Crexendo Inc (CXDO) 2011 Q4 法說會逐字稿

Good day, and welcome to the Crexendo year-end 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, Melanie. Good afternoon, everyone, and welcome to the Crexendo Inc. year-end financial conference call. I'm joined today on the call by Jon Erickson, our Chief Financial Officer; Dave Krietzberg, our Chief Administrative Officer; Doug Gaylor, our Vice President of Sales; Clark Rines, our Vice President of Engineering; Jeff Korn, our Chief Legal Officer. I'm going to provide some comments about our business and the continued changes we have implemented and our progress. I will then turn the call over to Jon who will add some granularity on the numbers. Doug Gaylor will give a brief sales update, and Dave Krietzberg will provide an operational update. We will then open the call up to questions. I'd first like to ask Jeff Korn to read the Safe Harbor information.

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 provided a Safe Harbor for 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 the fiscal-year ended December 31, 2011, which will be filed, and the previous 10-K and quarterly reports, which are currently filed. Crexendo does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. I'd now like to turn the call back to Steve. Steve?

Thank you, Jeff. Our Crexendo business continues to transition, and I continue to be excited by what I see in the progress we've made. While I'm disappointed with the sales due to regulatory approval, I am pleased with the changes we have made to our sales process and the hiring processing, including our training program. And I'm excited about our future prospects. As we discussed before, we've registered our telecom services as a local exchange carrier in most jurisdictions. We did this to show and demonstrate our belief in our products and services and to make sure we could provide interstate calls in locations that require registration. We are now registered in 46 states and 2 more pending. This fulfills my expectation that we will have a nationwide, ready-to-go offering in place by the beginning of 2012.

We've been very pleased with our rollout of the services and products, and as I discussed before, we have numerous beta tests of our products. One tester with 100 phones in multiple locations, all testers have been qualified in services that we provide. I'm more pleased that most of the customers we use for now have agreed to pay for the service that we were giving them for free. They have used our services, compared our prices and offerings, and made the decision that Crexendo was right for them. We have a [Tiger] team working on a strong web offering for the small businesses and SOHO market. We will have an automated process in place to handle those customers at reduced costs. I expect that this will be in place by the end of next quarter, and I have high hopes for the long-term sales from this market. We have a robust enterprise program, and I am excited about the prospects of showing any size business our products and services work, and we are very competitive in our pricing.

Our web services division continues to provide excellent service to customers. We have been ranked among the top SEO firm in many markets that we serve. We continue to increase our sales process for these services, working hand-in-hand with our telecom sales. I expect that this will be synergy between these segments of our business. I believe that we can provide multiple products to multiple customers, and make our customers and partners go-to solutions for the web telecom services, and we will continue to provide. In that regard, we are now diligently working on access to providing our customers with internet access. We have in process of entering into resale agreements with numerous internet providers, so that we can provide network access to our customers and give them the benefit of getting multiple services from us on one unified bill. This will be of great benefit to our customers and provide us with more touch points so that we will have the sticky customers that recurring revenue model will be built upon.

We have been continuing to work on the web building software to package it in a way that we can profitably be sold on the internet, while we have deferred a relaunch to make sure that the telecom division was fully operational and to fully support our current customers and make plans to increase our customer base. We are now working on a launch of our university program, where we will work with universities to get our web building software integrated and course curriculum, then have students build, both for themselves and others, fully operational websites. This is getting our software into the hands of people who can make the product work and build our product and be product evangelists. We have updates on that in our next -- we will have updates on that in our next conference call, but I am very excited about the prospects both students and eventually marketing our web software possibly online.

All this I would like to at this time, I'd like to go over the numbers just briefly at a high level. Net income for the fourth quarter of 2011 was $459,000, or $0.03 per diluted common share, compared to a net loss of $2.405 million, or $0.21 per diluted common share in the prior-year quarter. Income before income tax provision for the fourth quarter of 2011 was $432,000, compared to a loss of $1.538 million in the prior-year quarter. The income tax benefits for the fourth quarter of 2011 was $27,000, compared to an income tax provision of $800,000 in the previous-year quarter.

Now let's talk about the balance sheet. Cash from operations for the fourth quarter of 2011 was -- provided from operations was $1.441 million, compared to $665,000 at year-end quarter. As of December 31, 2011, cash and cash equivalents, restricted cash, and restricted cash were $10.623 million. Working capital was $8.381 million, and working capital excluding deferred revenue was $17.669 million. Current and long-term trade receivables were $15.517 million as of December 2011.

Now I'd like to turn this over to Jon Erickson. And after Jon is done, he'll turn it over to Dave Krietzberg for an update and the other gentlemen that I introduced on the call. Jon, would you go through this with more granularity, please.

Yes. Thank you, Steve. So, as was mentioned, with the exception of a few items, this quarter really went pretty much as we expected it to go. From a revenue perspective, we did have $5.7 million in revenue, which is broken down as follows. Crexendo web services revenue was $638,000, which was a 2% decrease quarter-over-quarter from $648,000 in Q3. We did, however, have a 60% increase year-over-year from $400,000 last year. The slight decrease is primarily due to a slightly higher-than-normal churn in our web services customer base during the quarter, as well as an increasing shift in our product mix to more recurring services, such as link building, versus one-time fulfillment items such as website design and development. The recurring products, such as link building, have always been the most substantial piece of our web services revenue. We have seen that percentage increase throughout the year. Our future rate of growth in this segment on both a year-over-year and quarter-over-quarter basis is largely dependent on our ability to hire a sufficient number of qualified sales reps and increase the productivity of our currents sales reps. Additionally, our growth rate will be impacted by our ability to retain our existing customer base at a high level.

Crexendo Network Services was $40,000 this quarter, which represented a 23% decrease quarter-over-quarter from $52,000 in Q3. The primary reason for that decrease quarter-over-quarter is due to some one-time installation charges that we recognized in Q3 as a result of a 400-plus phone installation during Q3. We had no revenue from Crexendo Network Services in the prior year. As we announced in January of this year, we received approval to sell our telecom services in Arizona, effective February 2012. As Steve mentioned, after receiving approval, several of our customers in Arizona who are on beta contracts signed up for long-term commitments. Typically, 36 months on those customers, which immediately increased our backlog by $460,000 on the signing of those contracts in February of this year.

As with Crexendo Web Services, this segment is primarily a direct sales segment, and our future growth will be dependent on our ability to hire a sufficient number of qualified sales reps and get them to quote as quickly as possible. We anticipate that while our direct reps will have the ability to sell both the Web Services offering and the Network Services offering, the sales reps will have a focus on either Network Services or Web Services. During the fourth quarter, we hired five dedicated Telecom sales reps, and as of today, we have a total of seven, including one manager. We expect to continue to increase the number of direct sales reps in the Network Services division over the coming quarters.

StoresOnline revenue was $5.04 million, which as expected, decreased at a quarter-over-quarter rate of 47% from $9.542 million and the year-over-year rate of 70% from $16.567 million. StoresOn revenue is broken down as follows. Revenue related to seminars, primarily related to the roll off of deferred revenue was $289,000. Cash collected on our accounts receivable balance was $3.412 million, which represented a 19% decrease over Q3, which was $4.19 million, and an 18% decrease over Q4 last year, which was $4.157 million. This revenue stream will continue at a descending pace over the next two years. Based upon our current collection rates, we expect to collect approximately $15.5 million in revenue from our receivables over the next two years, with approximately $9.4 million expected to come in the next 12 months. The remaining $6.1 million is expected to be collected in the following year at a decreasing rate. Hosting revenue was $960,000, an increase of 2% from the third quarter, which was $940,000. We increased our customer service outreach programs to assist our StoresOnline customer base, and believe it is having a positive impact, as we were able to increase, primarily due to reactivation of customer accounts rather than selling new customers. While we expect to have churn in the future with this base we are pleased with the results of the outreach program so far.

Commissions from third parties was $379,000 in Q4, a 52% decrease from Q3, which was $786,000, and an 83% decrease from the prior year, which was $2.279 million. Commissions from third parties, which has historically been one of the largest contributors to our profitability in the seminar channel, will not be significant in the future. Interest on receivables was $1.014 million in Q4, compared to $1.241 million in Q3, and $1.207 million in the prior year. We will continue to collect interest on receivables at a decreasing rate, as our accounts receivable portfolio from StoresOnline winds down.

From expense perspective, we had $6.316 million in total operating expenses, a quarter-over-quarter decrease of 9% from $6.946 million in Q3, and a 68% decrease from the prior year, which was $19.711 million. Our expenses are broken down as follows. Crexendo Web Services expenses totaled $1.38 million in Q4, compared to $1.185 million in Q3, and $964,000 in the prior-year quarter. Crexendo Network Services expenses totaled $609,000 in Q4, compared to $573,000 in Q3 and $447,000 in the prior-year quarter. StoresOnline expenses totaled $2.282 million in Q4, compared to $2.85 million in Q3 and $15.968 million in the prior-year quarter. We expect this expense level to continue to decrease over the next several quarters. Unallocated corporate expenses, which related mostly to R&D, Corporate salaries, depreciation, stock option expense, accounting and professional fees totaled $2.044 in Q4, compared to $2.338 million in Q3, $2.332 million in the prior year.

In summary, on a consolidated basis, we had income before income-tax provision of $432,000 off of 5.7% revenue. Steve mentioned earlier that during the quarter, we were able to generate $1.4 million in cash from operations, compared to $665,000 in the prior year. As of December 31, we did have restricted cash that increased to approximately $1.96 million. The reason for the increase in restricted cash is due to requirements to selling telecom in Arizona. Our accounts receivable balance, as Steve mentioned, is $15.5 million. We've been pleased with our collection efforts on accounts receivable. Since we suspended our Seminar Sales Channel, we expect these collection efforts to continue on this pace in the future. With that, I'll turn the time over to Dave.

Thank you, Jon. I thought I would take a minute to simply categorize our cloud-based product and services that reduced the technology infrastructure of any size business that enable them to run more efficiently. Our Web Services include website design and website services for search engine optimization, link building, conversion rate optimization, and paid search management. Our telecom services include a variety of calling plans, such as long distance, toll-free, and mobile apps, and hardware and software solutions for a scalable network of telephone systems. In addition, we are in the beginning of the launch of reselling broadband nationwide, with the recent signing of several cable and broadband providers that would give us a comprehensive geographic coverage, along with competitive pricing.

Today, almost all of our non-hosting and accounts-receivable-based revenue is derived from our direct sales effort. Our sales channels are now being expanded to include online sales, as well as affiliate-related programs, in addition to the future opportunity to partner with several universities. As Steve mentioned, we are developing the necessary systems for an efficient back-end process that will enable us to grow profitably. We are building scalable systems that allow for quality work flows from offer to proposal, to customer contract to order management, to fulfillment to customer support, and to administrative support for invoicing and collections, all in a consistent and either low-touch or in an automated fashion. These processes would be consistent with the value proposition we offer our customers. By providing a variety of comprehensive and scalable solutions, we are able to sell customers, regardless of where they are in their business life cycle. Our office will be consistent across all channels, reducing conflicts as we grow the business. We certainly have a lot of work to do, but I am very excited and pleased as to where we are in the transition of the business. Now, I'd like to turn it over to Doug Gaylor, our Vice President of Sales, for additional commentary on our sales activity. Thank you.

Great, thanks, Dave. The Crexendo sales team is currently at 23 sales representatives. We're stream lining our recruiting and our hiring and our training and support programs to better ensure that the process for a new rep results in a successful hire. During the third and fourth quarters of 2011, we hired a number of sales representatives with varying levels of experience. And we quickly realized that the sales representatives with no B2B experience in either telecom or web marketing had a pretty steep learning curve to effectively learn two new industries, while at the same time being a contributing factor to sales revenue in an acceptable time frame. So, since that, we have since refined our hiring process to focus on sales representatives that have a successful track record in either web or telecom so that they can hit the streets running in one of our core competencies while learning the other.

We have reviewed our processes and learned ways to improve it. We've revised our training programs to expand the length and the depth of training for each of our offerings. We also have a pass-fail test testing process that has been implemented at the end of basic training to ensure that the sales representative is qualified to continue on with us after the initial training. Once they pass the initial training, daily inspection of our expected activity levels is monitored closely to help ensure that a new rep has a pipeline developing that can result in success. The daily inspection of these activities by the management team allows us to quickly identify weaknesses and shortcomings and put the proper measures in place to increase the sales contributions of each rep. Additional sales engineering support has been hired to assist sales representatives on sales presentations and positioning our solutions, and we are confident that these support resources will have a positive impact on our sales team's efforts.

Lead generation is also another very critical component to our success. We've also refined this process and added a new business development program. This program started in December, and is already generating quality leads that have already resulted in numerous sales, as we continue to improve on our business development scripts, vertical marketing targeting, and follow-up drip campaigns to these customers, we are confident that we will continue to see an increase in the amount of quality leads generated by their efforts. We've also seen some very positive lead generation results through some very targeted marketing relationships with associations focused on specific verticals. These events in the last few months have generated a high number of leads and sales in a short period of time and an expanded focus on more of these vertical market concentrations could produce similar great results.

With the approval of telecom in our home state of Arizona, we can sell now -- we can now sell our cloud communications solutions in our backyard. With a large concentration of our sales, and our sales management and our sales engineering team based here in Phoenix, this will undoubtedly help or positively impact our telecom sales. Our sales contributions from telecom offerings continues to increase as we get more installations, more referrals, and larger accounts, taking advantage of the benefits of our cloud communications. Overall, I'm extremely optimistic on the initiatives that we've put in place, and we will continue to improve and refine on our processes as we build the sales division. With that, I'll turn it back over to Steve.

Well, thank you, Doug and Dave and Jon. Before I open the call up to questions, I want to again point out that I'm very excited about our prospects and our future. I believe we have the right people, the right products, and services and plans. I continue to put my money where my mouth is. And I will be in the market strategically acquiring stock, and I will be exercising some of my vested options. I believe the future is very bright. At this time, I'd like to open this up to questions. Melanie, are you still with us?

Yes, sir. Thank you. (Operator Instructions) We will go first to Austin Hopper with AWH Capital.

Thanks for taking my questions. You mentioned in your Crexendo Web Services, when your numbers, you experienced a sequential decline in revenues, and you mentioned churn being a contributor to that. Can you give us a sense for monthly churn of those types of accounts?

This is Steve Mihaylo speaking. We're just getting started in the telecom division. There hasn't really been much churn. I think the churn that was referred to was the churn in our StoresOnline division. Maybe you'd give some clarity to that, John.

Yes, so it was in reference to our Crexendo Web Services division. We don't have a high monthly churn. We had a unique circumstance in Q3 where we had a couple of customers who churned out that had been with us for some time. We look at it as unique circumstances, not indicative of what we expect in the future. Our monthly churn at Crexendo Web Services is actually quite low for the most part.

Okay, and then it sounds like on the sales rep side--.

On the sales rep side?

On the sales rep side with your Crexendo businesses, as you have described it, it sounds like you essentially were hiring people that maybe had very little experience, and you've now learned that's not working out so well few you. My question for you is what tenure, or if you were to hire, say 10 sales reps, how many of them would you expect to ultimately be successful versus leave the Company and hire more reps?

Well, under the old model, it was probably only about 2 or 3 that would be successful. Under the new model, it's probably 8 or 9 out of 10. Doug, would you like to comment on that?

I think your comment of not hiring salespeople that had experience in sales, it was more salespeople that didn't have experience in web or telecom. And so obviously, learning those two industries alone is a handful. And so learning those industries, and then getting up to speed, and being able to be an accretive factor to our sales revenue in a short period of time is a pretty tough task. And so, our concentration now is much more focused on hiring sales representatives that do have B2B experience in either telecom or web, and then having a very diligent training process and managing the expectations of these reps on a daily basis, so that we don't have reps that come on board and are not accretive to our sales efforts in a very short period of time.

Okay. And so you did mention you have 24 reps, or maybe said in the text 23. I couldn't tell. Can you give us a sense for how long, on average, those reps have actually been with the Company. You mentioned you had 28 the quarter before. Presumably some of them are still around out of the 28. But just understand how fast this has been turning over?

Well, I'll let Doug give you the granularity, but some of our reps have been on board about a year, a little over a year. And some just a few days, maybe you can give the granularity.

Yes, the breakdown of the 23 reps that we currently have, right now, we've got approximately a dozen of those that have been here for nine months or longer. The rest of those reps are fairly new, nine months or less. So as we look at growing our team, obviously, the decline in Q4 was hiring some reps and letting go of some unproductive reps. So as we look at growing our team, obviously, more emphasis on the veterans out there, and growing the existing team that we've got and getting them more secure in their positions here at Crexendo.

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

Are there available experienced salespeople for Crexendo, in what might be a competitive hiring market. And putting it another way, why would someone come with you as opposed to going with an Eight By Eight if they had telecom experience?

I think first of all, we've got the people that worked at Inter-Tel in our engineering group headed up by Clark Rines, and he's doing an excellent job. He worked on big switches. We're seeing our average spend at quite a bit higher than we originally anticipated. We've had one customer now that has approximately 400 or 450 telephones in a single system, and it's located in about 8 or 10 different locations. I think it's just more exciting working for us. We have better sales programs. We have better sales contests. We have a better product. We're a lot more excited about it. If it hadn't have been for all of this regulation that we've had to put up with for the last three years, we would have been launched three years ago. The long and the short of it is, we're launched now, and we're excited about it. Doug Gaylor might have some more thoughts about why people would come to work for us versus Eight By Eight.

Yes, in addition, Jeff, I think the biggest strength that we've got, on top of what Steve said, is the fact that we offer two very unique offerings. For a telecom rep that's looking at an Eight By Eight, all they can sell is hosted telecom. For a telecom rep that's looking at Crexendo, they can sell hosted telecom as well as web marketing services, so it gives them a chance to hopefully double their earning potential by doubling their sales opportunities because they have two uniquely different products that are ideally suited to sell each and every customer. We can go out there and sell a customer telecom, and at the same time sell them web marketing services, and they can turn a $20,000 sale opportunity into a $40,000 sale opportunity.

And actually, it's three offerings because of the broadband.

Okay. Without trying to pin you down with numbers like someone did on the last call, compared to the expectations you set in November, how many months, let's say behind where you thought you might be today are you at this time?

Well, it's a moving target. But we're at least a year behind, because of all of the regulation and the time it took to get our CLEC, local exchange carrier licenses in all the various states. But we're ready to go now.

No, I'm only referring to where you thought you might be today in November. Really what you've lost is--?

Well, we didn't want to launch nationwide until we had our approval in Arizona, and we didn't get our approval, even though we got the approval from the commission in December, we didn't have our final approval until February 13. That's when we started business.

But the delay in building the sales force is I think more what I'm getting at. Have you lost a quarter or two quarters as the revamping of your sales force building strategy has put you behind? That's really what I'm more focused on.

Yes.

Do you understand my point?

I think I understand it, and I think we've already answered the question. The question was how far behind in hiring qualified salespeople are we? And the answer is we had the salespeople on board, but they weren't getting the results because they weren't experienced enough.

Okay. But t will take your what, a quarter or two to catch up to where you thought you would be today?

Probably one quarter.

Okay. That's the answer I was looking for. Now with the delay, do you feel you have adequate capital going forward?

There is adequate capital, and there's also exercise of options, which I intend to be doing, which will inject more capital into the Company. I think there's adequate capital. We have $10.6 million in cash and $15.5 million in receivables, all of which we expect to collect. That's about $26 million that we have in capital in this Company.

We'll go next to Craig Samuels with Samuels Capital Management.

As far as the hiring of experienced sales reps, can you explain why you went down the path to hire inexperienced reps, only to find out that they were indeed inexperienced and unable to do a good job. Given you're obviously incredibly seasoned, and you've built an organization before, wouldn't it make more sense to hire qualified guys and have a more steady and stable type of ramp?

Yes, and that's a conclusion we came to. One of the things that has hampered our efforts is just getting the qualified middle management. We've since hired an individual that's working with Doug Gaylor by the name of Dale Miller, and we're now in a position where we can hire qualified people. It took us a lot longer at Inter-Tel than we're ramping at Crexendo, and I think that's probably the biggest reason. Doug, do you want to add to what I've just said?

Yes, I think obviously, as you look at potential candidates out there, the ideal candidate would have a great track record in telecom or a great track record in web marketing. Very, very rare to find somebody that's got a great track record in both. And in both of the job markets at our predominant hiring markets in Salt Lake and Phoenix, a lot of the candidates that are applying for positions didn't have experience in either. And when a sales rep that has no experience in either comes in, and sales reps are highly qualified at selling and highly qualified at interviewing, if somebody felt they had a good opportunity to pick up the industry or had a good overview of selling to a B2B customer, we hired some reps that we felt could pick up the industry fairly quickly, and quickly found out that trying to train them on two different technologies, two new industries was an overwhelming task, on top of building a pipeline. It's not that we hired people that were incapable, it was just people that with the learning curve that they had were not capable of producing the numbers in a quick enough time frame to get us accretive to our sales efforts.

I think that's a great answer. Thank you, Doug.

Do you feel as if you guys have a handle now on the hiring and sales practices? You're at least five, six quarters into Crexendo, which will lead into my next question. And you've delivered $638,000 versus $400,000 a year ago. For a startup in a sector with significantly -- significant demand, it's really not very impressive growth. Maybe you can comment on what the struggle is, and when--?

I'm not making excuses, and I'll let Doug give you his answer, Craig, but there's an awful lot of work that had to be done. We've had to build a unified billing platform. We've had to build data centers. We acquired a building in Phoenix which we had to renovate and put diesel generators in the parking lot. We've had nothing but regulatory problems from day one with getting our CLEC licenses. And then the regulatory environment for getting our license to build a data center has been fast tracked, but even that's been a lot of work. As far as adding the salespeople, I'm going to let Doug go ahead and comment on that.

I think as you look at growing our sales team and our sales efforts, obviously bringing a new sales rep on, you've got a ramp-up period where they're going to learn and go out and build a pipeline and sell those products. So a rep that's two or three months into the business is not going to be very accretive to our revenues. When we look at our revenue streams, more and more of what we're selling, especially with the addition of telecom, is being leveraged over time. When we start looking at that annuity stream, we're building up a pretty significant annuity stream as we build these customers. But you're not seeing that immediate impact, because when you sell somebody on a 12-month link building contract or a 36-month telecom contract, you're going to realize that revenue over a 36-month period or a 12-month period. So I think as you see the sales efforts that we've got out there, I am very optimistic in the sales pipelines that we've got out there and the sales we're bringing in today. And those numbers will be reflective in the future ongoing revenues.

That's a good point, because some of these deals are huge. A 450-phone deal is a very large deal. But it's spread out over 36 months. So you're only seeing -- the numbers don't even have any revenue from that in there. The revenue didn't start until March 1. In other words, day after tomorrow. So you're going to see a little bit of it in the first quarter when we announce. The second quarter it will start being meaningful numbers that you can really model off of.

As far as the sales force, what's the quota, i.e. a per-month recurring revenue that you have in place right now?

The recurring revenue quoted is about $5,000 per person.

Per month?

Yes. $60,000 per year. And that equates to about $600,000 in sales.

Right. So a pretty seasoned guy should actually be probably closer to $800,000 to $1 million, right?

A good sales man should be able to do close to a $1 million. But there's a difference between bookings, backlog, and revenue. And you have to understand that. When a sale gets made, it's booked at 36 times whatever the monthly is, or 12 times whatever the monthly is, depending on whether it's a web services contract or if it's a telecom contract. But we only record it on a monthly basis.

Got it. So can you provide various data points, and maybe we can start to connect the dots in terms of what you see that gives you the optimism on a going forward?

One of the big things that I see is just about everyone we contact is interested. And we're getting a very high close rate now on the telecom we're generating from our telecom group in Reno. Do you have anything to add to that, and John, maybe you can give him the back log numbers?

Sure. So we have the back-log numbers published. From a web-marketing services perspective, the backlog currently sits at around $1.2 million. From a telecom perspective, almost $0.5 million was added just in Arizona in February. We continue to see telecom sales, and that's growing. We'll disclose backlog on telecom at our Q1 earnings call. But just Arizona added almost $0.5 million.

Got it. All right. Good deal. If there's any comfort here, Eight By Eight, which somebody brought up went from $0 to $100 million; it took them nine years. So you've got another eight to go to beat them.

We'll do it faster than that.

Put it in on the white board in the lunch room and look at it every day.

Okay. We'll get you to run our sales department, Craig.

(Operator Instructions) We'll go next to Ernie Segundo with Pandion Capital.

I had a couple questions. One was just trying to understand what the difference will be allowed to you by your national launch, and whether it's more dealing with the products that you can offer across the country, versus who you may market to, and what differences we'll see in your efficiencies, or what have you, of tracking customers? And the other question was to understand what was driving the large decrease in allowance for doubtful accounts on both the current and deferred revenues? Was that related to the runoff or something else going on there?

Well, no. It's not related to our write off. We're actually collecting better than we were in our existing receivables. And in the current receivables from web services customers and telecom customers, we've got that down to about 22 days, and we're striving for 15. So it's just a better collection rate.

I'll add a little bit to that, Ernie. So the main reason you see such a significant decrease is the age of our receivables. As these receivables age out, get longer, more consecutive payments, the reserve required on them is lower. The bulk of our write offs historically have always happened within the first one to four months of writing the contract. All of our contracts are older than that now. They're more mature. There's more payment history on them, and we're able to have less of an allowance because the expectation that they will pay so much higher than it has historically been due to just age of receivables.

And in that example--?

One other thing I wanted to add, a lot of our recurring revenue is on credit cards. So that's much more secure from the standpoint of the receivable.

So in that example, gentlemen, does that mean that it was a non-cash -- was that no-cash income in the period? Or how did that flow through the income statement?

Any adjustments to our allowance don't actually flow through the income stadium. We don't recognize revenue until we receive the cash. So if we have an adjustment to the allowance, it's offsetting, it's deferred revenue, there is no income statement impact. Where you will see it is if we collect -- so we have an allowance of $5.4 million on our receivables. If we're able to collect more than that, you'll see it in the income statement through revenues, simply because the revenues recognized when the cash is received.

Got you.

Did we pretty much answer your question, Ernie?

On the allowance, yes. What about on that national marketing, Steve?

Well, nationally, we're going to start the marketing campaign, and we've got a couple of things going here. We're selling vigorously in Arizona and Utah. We also have salespeople across the country, New York, Washington DC, Kansas City, Seattle, and we're going to be adding in other locales besides that. Our university program is going -- is in its infancy, but we're going to be building websites for customers through universities the same way you would get -- your wife would get a beauty treatment from a university versus a spa going to a spa. Then we will be able to upsell into these Crexendo web services customers, the telecom.

The governor of Nevada has actually agreed to do public service announcements for us, which will probably start -- we have to produce the spot itself. But they'll start sometime in late March or early April. Then we're going to move into Southern California and because that's such a big market. And once we do that, we'll just move across the country. We're in six universities teaching on our platform now. Obviously, we're going to be in more universities as time rolls on here. We'll also do some pay per click and some additional advertising through television, billboard, radio, and other forms. Does that answer you question?

There are no other questions at this time. I'd like to turn the conference back over to Mr. Mihaylo for any additional or closing remarks.

I want to thank everyone for joining us today, and I want to thank all of the people that asked questions. I wanted to thank all of our shareholders, and especially the management of this Company. As I mentioned before, I'm going to be exercising some stock, and I'm going to be in the market acquiring more. If any of you would like to sell your stock, I'm a buyer. Having said that, I'll conclude this 2011 year-end conference call, and look forward to speaking to you some time after we conclude our first quarter. Thank you very much. Goodbye now.

That does conclude today's conference. We thank you for your participation.