunities. This is a very exciting time for Crexendo and our shareholders. I know that we will be doing great things. I am as optimistic about the future as I have ever been.

With that, I will turn the call over to Ron. Ron?

Thank you, Steve. I'll start with some financial highlights for the fourth quarter. Total consolidated revenue for the quarter increased 108% or $4.7 million to $9 million as compared to $4.3 million reported for the fourth quarter of the prior year. Our Cloud Telecommunications segment revenue for the second -- for the quarter increased 19% or $803,000 to $5.1 million compared to $4.3 million reported for the fourth quarter of the prior year.

Software solutions segment revenues contributed from the NetSapiens acquisition after the quarter was $3.9 million. Consolidated operating expenses for the quarter increased $5.6 million or 133% to $9.8 million compared to $4.2 million reported for the fourth quarter of the prior year.

We reported a net loss for the quarter of $602,000 or $0.03 loss per diluted and common share. We reported a non-GAAP net income for the quarter of $592,000 or $0.03 per basic and $0.02 per diluted common share, and we reported EBITDA for the quarter of a loss of $102,000. Adjusted EBITDA for the quarter of $474,000.

Now some year-end highlights for the full year. For the year, we reported consolidated revenue of $28.1 million. That's a 71% increase over the prior year. Total revenue of $16.4 million. Our Cloud Telecommunications segment for the year increased 19% year-over-year to $19.4 million compared to $16.4 million.

Our software solutions segment revenue contributed from the NetSapiens acquisition for the year was $8.7 million. Consolidated operating expenses for the year increased 101% or $15.5 million to $30.9 million compared to $15.4 million for the same period of the prior year.

Acquisitions during the year contributed $11.1 million of those additional operating expenses and acquisition-related expenses contributed another $1 million, related to the acquisitions reported in our general and administrative expenses.

Net loss for the year $2.4 million or $0.12 per basic and diluted common share. Non-GAAP net income for the year of $1.7 million or $0.09 per basic and $0.07 per diluted common share. We reported EBITDA for the year of a loss of $1.2 million, adjusted EBITDA for the year of $1.6 million. Our cash, cash equivalents and restricted cash balance at December 31 was $7.5 million compared to $17.7 million at December 31, 2020.

During the year, we used $1 million for operating activities. We used $9.9 million for investing activities, primarily the business acquisitions we completed during the year and financing activities provided $650,000 of cash, cash equivalents or restricted cash.

With that, I'll turn it over to Doug Gaylor, our President and COO, for additional comments.

Thanks, Ron. I'm very pleased with our Q4 and our year-end numbers that we reported today, and these numbers are a further testament as to why our merger was a great combination for both organizations. Our organic growth of 19% on the Crexendo Classic side of the business complemented by the strong revenue contribution from the software solutions division compelled us to a 108% increase in builder revenue compared to Q4 2020.

For the year, our 71% year-over-year growth was impressive and our Q4 revenue of $9 million puts us on a $36 million annual run rate. Our impressive revenue growth, combined with our diligence in effectively managing the business and expenses allowed us to post strong non-GAAP income for the quarter and for the year.

We continue to see tremendous demand and growth in the UCaaS industry, and we are excited that we are on track to announce the number of end users using our Crexendo platform will exceed 2.5 million users in the very near future. As our Crexendo licensees continue to benefit from the rapid migration by small, midsize and enterprise level businesses to the cloud, they need additional services from Crexendo, which helps drive our organic growth on the software solutions side of the business.

Our unique sessions not seats pricing model continues to drive new partners to our platform and allows us to differentiate ourselves from our 2 largest competitors, Cisco's BroadSoft and Microsoft's Metaswitch platforms, offerings which are significantly higher priced based on their cost per seat model of pricing. Our disruptive model now has over 200 licensees using our platform and is also gaining significant traction in the European markets with 8 new resellers added to our community from Europe in 2021.

Our traditional Crexendo agent program continues to grow, and we are excited to announce 2 large master agent partnerships over the last few months with Telecom Consulting Group, TCG; and OTG Consulting, both of which have already started generating sales.

Our agent program highlights our Crexendo VIP offering powered by NetSapiens and has 100% uptime guarantee along with a lifetime warranty on our Crexendo phones. 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 backlog continues to grow and is now north of $41.7 million at the end of the year. Our backlog number now includes the software solutions backlog amounts as well as our Crexendo Direct customers and represents a 46% increase over our backlog numbers at the end of 2020. In addition, our UCaaS service margins remain in the 70% range as we migrate our accounts from our classic platform to our VIP platform.

We've been very successful in integrating our 2 organizations together and have already started recognizing many operational benefits and synergies from the combined company. Our tremendous engineering talent on both teams are already working well and benefiting from best practices. We released our version 42 software in Q4 with great reviews and acceptance, and we are on track to release our Version 43 software at the end of Q2.

Our engineering efforts were recognized last week as our platform's mobility and collaboration tools were awarded the 2022 TMC Remote Work Pioneer Award, and you'll see a press release on that relatively shortly.

We continue to see synergies from consolidating our marketing efforts and have had strong response from our attendants at conferences like channel partners and WISPAPALOOZA over the last few months. Our sales teams are benefiting from the exceptional industry knowledge and experience both organizations bring to the table and are complementing each other extremely well.

We have consolidated all of our accounting personnel and are merging our accounting systems and our operations and customer service departments are executing on our plans to maximize efficiencies, productivity and cost. I'm very pleased with how our 2 organizations are coming together, and I'm very excited about our go-forward plans to continue to grow our organization and recognize even more cost synergies.

With the acquisition costs associated with the merger and the amortization of intangible assets, we find that it makes more sense to manage the business based on our non-GAAP earnings going forward. And I'm very pleased that we were able to generate strong non-GAAP earnings of $592,000 or $0.03 per basic common share for the quarter and $1.7 million or $0.07 per basic common share for the year.

Our results for the quarter and for the year are strong proof that our combined organization has been able to quickly leverage the power and opportunity we have to grow and succeed together. I'm grateful to our fantastic combined Crexendo team that have come together with a tremendous amount of hard work and effort to make this a great and successful combination. We believe we will continue to see more efficiencies and cost synergies as we continue our growth.

We also recently announced our strategic partnership with Mavenir that Steve mentioned that provides both companies with an expanded portfolio of business services and advanced capabilities and enables each company to address Unified Communications as a Service, and business messaging and market growth.

With this partnership, Mavenir will integrate Crexendo's Unified Communications as a Service, UCaaS, platform with the Mavenir Connect brand. And in addition, Crexendo will be integrating Mavenir's Contact Center as a Service, CCaaS, an omnichannel customer engagement, chat bots and automations into our platform for larger call center applications.

So as we start 2022, I couldn't be more excited about the future direction and opportunity for Crexendo. We have the perfect combination of tremendous demand for our product offerings along with great solutions with a disruptive pricing model and an amazing, talented combined workforce, and it positions us perfectly to the future. We're committed to delivering the best UCaaS offering in the industry to our customers and partners and the best return for our shareholders.

With our combination of our direct offering and our platform solution, we are now a major force in the industry, and we are positioned extremely well for continued growth and success.

I'll now turn it back over to Steve for any further comments.

Thank you, Doug. And Catherine, we'll open it up to questions at this time.

(Operator Instructions) Your first question is coming from Josh Nichols with B. Riley.

Just had a quick question. Good to hear the integration is going well. How many of the customers have been moved over to the NetSapiens platform today? And then I'm just trying to get a handle, gross margins came in at 59% for the fourth quarter. Is that expected to increase as you move throughout 2022? Or what's the margin expansion opportunity for this year?

Well, first of all, Josh, we had about $1 million of integration costs that will no longer be there going forward. As far as the folks that have moved on to our VIP platform, I'm going to let Doug handle that one.

Yes. Migration is going well, but we've got almost 4,000 customers on our classic platform. And so it's obviously a -- it's a laborious task to get them all migrated over the course of time. So we're doing those as their contracts come up and we're renewing them for new terms.

And so right now, we're probably 15% of our customers have migrated over, and we've got that as just a staged migration plan. So it's moving customers from the left pocket to the right pocket, so it's really an effort of getting it migrated over smoothly and efficiently, so the customers don't skip a beat.

And then could you elaborate a little bit about some of the kind of strategic partnerships for the resellers and master agents? I'm kind of curious, like you mentioned Mavenir. Like what's the opportunity to do business with them? They are obviously, a larger master agent. Could they be a significant needle mover? Or where do you fit into relative to the current portfolio of offerings?

I'm going to let Jon Brinton handle that one, who's our Chief Revenue Officer.

Yes, thanks, Josh. Mavenir, actually, interestingly, is a supplier of network infrastructure to about 250 mobile network operators globally. So what's different there is that's a market we hadn't addressed before. They support 4 billion subscribers on wireless networks globally, and they're replacing their own product, which was their Mavenir Connect 1.0 with our product that they'll be launching as Mavenir Connect 2.0.

So the channel opportunity is having them actually take our technology and OEM net or deliver it to the mobile network operators that they do business with. So that's a significantly different market than we've served before. It's a new market that's very exciting for us, and we're looking forward to a more global partnership with them.

And on the flip side, Josh, the TCG and the OTG opportunities, TCG has over 6,000 agents out there selling different telecom type services. And so we're extremely excited about where that opportunity has the potential to take us. Again, just having the Crexendo offering out there in front of 6,000 potential agents to sell our services to potential end users is a pretty tremendous opportunity.

OTG, much smaller in scope, but still a very great opportunity for us to get with their agents on opportunities that they're selling. And we've got a tremendous differentiating factor. We have our own platform. It's the fastest-growing UCaaS platform in the country.

And so when we talk about having nearly 2.5 million users using our platform, that's a huge selling point for these agents when they're out there and have a choice of to selling us or some of the other smaller providers out there. That gives us that instant credibility when they're out there pushing a solution.

Last question for me. So you've had the -- right, the -- you completed the acquisition in June. So you've got 2 full quarters now after the NetSapiens deal is closed. But if I look at like the service revenue and the software solutions revenue, up around 1% quarter-over-quarter. What's going to be the key catalyst this year that could get that to improve? And any clarity you can provide in terms of kind of revenue guidance or KPIs that you're trying to hit this year on the top line?

I'm going to let Anand, Jon and Doug answer that one. But one of the things I can tell you is when you're selling to software licensing customers, which a lot of our customers over 200, as Doug pointed out, it's a longer sales cycle, and you're going to see ups and downs, and the trend is going to be up, but you will see ups and downs.

More importantly is our backlog is almost $42 million. And a lot of the increase came from NetSapiens group, which, of course, we're going to rebrand that over time. Do any of you want to step in and answer that, Doug?

Yes. I think when you look at the opportunity for growth out there, Josh, new partners, especially master agents take a little time to cultivate. We see a tremendous opportunity for growth there. We're continuing to bring on new agents that are selling the Crescendo solution on the direct side of the equation.

So as we continue to bring on new agents, we'll see increased opportunities there. Again, that ramp-up time to bring on new agents and get them up to speed on our platform, it takes a little bit of time. And as Steve said, the new logos on the software solutions side, that's a longer sales process because these are businesses that are either leaving a BroadSoft or Metaswitch or starting out as a UCaaS offering from scratch.

So it takes a lot of time and effort for them to get their ducks in a row to make that happen. But we see a tremendous opportunity to continue that growth. Obviously, with putting 2 companies together, we've been focused on getting all of the integrations done and all the synergies going. And so ramping up sales and ramping up our marketing effort is going to be critical going forward.

And Josh, maybe I'll add one key point here is that what we're continuing to see is actually a big uptick in the recurring revenue side of the business. And so as more and more of those 2 as a service, more and more goes to Infrastructure as a Service, so on and so forth. While the value of that revenue continues to go up, the lumpiness of that from a licensing perspective will change as well.

And so again, this is kind of well planned and well understood, but that's also a little bit of a transition that's happening now as well as we take on more and more recurring revenue, which kind of affects the top line from a nonrecurring standpoint. But again, it's more valuable for the business.

Then last question for me, then I'll hop back in the queue. Any -- how are you guys dealing with the supply chain constraints? I know hardware is not a huge piece of the business, but you do have some because you have your own phones, right? Has that been a issue? Are you well stocked as it stands today? Or any comments?

Yes. It hasn't been an issue, knock on wood, to date. So we do have plenty of inventory in stock. We do have our Crexendo branded phones. We also support just about, I think, last count was what about 167 different types of models of phones out there. So even if we were to run in new issues, which we haven't yet, there's plenty of options available for us out there.

So when you look at the amount of phones that our platform supports today, I think we support more phones than any other platform out there. So it gives us plenty of options. But right now, it hasn't been a challenge for us. And we hope that's going to continue to be the case.

We have seen a tremendous uptick in our cost for shipping and delivery and some delayed time frames there. But we were planning ahead for that a year ago when we kind of saw some of these things coming down the road. So it hasn't affected us to this point.

And Josh, just to clarify 1 more point, we're seeing a slight downward sales-wise in desktops and people are going more to the app, the mobile app. Obviously, this is only about 0.5% or 1% at this time. But if this trend continues, we'll need less and less inventory, and our margins will come up a little bit.

And talking about margins, you're probably not going to see until the second quarter any effort from increasing the pricing and folks coming off of contracts and so on and so forth that will add to margins as well. So margins will be increasing this year and next year. And our goal is to get them to where they were prior to the acquisition.

Your next question is coming from Eric Martinuzzi with Lake Street.

Congratulations on the transformational year in 2021. I wanted to come at the revenue question from another angle. The services revenue at about $4.3 million now for 3 straight quarters. I understand the onboarding of the new customers can be a little bit lumpy. But what about from the other side of the equation, do you have any statistics on the either retention or churn that you can share with us, either on a quarterly or annual basis?

Doug will answer that one.

Yes. Retention is still fairly high compared to the industry norm, but we did see an uptick. We don't have the final numbers for churn percentages for 2021. But 2021 did see a higher percentage of churn than we did see in 2020. I think some of that was pandemic related with businesses.

Again, our advertised customer out there is 21 stations. So in that SMB market, we did have customers that either went out of business or merged or got acquired. And so we did see a little bit of an uptick in churn, not considerable, but it was enough to lead to some concern on that small midsized market and their liability out there.

But we still have plenty of customers out there. We think the churn is really plateaued and so I don't anticipate any higher amounts of churn, and we're doing a lot with our customers on giving them attendance to migrate to our VIP platform. And so that's giving customers that -- a technology refresh, so to speak, as we move them from 1 platform to the other.

Does that answer your question, Eric?

Catherine, are you still there?

Yes. His line disconnected. Would you like to move to the next question?

Yes.

Let's go to the next guy, and if he comes back on, we can put him back in the queue.

Your next question is coming from Andrew King with Colliers Securities.

First off, what was behind the driving force of the product growth this quarter? Obviously, we typically do see a pretty significant step-up in Q4 in products. In past years, it's been more in the range of 30% to 40%, and now we're starting to see it consistently hit above $500,000 quarter -- each quarter and you drove 55% growth in that area. So I just want to get an idea, what's going on specifically in the products? And how much of that is new customers versus customers refreshing old hardware?

Yes. I think it's more of the latter, Andrew. As we see customers coming up for renewal after they've been with us for 4 or 5 years, and they have older phones. We're migrating them to the VIP and typically doing a technology refresh, which means that we're going out to them. Similar to your cell phone, if your plan comes up on your cell phone and you've got an iPhone 8, and it's time to get your iPhone 13, it's really easy for you to go into the store and get an upgrade and keep your pricing relatively the same, if not even more attractive.

And so -- we do a lot of that with our customers today. And so those technology refreshes are really spurring on additional product sales because in many of those cases, those customers are upgrading to newer color display sets, the touchscreens, et cetera. And so that's been probably the main driver behind some of that increase in product over the last couple of quarters.

Got it. And then how should we think about customers refreshing their hardware going forward then? Do you believe that the majority of the customers have already refreshed their hardware, and that happened in these last 2 quarters? Or is it just a small portion that's primarily refreshed?

No, I think we've -- it's very consistent for us. Customers that we sold 5 years ago to the month are renewing now, and customers that we sold 5 years ago to the month in December will be coming up towards the end of the year. So I see that, that technology refresh is very successful for us. It's very advantageous for our customers. So I don't see that slowing down. So you could see that product revenue staying at a fairly even clip probably over the next few quarters.

I think an important part of that there is that the change in the technology in the last 3 years. So our devices now have Bluetooth capabilities, WiFi capabilities, so you don't have to have ethernet cable in your house. If you want to have a home office, you can put a desk on your kitchen table if you'd like and connect it to WiFi.

So the technology increases and the development has spurred a -- are resurgent and purchases of the desktops to get that latest technology, the cohort display, the touch screen, the WiFi and Bluetooth. And so I think that's the driving force I'm seeing behind the technology upgrades as they move to the Crexendo VIP.

Great. In the prepared remarks, I think -- did I hear Steve correctly say that you were targeting between 40% and 50% year-over-year growth on an annual basis going forward for the next 2 years? Can you just give us an idea of how much that's inorganic versus organic -- and organic, how you guys plan on aiming that?

Andrew, we have stated that approximately half of that will be organic and half of it will be through acquisitions. We're seeing more and more folks that are interested or at least talking to us, we haven't consummated any deals yet. But more and more folks are talking to us out of the former NetSapiens group. And as you know, there's 200 customers or companies in that group and -- 200-plus. And there is a huge, huge fishing pond for us to work in. Did you want to add anything, Doug?

No, I think that sums it up perfectly.

Great. And then just one final one. Mavenir partnership really sounds exciting, that you're delving into a new market. Can you just give us an idea of the time line of when you expect them to get ramped up and starting to sell into their base?

I'm going to let Jon Brinton answer that.

Yes. So a couple of things. The go-to market with Mavenir is twofold. It's through their service provider base, and it's also through their Mavenir Enterprise division. So their Mavenir Enterprise division is actually spotlighting our UCaaS as part of their combined solution this week at Enterprise Connect in Florida. So we're excited about them quickly taking that into their offer.

With the service providers, and as you can imagine, the mobile network operators, these are some of the largest MNOs on the planet, that does tend to be a longer term sales cycle. We're already seeing invitations for competitive bidding and beginning to get our commercial motion moving with them, but those tend to be longer sales cycles and do take a longer period of time than a lot of our traditional sales. So we'll ramp that up over the next quarter or 2.

But for both of us, we're doing joint training on the solutions now with our sales teams, we're pushing the roll out both sides of the agreement. And as I said, they're already promoting our solution as part of their offer this week at Enterprise Connect. So we're happy with how quickly they've embraced this and made the decision to adopt our solution as their UCaaS platform going forward.

Great. And then just one quick clarification. That partnership is on the organic Crexendo base side, not on the NetSapiens side, is that correct?

Maybe I'll touch on that. It's actually both. And this is Anand, by the way. And so what we see is the opportunity both for licensees from a Mavenir perspective, and the MVNOs that would, in essence, try to compete against the likes of -- when we compete against the likes of the Microsofts and the Metaswitch community, if you will. So these are service provider opportunities, as Jon spoke to.

And then on the CCaaS side as well, the integrations that we're looking at from a CCaaS perspective are also opportunities that we can turn around and offer to the NetSapiens community of service providers that can leverage those integrations to go to market as well. So it's twofold there.

Well, we can also offer the CCaaS to our end users. Is that correct?

That's correct.

So as you see, Andrew, it goes both ways. It's kind of a yin and a yang, a push-pull.

Eric has rejoined the queue.

Not sure what happened there, but I appreciate you giving me a second shot at this. You talked in the press release.

That's why you need a Crexendo solution for your office there, Eric. So we'll give you a follow-up call afterwards, and we'll get you taken care of, so your system doesn't die on you.

I love the prosecuting the lead gen opportunity there, Doug. Okay. So efficiencies, expenses and price increases, I want to learn a little bit more about price increases. Are price increases already in effect? Are we talking about the services side of the business? When -- this is something that I imagine, hey, the price increase goes into effect on of a certain date. And that's with new customers, but maybe old customers don't see it until they re-up their annual gig. Tell me how price increases flow through?

Well, let me handle that, and then I'm going to turn it over to Anand. First of all, all the new customers are at the higher pricing. They don't know that it's higher, but it is. And the existing customers, when they come off of contract, they're looking at a substantial increase. I'll turn this over to Anand now.

Sure. I'll touch on the software licensing piece and then, Doug, you can touch on the services side. But one key thing is that even prior to the combination with Crexendo, our prices consistently kind of were growing over time. And our clients have been aware of that because the other thing that you see is that the value that we're providing to the market continues to grow as we add features, add services, add enhancements to the platform. So that trajectory of increases continued.

But to Steve's point, from a contractual standpoint, it's when either folks are transitioning or, if you will, moving from 1 contract to the next contract, upgrading and/or new logos that are coming in. So again, this is something that has been a pretty common practice.

Obviously, at the moment, we're seeing a lot of pressure in terms of reinvestment into the product and the software. So that, in of itself requires additional funding to make that happen. And so some of the price increases are simply warranted from the standpoint of being able to provide better services and better product out to the community.

I think on the direct side of the equation, obviously, as I mentioned, shipping costs have gone up tremendously. And some of our product costs have gone up a little bit. So those increases have taken place, and those are already in place. So we don't anticipate those having any challenges, customers have received those as well. And when we add new features and new capabilities, we're seeing an opportunity to increase prices there as well. So when we come out with new API applications, for example, we've got a Teams integration now.

And that's selling extremely, extremely well. So customers that are using Teams today are investing in not only our solution, but buying Teams integration per license, which tends to add that average revenue per user increases at -- pretty considerably. So when we see opportunities for selling additional APIs, we're seeing an opportunity for additional revenue streams coming from that as well.

Okay. And the question I got cut off on was regarding that services revenue line. And is your expectation that Q1 services revenue will be up sequentially versus Q4 services revenue, taking into account the lumpiness of the business and the retention that you talked about earlier?

Yes. Right now, we're seeing services revenue is not seeing a tremendous increase. So hard to tell. We don't usually give forward statements for the quarter. But I mean, services revenue has been pretty consistent. Where we see that lumpiness is more in the software solutions side of the house, where we might get a large order at the end of a quarter, and it takes 6 to 8 weeks for us to get it installed. And so those are typically longer time frames to get some of those on the software solutions side. But right now, we see fairly consistent growth on both sides of the equation.

And correct me if I'm wrong, Ron. On the software side, we aren't able to recognize their revenue until it's installed. Is that correct?

Exactly.

Yes. So that's what causes the lumpiness.

Yes. Understand. Okay. And then last question for me is on the gross margin. Ron, you've talked in the past about -- hey, we knew when we acquired NetSapiens, our gross margins were going to decline a bit. But over time, we were going to work them back towards the 65% to 70% range. I was expecting a little bit more progress here in Q4 versus what we wound up putting out. But what can you tell us about that 65% to 70% range? Is that still realistic? And how should we model it as far as the progress in 2022?

Yes. I think it's realistic. We've learned a lot over the last 7 months through 12/31 as we integrated the accounting systems and the accounting teams and worked through that -- the purchase price allocation, really Doug and I understood what we got here.

We've got some work to do on the R&D front of the maintenance and efforts that are put into the product and feature functionality development, to establish some processes and procedures around tracking time in order to allow for us to either do some software capitalization or to reclass between the engineering time between cost of sales and R&D.

What you're noting now is that the majority of that time is not being tracked separately and therefore, it's ending up in cost of sales because it's difficult to distinguish between how much time is being spent on new feature functionality and how much engineering time is on bug fixes and just annual updates, maintenance to customer support operations. So that's the hard part there.

So as we go over the next quarter or 2, I think we're going to be digging deeper into that and establishing those policies and procedures, so that we can differentiate that time and allocate that to R&D. And then potentially even some software development capitalization for our new product development, if that arises.

So I think once we're able to do that, then we'll stop dumping all that engineering cost into cost of sales, and therefore, we'll improve our margins and we'll really get us back to that 65% to 70% margin.

Your next question is coming from Chris Sakai with Singular Research.

Just had a question on the Mavenir partnership. Listen, could you guys provide any sort of ballpark amount of revenue contribution that, that could give? And going into 2022, how many more partnerships like this would you -- are you looking at?

Well, first of all, we don't give forward-looking information. But this is like pump priming time. Obviously, it's going to lead to bigger and bigger partners. And I'm going to let Jon and Doug handle that one as far as adding some color.

Yes. I would just say, Chris, as we indicated before, this is what -- this market, it's a longer-term sales cycle, so that we'll be addressing it over time. We aren't forecasting that. We are constantly looking for other strategic partners that we can add, although this is pretty unique to be partnering with somebody who touches half the mobile subscribers in the world, there are 4 billion different mobile users that touch their technology that's -- it's a different partner than you would find in most cases.

So just understanding that we will look to continue to build out our partnerships every quarter. We're adding new partners on the platform side and in our retail offerings and the Crexendo VIP side. So we're constantly recruiting, adding and building our partner programs, and we'll continue to do so.

Doug, did want to add anything?

No, I think that's a good summation. And we're extremely excited about the opportunities. But just as I said with the master agents, these take a little bit of time to make, but they're rolling out our UCaaS offering as we speak, over the course of the next 30, 45 days and we'll be doing similar with the CCaaS offering. So the revenue opportunity should start showing up in our numbers relatively quickly.

Great. Okay. And I know you mentioned your backlog is about $42 million. Can you provide any color on that as far as how much of that is visible in 2022?

Yes. So it represents our backlog in our note through or footnotes and -- so that's backlog.

It's actually $41.7 million.

Ron's going through the 10-K now. So although we spent the last 72 hours without sleeping, writing it, he's still got to find the right page.

I got the right page. So for 2022, we're looking at just over $19 million in 2022. You'll see a 5-year runout schedule that shows that $41.7 million over the 5-year period.

Okay. Great. And as far as, I guess, any future acquisitions are concerned. Do you see anything possible in this year?

Yes. I mean the opportunities out there are pretty nice for us right now. We've got lots of irons in the fire. And so I anticipate that we should be able to announce something this year. But obviously, there's a lot of factors that go behind that. But we've got discussions going on. And when we get to one that is to the finish line, you'll be the first to know.

But we're excited about the opportunities that are in the funnel. And we are in a position where we really have the opportunity to look at what's the best fit for the organization from a growth perspective. So that's kind of where we are as we evaluate those opportunities.

And to clarify, you won't be the first to know, you'll be the first of everybody to know at the same time.

Your next question is coming from Michael Kaufman with MK Investments.

Steve and Doug, I want to congratulate the teams for doing an incredible job of kind of moving the ball forward, maintaining incredible revenue growth and getting kind of near profitability, which was kind of your strategy. I think it would be helpful to be able to quantify because you have a unique pricing model against Cisco and Microsoft because you don't have that huge installed base, and therefore, you could undercut them with a different kind of strategy.

And if you can be able to quantify that for the world, what's the total available market to you with migrating part of the business to that kind of strategy? That would be helpful in getting people to understand that this company could be a lot bigger than a bread box and it should be worth a lot more than $90 million.

Everything you've said, Michael, is absolutely true. We consider the market worldwide, is what we're looking at, to be several hundreds of billions of dollars. Is that correct?

I think Gartner puts the UCaaS, CCaaS market of about $180 billion by 2024, so...

Yes, that's -- let's call it, $200 billion. And as you know, we've just got a crumb of that right now.

You have an infinitesimal penetration. But an important thing if you want to buy other companies is to have a very large market cap. So you have to be able to explain this opportunity to the investing world, so they share some of the enthusiasm that I have for the company. That is the best kept secret.

Yes. There is -- and tell all your friends.

I have. I have.

But there's a couple of things that go into this equation. Our small dividend is part of it, so that we attract institutional investors. Our -- we're absolutely the lowest valued company for our size of any of the bigger ones, and we're growing at a much faster rate.

You put all that together in a $200 billion minimum market just for the software market, it's got to be bigger for the entire market. You put all that together and there's no way that we can miss.

I'm saying that now is not the time to do public financing because valuations don't reflect the opportunity. But -- so I would focus on building these great relationships and showing that you can start to improve margins, you're going to still grow at a very rapid rate and do whatever you can to be able to explain this opportunity to the rest of the investment community because you're going to grow into a great valuation company.

Yes. And we're going to do all of that, just so you're well aware of it. The truth...

I know you're going to make it happen. I've known you for 20 years.

And the only thing I would add, Michael, to your question, I mean, your BroadSoft -- BroadSoft from Cisco and Metaswitch from Microsoft have thousands of resellers out there selling their platforms. There's tens of thousands of MSPs and other providers out there. So the list of opportunities, when we talk about having 200 service providers, that's just a drop in the bucket. There's lots of service providers and lots of opportunity there. So there's no shortage of opportunity for us now and in the future.

All right. Well, I certainly wish you the best of luck. And I know you will continue to prosper.

Thank you.

Thanks, Michael.

We have no further questions from the lines at this time. I would now like to turn the floor back to Steven Mihaylo for closing remarks.

Catherine, thank you. My closing remarks are the last sentence of my prepared remarks, and that is, I'm very, very, very optimistic. And with that, we're going to all go back to work and get ready for the first quarter conference call, which will be in about 1.5 months from now. I can't say exactly how -- when it will be. But with that, we wish you all a very pleasant evening and a good weekend, and we'll talk to you again in about 6 or 8 weeks.

This concludes today's conference call. You may disconnect at this time, and have a wonderful day. Thank you for your participation.