Crexendo Inc (CXDO) 2010 Q2 法說會逐字稿

Good day, everyone, and welcome to the iMergent Incorporated second quarter calendar 2010 financial results conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Steve Mihaylo, Chief Executive Officer. Please go ahead, sir.

Thank you. Good afternoon, everyone. I'm Steve Mihaylo, the CEO of iMergent and I want to take this opportunity to welcome all of you to the iMergent second quarter 2010 quarterly results conference call.

With me today are Clint Sanderson, the President of our StoresOnline and Crexendo divisions; Jon Erickson, our Chief Financial Officer; David Krietzberg, our Chief Administrative Officer; and Jeff Korn, our Chief Legal Officer.

I will have Jeff Korn read our Safe Harbor statement, after that I will give a brief overview of the quarter, Jon Erickson will then provide some granularity on the Q2 numbers and then we will open up the call to questions. Jeff, would you please provide the Safe Harbor statement?

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 likes 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 30, 2009, and the forms 10-Q for the periods ended March 31, 2010 and June 30, 2010. iMergent 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 for some comments.

Thank you, Jeff. Net income for the second quarter of 2010 was $50,000 or $0.005 per diluted common share, compared to $8,535,000 or $0.74 per diluted common share in the comparable quarter last year. Please keep in mind that the earnings per share in the June 30, 2009 results included a benefit of $0.62 per share from the settlement with the IRS in connection with our IRS audit.

Revenue for the second quarter of 2010 decreased 5% to $17,448,000 compared to $18,278,000 for the comparable quarter last year. However, the revenue results are sequentially 8% higher than revenue from the March 31, 2010 quarter when excluding the $1 million one-time benefit related to Avail during the March quarter.

The lower revenues in -- compared to 2009 were a result of a 13% reduction in the number of workshops conducted during the second quarter of 2010, as compared to the comparable (inaudible) receivables portfolio, and a 17% decrease in the number of preview buyers attending our workshops compared to the prior year quarter.

We believe that the high unemployment rate, general downturn in the economy and the lack of credit available to our customers continue to negatively affect our workshops and numbers of buyers. However, we have seen some hopeful signs, as there was an increase in the percentage of attendees purchasing products to 27% in the second quarter of 2010 compared to 24% in the comparable quarter of 2009. Revenues from our Crexendo Business Solutions division were $365,000 compared to zero revenue in the comparable quarter last year.

Total operating expenses for iMergent increased to $18,491,000 for the second quarter of 2010 compared to $18,774,000 for the comparable quarter in 2009, primarily as a result of an increase in the number of international events, which have higher marketing and event cost, and an increase in expenses associated with the Company's Crexendo division. We believe the timing is right to increase our direct sales efforts by hiring additional direct sales representatives for the Crexendo division.

Finally, in anticipation of the nationwide launch of our hosted telecom offering in the first quarter of 2011, we have increased our development team to allow us to go to market with a robust offering that will include premium services such as operator services, eventually conferencing such as the one you're on, and sometime probably towards the end of next year, the first part of 2012 a very robust multiparty video conferencing to service the expected needs of our customers. While these additional investments in sales and research and development may impact our short-term profitability, we believe these are necessary investments in our business to achieve future long-term success.

I am also pleased with the increase in the percentage of attendees purchasing, and we believe that is in part due to selling more of our StoresOnline products and services as a software-as-a-service model, in other words, a SaaS as opposed to a traditional software license sale, which we believe does a better job of leading with the needs to train and does a better job of qualifying our purchasers.

We have one team selling the SaaS model full time. We anticipate transitioning an additional workshop team to the SaaS model during this quarter of 2010 with the goal of converting all of our workshop teams to the SaaS model by the first quarter of 2011. Aside from the benefits I discussed, the transition from a software license sale to a SaaS sale should enable us to open new sales channels, such as affiliate marketing, private-label partnerships, direct online channels to complement our current workshop model.

Finally, I have just completed my semiannual top-to-bottom review of operations. I fully believe we're in the right space and that we're on the right track. I have been energized by the progress in our SaaS sales, Telecom division, Crexendo services division and I realized the challenges we both -- we face, both in the transforming our StoresOnline business, building our Telecom division and expanding our Crexendo Business Services division, all while facing these tough economic uncertainties.

My review and the progress our team has made convinced me more than ever that our common stock is undervalued. We have found it difficult to purchase the amount of shares we wished to purchase on the open market with our repurchase program. As a consequence, I have asked my team to prepare a stock tender offer seeking to allow the Company to repurchase between 250,000 and 1 million shares of iMergent's common stock at a range of $4.25 to $4.75 per share.

We believe this action is in the best interest of our shareholders and our Company, and we are hopeful that this will be more effective in allowing us to acquire stock than our repurchase program has been to date. I believe iMergent's Board will support this action and we hope to have a tender offer in place by the end of this year.

At this time, I will now turn the call over to Jon Erickson for a review of our 2010 financials.

Thank you, Steve. As was mentioned, the majority of our decrease in revenue from $19.37 million to $17.448 million is related to a decrease in the principal collected on our accounts receivable balance, which decreased approximately $1.8 million to $4.6 million in the current quarter compared to $6.4 million in the prior year quarter. As a percentage of revenue, this equates to 27% of StoresOnline revenue in the current quarter compared to 33% in the prior year quarter.

In December 2008, when we reduced our number of workshop teams from six to four, we realized an immediate pickup in revenue and profitability as a percentage of revenue related to the collection of our receivables increased dramatically. Incidentally, this revenue has relatively little cost associated with it, as the costs were recognized at the time of the event with very little cost recognized at the time of collection, which triggers the recognition of revenue.

Over the past 18 months, since we made the reduction in teams, our revenue related to principal collection on receivables has decreased from $7.9 million in the March 2009 quarter to $4.6 million in this current quarter.

With that said, our quarter-over-quarter amounts have begun to stabilize, as we have gone from $5.2 million in December 2009 quarter to $4.8 million in the March quarter settling in at $4.6 million this quarter. We expect the revenue related to principal collected on our receivables balance to continue near its current levels in the near term assuming, of course, that collection levels remain consistent.

StoresOnline revenue related to our events in this quarter decreased approximately 5% to $9.1 million compared to $9.6 million in the prior year, despite a 12% reduction in number of events, as we were able to close a higher percentage of our attendees this year than we did last year.

Now, I would like to expand a little on our plans to move from the sale of a traditional software license to a software-as-a-services model with a recurring monthly subscription and how it will affect our revenue in the near term. When we started testing this model in January this year, we knew that we could not make the change to a SaaS offering unless we were able to generate a comparable amount of revenue at our events as we have under the software license model due to the significant marketing investment required to conduct these types of events.

Realizing that we've been working over the past six months at developing an offer focused more on the training aspect of our services, which includes training on how to effectively design and market your site, not only to increase the traffic to your site, but also to increase the conversion of that traffic once the visitors get to your site.

The results of this effort have been encouraging, as we have been able to approximate the average sales price of our traditional license events at our SaaS events. While we are not prepared to transition all of our teams to the SaaS offer at this point in time, we do feel comfortable transitioning a second team to the SaaS offer and expect the transition of all of our teams to the SaaS offer by the first quarter of 2011. We believe this transition will give us more flexibility in how we fill our events in addition to the potential addition of sales channels that Steve spoke of earlier.

As Steve mentioned, our Crexendo Web Marketing Services revenue increased 50% quarter-over-quarter up to $365,000 from $242,000 in the March quarter. As we increased our investment in direct sales personnel in this division, we may see a decrease in our short-term profitability, as our new hires skate up to speed. However, we believe this short-term investment will pay dividends in the future.

Operating loss from our Crexendo Web Marketing Services division was $443,000 during the current quarter compared to $235,000 in the prior year quarter. Operating loss from our Telecom division was $339,000 in the current quarter compared to $186,000 in the prior year quarter.

From a cash flow perspective, we generated approximately $467,000 in cash from operations for this quarter compared to a use of $826,000 in the prior year quarter. During the quarter, we purchased 54,806 shares of stock at an average price of $4.69. We also acquired an approximately 22,000 square-foot building in Tempe, Arizona for $1.525 million. This building will serve as our corporate headquarters, as well as the headquarters for our Telecom division.

As of June 30, 2010, cash and cash equivalents, including restricted cash, was $19.5 million; working capital was $14.8 million; and working capital, excluding deferred revenue, was $28.3 million. Total current long-term net trade receivables were $19.2 million at June 30, 2010.

As we discussed in our last earnings call, we've experienced -- we've continued to experience slight deterioration in our accounts receivable. The deterioration continues to slow from a velocity perspective and while we haven't reached the bottom yet, we believe we're nearing it and we're comfortable with the allowance we have set.

At this point in time, I'll turn the time back to you, Steve.

Thank you, Jon. At this time, operator, we'd like to open this up to questions.

(Operator Instructions) We'll go first to Neal Goldman with Goldman Capital Management.

Good afternoon, guys.

Good afternoon, Neal.

First, could you explain that Dutch auction, why hasn't it been approved and why can't it be done the next month or so?

Well, we've actually -- we wanted to get our second-quarter results out and due to just being able to get all of our Directors together, they all live in different cities, we --

Neal, if I may, this is Jeff. The idea just came to us probably over the last two, two-and-a-half weeks and to do a tender offer is a long, detailed process, will involve paperwork back and forth with the SEC and will probably take internally a good four to five weeks of drafting. As you know, it's not a small document.

We just wanted to -- once management all thought that it was a really good idea, we wanted to put that information out there. But it's just at the very preliminary stages that we've decided to move forward with this.

Okay.

And the other thing, Neal, it takes -- we'll have to do this with a document that is approved by the SEC and as you know that can be a six to 12-week process in itself.

Yes, okay. Number two, what does it take to get -- I mean you're losing on Crexendo $40,000, what kind of revenues do you need to be at cash flow breakeven at Crexendo?

I'm going to let Jon Erickson handle that question, but I want to point out we're ramping up the sales force, so that number keeps moving up as we add salesmen.

Okay.

Neal, currently we'd be at about $900,000 per quarter to be at breakeven point for the Web Marketing Services. From a Telecom perspective, we haven't started selling yet, so that's all development cost.

First of all, when are you -- in your mind, Steve, what sort of ramp do you expect now in the sales level at Crexendo?

Well, I think you can see a ramp comparable to what we've had. We're ramping at at least 50% a quarter. Now obviously at some point in time that's going to level off and ramp at a more normal ramp.

I would think though that we should be able to sustain quarter or year-over-year sales increases once we normalize, and it'll probably take us a year or two to normalize in the range of 25% to 30% a year.

Okay, but that -- you're still -- first of all, the second quarter didn't look like it was significantly greater than the first, it was $365,000 versus three something.

No, it was $365,000 versus $242,000. It was a 50% increase, quarter-over-quarter.

Okay.

You're probably looking at the full year or some other number.

Okay. And in terms of Telecom, your offering will be ready when for your client base?

We expect it to be ready in the first quarter of next year. I'm actually talking to you on our telecom hosted product. I'm sitting in my office in Reno, Nevada and this is being hosted out of our servers in Orem, Utah.

Okay. All right. And just on the SaaS model, I understand the training, which really gets the clients up to snuff in terms of their ability to have an effective product line. In terms of the hosting, what is that going to amount to on a per-client basis or how does that work?

We haven't figured that out, but I would expect that on the enterprise side a minimum of $1,000 or $2,000 per month. Because we're going to host their website hopefully if they don't have one already, their telecom, we're going to provide them with their network services, in other words, their connectivity onto the Internet, and we're also going to provide them with search engine optimization, link building and any other services like pay-per-click.

And, Neal, this is Jon Erickson. From a StoresOnline perspective, one of the things we're working on is just taking the current software that we have and bifurcating into multiple modules that we can charge a subscription for, for each individual module and we're still in the process of bifurcating that, so that we can assign a price to each element.

Okay. And on that enterprise side, Steve, the $1,000 or $2,000, what would be the average customer that would need that kind of -- that range of services?

I'll say somebody with 10 to 20 phones approximately.

Okay, very good. Thank you.

You're welcome.

We'll go next to [Jeff Bash], private investor.

Hi, Steve.

Hi, Jeff, how are you?

Okay. I'll follow up with similar questions and the Dutch tender offer. Will your buyback continue in the meanwhile?

I'm going to let Jeff Korn answer that.

We will strategically purchase on the open market as appropriate while we're doing that, Jeff.

And the second question, if you can't answer it now, Steve, at least think about it and maybe it should be in the SEC document. If you will have the ability or authority from the Board to purchase any excess tendered over the amount that the Company is able or willing to approve?

You're absolutely right. To go over 1 million shares, it'll take additional Board approval.

Correct. But can you say now that you will consider the purchase of the excess over 1 million or you --?

We'll definitely consider it, but we have to keep enough cash on our balance sheet to operate the Company.

Oh, no, no, I didn't make myself clear. I meant you personally since you've shown --

Oh, me personally, absolutely, yes. Personally, I will.

And I'm making the point -- yes, they can appoint the Jeff Korn that I think this is something that would need to be in the disclosure document.

It would be, Jeff. It's obviously one of the things we've considered and as Steve indicated and as we had in the press release, the tender offer is anticipated to offer to purchase somewhere between 215 million shares. We don't know if we'll get up to the 1 million shares.

We have to work that out with the Board obviously. Jon Erickson and I are starting, preparing the tender offer and those things are all obviously being considered, Jeff. I appreciate you pointing that out.

No, I just want to make clear the fact that Steve may be willing to purchase any excess over with the Company can or is willing to is a material fact that ought to be included in the tender offer.

Obviously, I don't think Steve wants to make that decision while we're on the call right now, but it's one of the things I will discuss with Steve and our lawyers and auditors will discuss on the Board well and if Steve intends to do that we obviously will put that in the document.

Well, you might not even have to commit to do so, whether if you might do so --

Well, just if he wants the option to do it, yes. Correct, Jeff, if he wants the option --

I would think, Jeff, that even that would require SEC scrutinization.

I agree, now let's get to some Company questions.

Okay.

You did mention some -- having some international events and for a while that you didn't. Now, historically at one time the Company did up to a third of its events overseas and they were at that time considered to be more profitable because they had higher cash payments generally and less financing. Are you headed back in that direction on a gradual basis or what?

Well, we always look at any opportunity that's out there. I will say this, it appears that the economic conditions worldwide have affected the potential customers in overseas markets more than they have the U.S. So for the time being unless Clint Sanderson has something in the works that I'm not aware of, we don't have any additional overseas selling opportunities except for what we're doing in India.

Yes, that was my next question, how are we doing with the Indian initiative?

Well, the Indian initiative is actually starting to gain traction. I'll let Clint answer that.

Yes, so, Jeff, back to your question on international events. Steve's correct and I don't have anything up my sleeve there. Right now with the downturn in the economy and the marketing expenses involved in going overseas especially right now, it's not possible really to do that profitably. So that's why we're holding off on international events right now. And don't have any plan to do international events at least the rest of this year.

As for India, we're encouraged by what's going on in India. We have the bulk of our non-customer-facing tasks as far as programming being done now with our team there and we're working with our partners in India right now on the go-to-market strategy for marketing our software platform and our Web Marketing Services. They are basically leveraging their strategic partnerships in relationships that they have in India and we're also seeing some potential inroads into Europe as well through that partnership.

Do you have any feel as to what the revenue potential on an annual basis might be, I mean obviously you don't know for sure, but you're talking a few million or many, many millions or what?

Well, it's way too early to project that, but we're certainly doing the groundwork to get as much as possible, Jeff, and I really can't comment until we get a little more traction and we get some more of the relationships we're working on in place.

I understand. Now with respect to Crexendo, when you first talked about it a year or so ago, you really had grand hopes for the division yet starting from $365,000 last quarter even at 50% a quarter growth, it will take many years before it's up to $10 million or $20 million in sales. And I guess I'm curious do you still see that as a potential down the road or have you scaled back your expectations to what you think you're going to achieve there or what?

Absolutely if anything I think we can exceed the numbers, but until we have a full product offering and that won't occur until January, we won't be able to offer a full complement of products and services to our enterprise customers. And obviously we also intend to offer these products and services to our StoresOnline customers, but they'll be a much smaller opportunity.

But the reason why these numbers are probably not as great as your expectations, Jeff, is because of the fact that most of the revenue is recurring revenue and it goes on for basically as long as the customers are customer of ours. Instead of selling them something upfront the way we did at Inter-Tel, where if you sold a $50,000 system you got $50,000 upfront, but then the next month you had to go out and shoot a whole lot more of business. In a recurring revenue model, your revenue just keeps going month after month after month.

Okay.

So I think the profitability on a recurring revenue model is going to be a lot higher than it would be on a SEO model.

I got it and I only got two more questions. On the CapEx for your office building, when you'd made the decision to make that purchase as opposed to continued leasing somewhere, did you take into consideration its cost in terms of perhaps having less money available to buy stock at these low levels and the lousy commercial real estate value situation in the country generally and the sort of tougher economic times in Arizona partly contributed to by this immigration furor you have down there?

Well, we took all of that into consideration and we feel that it also makes a statement about the direction of the Company. That building will house our Crexendo division and it's approximately 22,000 square feet. We bought it for what we think is market or slightly below market.

So the prospects for that building are only up and frankly the amount of money that we received in the way of interest that our cash balances can earn are very, very small. But we took all of the things that you mentioned into consideration.

Last question. Do you have any plans in the near term to go on the road to share the story with people who might have been former investors in Inter-Tel or former investors in iMergent in past times?

Yes. Jon Erickson, we're planning on being on an AA conference here in the not too distant future. Can you elaborate on that?

There's one in November that we have -- we're contemplating attending in San Diego.

Okay, great. Thanks a lot for your comments.

You bet, Jeff.

(Operator Instructions) We'll go next to [Robin Lochner] with -- who is a private investor.

Good afternoon, Robin.

Hi, good afternoon. This has been a good call. The Company definitely seems like it's on the right path. I just had a couple quick questions. Once the tender offer commences, what will the timeframe be for completing it?

Well, I'll give you my opinion and then Jeff Korn, our Company attorney, will give you his, but generally these tender offers are open for a period of anywhere from 30 days to 60 days or until the full amount of the tender offer is reached. Jeff, do you want to add to that?

No, I would expect it would be something along those lines, Steve. Again, Robin, we've not run all of this through completely with our Board, so it's hard to answer those questions, but the parameters Steve gave you make a lot of sense.

Okay.

And the SEC has an awful lot to say about that as well.

Sure. And then during the quarter, the Company was able to repurchase a little less than 55,000 shares of stock. Were you able to repurchase any since June 30?

Well, we've been in a quiet period, so there have been no repurchases and we only have started discussing the idea of a tender offer in the last week or two. So the answer is no. However, I might also point out, I'm not sure of the exact amount, but I believe I purchased approximately 100,000 shares in the quarter as well.

Okay. And then finally sort of an open-ended question, there's a lot of things going on at the Company at the moment, I mean given that what do you think the Company's biggest challenges are, how would you quantify those challenges and how are you addressing those challenges?

Well, we have three big challenges and they are execution, execution and execution. And the way we're addressing those challenges is we're in the process of putting a quality improvement process in place that should drive our cost down. We've hired some very, very experienced telecom engineers and we're hiring the very best salespeople that are out there.

We've got some great people at iMergent already and I'm very confident that we'll be able to execute, but that's going to be our greatest challenge is executing profitably and doing it in a way that's scalable because as the business picks up, it'll be necessary to be just as good on the execution side from a scalable standpoint as it is on the sales standpoint.

Okay, very good. Thank you.

You bet.

(Operator Instructions) We'll go next to [Vishal Gupta], private investor.

Hi.

Good afternoon.

Good afternoon. So I have a question regarding competition, so now obviously if you look at your Crexendo product rights, so there are free conference call services, there are also free video conferences, Intuit is offering Homestead for about $20 a month, so then there are competitive products and I do see a value in your product, it's completely integrated, you're providing search engine optimization and other web services. How do you justify charging $1,000 or $2,000?

Well, it depends on how many customers are out there, but let's say you have a company with 20 employees and that's probably the size that can justify $1,000 to $2,000. You're probably going to have somewhere in the neighborhood of around $600 a month for their phone service, maybe even slightly higher. They're also going to need probably at least a T1 line, which is anywhere from another $400 to $700 a month, now you're up to $1,000 right there.

Then the hosting of their web services can be anywhere from another $30 a month to $100 a month depending on the amount of traffic they've got going over it. Now you're up to $1,100 or $1,200 a month. Then you add in SEO, which is a constant thing, it's like the Yellow Pages, SEO is required all the time as algorithms change, you have to change the search engine optimization. That can be anywhere from $500 to $1,000 a month.

You add link building to that and then you add all these other services like operator services, live operator services I might add, bridge, conference bridge, video conferencing and so on, it's very easy to see our customer with 15 or 20 employees can be at $1,000 or $2,000 a month and that's a lot less than one operator would cost, a single operator answering the phone with all the benefits and insurance and so on can run $30,000 to $40,000 a year.

Got it. So maybe I've misunderstood a little bit, right? So an operator is needed in the company essentially to take inbound calls. Here we're talking about a conference calling system, right? Where essentially (inaudible) conference call.

No, no. The operator services is answering your phone and locating people for you. The conference bridge is what we're talking on --

I see.

Currently.

Okay, okay. And just on the Indian market, what's your go-to-market strategy there, are you selling your StoresOnline product or are you focusing on your Crexendo product?

We have a partner in India that owns the Yellow Pages in India and they're selling our web services to their customers on a resale or a white-label basis and we're doing the hosting in the United States.

Got it, got it. And to sell your Crexendo product, you mentioned you're going to use direct sales force so you're not going to leverage your workshop model in any -- by any means to sell that?

Well, we may leverage it to the extent that as we bring on affiliates and they have a customer base, we may hold the events for their customers. But it's more of a direct sales model whereas the Crexendo -- I mean whereas the StoresOnline model is more of a marketing model. But we will devote marketing dollars to generate leads on the Crexendo side.

Okay. And another question related to the increase in the Crexendo revenue, you said from about $240,000 to about $320,000, so about $100,000 increase. So on an annualized basis, this is basically $400,000, is that the correct way of looking at it?

Well, first of all, it's a little bit larger increase than that, but if we get an increase of 50% in the coming quarter that would be about $550,000. By the end of the year that would be about $750,000 to $800,000 in the quarter. So it's going to be more than $400,000.

Right. And what's the retention rate, I know it has been only, these businesses doesn't have a big history, but what's your retention rate right now?

Well, the retention rate in the StoresOnline has been very poor and that's why we're going more to a SaaS and more to a training model, so that we can help our customers be successful, but on the Crexendo side you're selling to existing enterprises and the retention rate should be very high over 90%, maybe 95% or 96%.

Got it. And just one final question on that accounts receivable issue, so I'm not very familiar with the issue, if you could just please elaborate on that as to what is going on, why you're unable to collect?

Well, in the past, we generated a very large receivable with our customers because they were buying a $6,000 package or a $3,000 package and they were financing it over two or three years. So we had large receivables and as the economy got worse, our customers failed to pay us in a lot of instances. So as we go more to a SaaS model, that receivable will go down because it will be month to month, and the customers are actually paying you, in most instances, a month in advance.

So the receivables will continue to shrink. But we're on a cash basis accounting on -- in the StoresOnline division and we only recognize revenue when we collect the receivable. As we go more to a SaaS model, we'll go more to accrual accounting and probably eventually we'll get to the point where everything are accrual accounting like all our regular corporations are.

And, Steve, let me add a little bit of clarification on that. So, Vishal, from a receivable perspective, we finance some -- basically all of our customers if they can provide the sufficient down payment they're financed, there's not a tremendous amount of underwriting going on related to that.

When we switch to a SaaS model like Steve mentioned, it will switch to a subscription service with recurring monthly. That being said, as I mentioned earlier on the call, in order for us to switch to a SaaS model we need to be able to generate the same amount of revenue at our events that we currently do and we're doing that by transitioning to selling a training product.

That training product will be financed similar to it as now. And so you'll -- we will still have receivables it will be collecting on and we believe it's a higher value product for our customers, whether or not that increases are collection rate, we will see, that will depend upon the customer we're selling to and their qualification is a bit more than anything else.

But historically we have financed all of our customers who could come up with the sufficient down payment. There hasn't been underwriting and that's why you've seen a high default rate on our receivables in the past, which has necessitated a cash revenue recognition approach.

Got it. And has the number of people coming to your free preview workshops, has that started increasing or stabilized at least?

Let me have Clint Sanderson answer that.

Well, yes, it's actually stabilized. Right now we're seeing for this time of year, July and August particularly have never been good for us historically as far as show rates, but yes, it's stabilized right now.

Got it. And just one last question, if I may. I mean it almost looks like, if I look at the long-term strategy of the Company, which I think is pretty solid right here, you have Crexendo product, you're converting your StoresOnline to SaaS, right, why do you need the workshop model at all, why not just stop it, right? And just focus on growth?

Well, right now it -- yes, right now it's about 90% or 85% of our revenue. If we were to stop it and plus it's very profitable right now, so if -- we'd be shooting ourselves on the foot, in fact maybe in the head.

Got it. No, this is helpful. Thanks a lot for your time.

You're welcome.

And we have no further questions at this time. Mr. Mihaylo, I'll turn the conference back over to you for any additional or closing remarks.

Okay, thank you, operator. Well, as you can tell, we're very energized by what we see in our results and that confidence is displayed in our soon-to-be tender offer for up to 1 million shares of our stock. We're looking forward to the next couple of quarters and we'll be looking forward to speaking with all of you after our third-quarter results.

Thank you very much and good afternoon, everyone.

Ladies and gentlemen, that does conclude today's conference call. We'd like to thank you all for your participation.