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Crexendo Inc. (NYSEMKT:EXE)

Q2 2011 Earnings Conference Call

August 9, 2011 4:30 PM ET

Executives

Jeff Korn – Chief Legal Officer

Steve Mihaylo – CEO

John Erickson – CFO

Dave Krietzberg – Chief Accounting Officer

Clint Sanderson – President

Jeff Jarvey – Controller

Analysts

Neal Goldman – Goldman Capital Management

Jeff Bash [Ph]

Walter Disney [Ph]

Operator

Good day everyone and welcome to the Crexendo second quarter 2011 earnings conference call. Today’s call 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.

Steve Mihaylo

Good afternoon everyone. Today I have with us Clint Sanderson our President, John Erickson, our Chief Financial Officer, Jeff Jarvey, our Controller, Dave Krietzberg, our Chief Administrative Officer and Jeff Korn, our Chief Legal Officer.

Before we get started today, I’d like to have Jeff read the forward-looking Safe Harbor statement.

Jeff Korn

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 facts are forward-looking statements.

Forward-looking statements include that are not limited to words like, like, belief, expect, anticipate, estimate, will, and other similar statements of expectations 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. 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 2010 and the Forms 10-Q for the periods ending March 31, 2011 and June 30 2011.

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 any other occurrence.

I’d now like to turn the call back to Steve. Steve?

Steve Mihaylo

Thank you, Jeff. As all of you are aware, I’m sure we made a decision in the first part of July to change the way we sell our StoresOnline products to our SOHO customers, our entrepreneurs, and individuals. We are aggressively pursuing sales through online marketing, inside sales and affiliates. We have however discontinued seminar sales. We think this will be a better way to reach those customers and we also think that it will reduce our expenses tremendously.

In addition, we beefed up our customer service towards those customers so that we can even help them more in the future. Rather than going through all the numbers at this time, I just want to state that as a result of the sales from the previous quarter probably aren’t that meaningful, what’s more meaningful is the amount of cash on our balance sheet which is nearly $12 million and the net receivables which are fully reserved in approximately $24 million to $25 million.

Going forward, of course the important things are the number of sales people that we have the sales through our Crexendo, which would be our Crexendo Business Services and Web Services as well as Crexendo Telecom and of course the number of customers that we have in our StoresOnline division.

At this point what I’m going to do is, turn the meeting over to John Erickson to go over all of the granularity and the individual information.

John Erickson

Thank you, Steve.

Steve Mihaylo

You bet.

John Erickson

In order to provide you more clarity on what to expect from our operations in coming quarters as a result of our decision to suspend seminar operations

I’d like to provide detail of our revenue and cost by channel and provide guidance on what remains after the suspension of the seminar channel and what no longer exists. But what you will see is that we are eliminating approximately $11.5 million in revenues based upon actual Q2 results and approximately $15.3 million in expenses. Here are the details.

From a revenue perspective, we had approximately $17.5 million in revenue for Q2 which is broken down as follows. Crexendo Web Services revenue was $550,000 which grew at a quarter-over-quarter rate of 15% from $479,000 and a year-over-year rate of 51% from $365,000. This revenue remains and is expected to grow in the future, our rate of growth will be dependent upon our ability to hire sufficient qualified sales reps and increase the productivity of our current sales reps.

Today we have 15 sales reps and hope to hire an additional three to four reps per month.

StoresOnline revenue was $16,928,000 which grew at a quarter-over-quarter rate of 20% from $14,89,000 in Q1. The increase from Q1 is primarily due to the seasonal nature of the StoresOnline business and that we don’t conduct seminar events in January. We also had a slight decrease year-over-year in StoresOnline revenue of 1% from $17,83,000 last year.

StoresOnline revenues broken down as follows; cash sales at our seminar events were $9,558,000. As a result of the suspension of our seminar sales channel this revenue will cease. During the second quarter we saw an improvement in our cash as a percentage of sales from the first quarter to 39% in Q2 from 29% in Q1. Historically, we found that we really need to be at about 50% cash percentage in order to have sustainable profitability.

Though the 39% was an improvement, it was not sufficient and it was even more problematic considering the better markets we serve that quarter. We were able to hold steady in our workshop close rates which was 30% in Q2 compared to 29% this past Q1. However we began to see significant negative trends in our marketing results as the progressed as we found it difficult to attract a sufficient number of quality prospects at our events as evidenced by significant decrease in the number of attendees at our events throughout the quarter which started out in an average of 92 in April, dropping to 82 in May and bottoming out as 58 in June.

In order for us to have sustainable profitability in this channel, we needed to average around 90 attendees. Given the current state of the economy and the impact it has had and continues to have, on the StoresOnline seminar customer base, it appears that we would experience significant negative cash flow if we continued in this channel in the future. Cash collected in our accounts receivable balance was $4,383,000, a 5% increase over Q1, which was $4,204,000 and a 5% decrease over Q2 last year, which was $4,615,000.

This revenue stream will continue in the future despite the suspension of the seminar model. However the revenue we receive from our receivables will continue to decline in the future. Based upon our current collection rates, we expect to collect approximately $24.8 million in revenue from our receivables over the next two to three years with approximately $12.9 million expected to come in the next 12 months. The remaining $11.9 million is expected to be collected in years two and three at a decreasing rate.

Hosting revenue was $1,05,000 a decrease of 10% from the prior year which was $1,121,000. This revenue will continue in the future despite the suspension of the seminar model and while we expect to add to our hosting revenue through other sales channels the base of customers representing this hosting revenue number is expected to decrease in the future as a result of high historical customer churn of our StoresOnline seminar base.

That said, we have increased our customer service average programs to assist these customer and hope to retain a high percentage of them. Commissions from third-parties was $1,978,000 in Q2, which showed a slight increase from Q1 which was $1,908,000, but more importantly a 41% decrease from the prior year, which is $3,336,000. Commissions from third-parties which has historically been one of the largest contributors to our profitability and the seminar channel has been hard hit by the poor economy and is not expected to continue in the future as our own internal insight sales force will be used to sell the additional products and services our customers need.

In summary, based on this quarter’s revenue results, we expect to retain on a go forward basis about $5.4 million of the $16.9 million in StoresOnline revenue or approximately 32%. In addition to the $5.4 million revenue retained, we also retain approximately $1.3 million in interest received on our accounts receivable balance for the quarter which is included in other income. I will point out however that both the principal received on our Accounts Receivable and the interest on that balance will run out over the next two to three years.

In addition to these items, we will have approximately $3.2 million in operating deferred revenue which will roll into revenue over the next six months. From an expense perspective, we had $21,955,000 in total operating expenses which is broken down as follows

Crexendo Web Services expenses totaled $1,149,000 in Q2, compared to $808,000 in the prior year quarter. These expenses remain and will increase as we add additional sales reps.

Additionally, you will see expenses increase as a percentage of revenue as it will take time to get the new sales reps to an efficient sales level. Crexendo Network Services expenses totaled $507,000 in Q2 compared to $339,000 in the prior year quarter. These expenses remain and are expected to increase in the future as we open different customer acquisition or sales channels.

StoresOnline expenses totaled $18,103,000 in Q2, compared to $15,270,000 in the prior year quarter. The majority but not all of these expense is related to the sale of products and services at the seminar channel will go away as a result of the suspension of seminars we expect approximately $15.3 million of these expenses will not be retained, while $2.8 million of these expenses will be retained primarily in the customer service and support of our customer base.

Unallocated corporate expenses which related mostly to R&D, corporate salaries, depreciation, stock option expense, accounting and professional fees, totaled $2,196,000 in Q2, compared to $2,73,000 in the prior year quarter. These are expected to remain at those same approximate levels for the short term.

In summary, as a result of the decision to suspend the StoresOnline seminar channel, based on Q2 actual results, we are eliminating approximately, $11.5 million in revenues, and approximately $15.3 million in expenses. At the same time, we will be adding to our expenses as we increase our direct sales force, inside sales and online sales channel.

Now for a discussion on cash flow and the balance sheet. During the second quarter, we generated positive cash from operations of $538,000 compared to a use of cash of $3.3 million in the first quarter of this year. As of June 30 2011, we have cash, cash equivalents and restricted cash of $11,666,000. Our Accounts Receivable balance is $24,787,000 which as we discussed earlier as expected to result in future revenue over the next two to three years.

From an income tax perspective, given consecutive quarters of loss, we have experienced and the uncertainties surrounding our operations in the future, we determine it was necessary to place the full valuation allowance on our deferred income tax assets. As a result of this valuation allowance, our income tax expense in the second quarter was $6,162,000. With that, I’ll turn the time back over to you Steve.

Steve Mihaylo

Thank you, John. At this time, what I’d like to do and is open this up to questions from the folks that are on the online with us.

Question-and-Answer-Session

Operator

(Operator Instructions) We’ll take our first question from Neal Goldman with Goldman Capital Management.

Steve Mihaylo

Good afternoon, Neal. How are you?

Neal Goldman - Goldman Capital Management

Good. The numbers you ran through were very fast. Could you just give us the net summation of what’s going to be continuing revenues on, I know it is going to change over time and continuing expenses as a net number?

Steve Mihaylo

Just, before John gets into that Neal, be aware of the fact that we’re going to be diligently working on expenses to bring whatever number John mentions down as we go forward. Now we’re going to have some cost that will increase like the cost of ramping our sales force. Go ahead John.

John Erickson

Yes Neal, from the StoresOnline perspective, we had $16.9 million in revenue in Q2.

Neal Goldman - Goldman Capital Management

Right.

John Erickson

Given the suspension of the model, we would have had $5.4 million in revenues in Q2.

Neal Goldman - Goldman Capital Management

Okay.

John Erickson

From an expense perspective, we had $18.1 million.

Neal Goldman - Goldman Capital Management

Right.

John Erickson

We would have reduced $15.3 million, so we would have been left with $2.8 million.

Neal Goldman - Goldman Capital Management

Okay.

John Erickson

In expenses.

Neal Goldman - Goldman Capital Management

As the store is online and then we have…

John Erickson

Crexendo we had $550,000 which we expect to increase in the future.

Neal Goldman - Goldman Capital Management

Right.

John Erickson

And from the Crexendo Networks Services side, it was really just starting, it was nominal in revenue but we expect that to increase in the future as well.

Neal Goldman - Goldman Capital Management

And the expenses associated with those two segments?

John Erickson

The expenses associated with those two segments from a web services side, you’ll see increases in sales expenses as we ramp the sales force.

Neal Goldman - Goldman Capital Management

I’m talking about on a - the last quarter basis, where you did 560, some odd thousands. Right?

John Erickson

The expenses in the telecom?

Neal Goldman - Goldman Capital Management

Yes. We lost some money in that business, right.

John Erickson

Yes, telecom – the expenses in telecom in this past quarter were mainly R&D related, as well as acquisition related. The Network Services division paid for acquisition of customers.

Neal Goldman - Goldman Capital Management

Right.

John Erickson

They were in a free trial period, that free trial period has started to expire, it started to generate revenue in Network Services and it will continue to generate revenue as we add telecom-specific sales reps and open up telecom for sell through our direct sales on the Crexendo Web Services side.

Neal Goldman - Goldman Capital Management

But in the last quarter, you lost like $600,000 right, from that?

John Erickson

$600,000 from Web Services and $489,000 from telecom.

Neal Goldman - Goldman Capital Management

Okay, so call it one, one right? And then corporate overhead, you said it was $2.2 million?

John Erickson

$2.2 million, which will remain at that for the short-term and then…

Neal Goldman - Goldman Capital Management

Okay, so overall, 5, 4, call it $6 million between the remainder of the stores and the Crexendo and the telecom and on a current level, 2.8, 1.1, 3.3, 5.3, so you are slightly cash flow positive or profitable at this point?

John Erickson

Add an interest income of about $1 million as well.

Neal Goldman - Goldman Capital Management

Right, so you are making $1.5 million round numbers, until as you collect the receivables assuming that you are accurate in that assessment, correct?

.

John Erickson

Correct, you’ll see and the receivables collection you’ll see that will remain somewhat consistent with this last quarter trending down slightly for the next three to six months and then you’ll start to see it trend down even more after six months.

Neal Goldman - Goldman Capital Management

As you announced, the termination of the StoresOnline model, did you see any further diminution in the receivable collection?

John Erickson

We have not seen any evidence of a deterioration in our accounts receivable as of yet.

Neal Goldman - Goldman Capital Management

Okay.

John Erickson

And we are taking steps from a customer service side and from a collections side to take care of that.

Neal Goldman - Goldman Capital Management

Okay.

John Erickson

So that it doesn’t happen.

Steve Mihaylo

We’ve actually increased our customer service and our outbound sales in that area Neal, and frankly I think that $24 million $25 million in net receivables are probably very, very solid.

Neal Goldman - Goldman Capital Management

Okay, in term I mean, the real key then is how rapidly we can grow the telecom and the Crexendo Services. I know you’re adding a lot of sales people. What is your vision out there, Steve? And then talk about…

Steve Mihaylo

Well, we’d like to have 30 producing salesmen by the end of this year and probably another 50 to 60 by the end of ’12. Right now they have a quarter around $500,000, but just based on experience and when we add the telecom products, we think that it will be closer to $1 million each. But obviously, it takes time for that to ramp. So I would think that, we’ll very fortunate if we add 30 to 35 sales people by the first part of ’12 that are producing at least $500,000 in sales annually.

Neal Goldman - Goldman Capital Management

Now that’s basically a SaaS model, right, it’s a monthly charge?

Steve Mihaylo

Yes, it’s all monthly revenue the bulk of it is. I’d say 90%, 95%. Some of it will be for building websites, but most of it is search engine optimization, link building, conversion rate optimization, telecom, that sort of things and that’s all monthly recurring, plus of course anyone that we build a site for is going to need hosting. In addition to that, we are diligently working towards reselling network services in the form of broadband. I’ll let Dave Krietzberg address that in just a minute, since that is part of the area that he is responsible for.

So we are pretty optimistic about what we can do here. We’re going to be opening up Utah to telecom here as we speak practically and we are going to be increasing our efforts in Salt Lake City, which will give us a much bigger footprint. In addition to that, we’re hopeful that we’ll receive telecom approval in Arizona at the end of this month and there are just a handful of states that we’re still waiting for approval. So, we’re pretty optimistic about the sales.

Neal Goldman - Goldman Capital Management

What kind of capital expenditures you’re going to need to…?

Steve Mihaylo

That, we’re probably going to need $3 to $5 million in capital expenditures as we build out datacenters and switching centers, but it’s going to be over the course of the next 14 to 16 months. So it’s not going to be all at once. Actually, what I’m going to do is, I’m going to have Clint Sanderson comment on the sales effort, before I have Dave Krietzberg talk about broadband services.

Neal Goldman - Goldman Capital Management

Okay.

Clint Sanderson

And so the sales effort is obviously a focused recruiting effort on recruiting sales, confident sales talents all over the country and we’ll have sales teams both in Phoenix and in Orem, and then we will also have sales representation all over the country. So we have reps here and then we also have reps in the location. And we’re confident that, those reps will be able to offer both our web services and our network services to the businesses that they approach. So that’s the priority number one right now is recruiting, training and getting those sales teams productive.

Neal Goldman - Goldman Capital Management

And where you’re finding these sales people from?

Clint Sanderson

We have all the traditional sources Neal. Everything from referrals from our current successful sales people that’s probably the best to all of the recruiting services that popular recruiting services out there we are utilizing all of those right now.

Steve Mihaylo

And we are also getting some high interest from our former sales folks at Inter-Tel.

Neal Goldman - Goldman Capital Management

When you look, Steve, I mean, since you started Inter-Tel, when you look at the offering you have today, both from a telecom and a web servicing versus what you offered in the beginning at Inter-Tel, how would you compare in terms of opportunities?

Steve Mihaylo

I think the opportunities are much brighter. We have a broader product line, we are going to be adding broadband services in sometime next year I’m not exactly sure when because we have to build out these datacenters will be offering data storage and retrieval for our customers. That will give us a very robust small to mid-size business offering which is probably just infinitely broader than what we had at Inter-Tel when we first started.

At Inter-Tel, when we first started, we sold nothing but telephone systems that were customer premise equipment. There were a lot of issues with financing those products, a lot of issues with getting them installed and serviced and so on we had. At the end, when the business was sold, we had over 700 trucks on the road. Most of what we’re doing today can be done from the datacenter, it’s all recurring revenue at Inter-Tel we had no recurring revenue in the beginning. By the time the company was sold, we had about 50% of our revenue was recurring. This model is a much, much broader product offering.

It’s mostly recurring revenue at least 90% to 95% and in most cases on the telecom side, we’re able to save the customers a considerable amount of money. So, there are a lot of advantages to what we’re doing today versus what we did at Inter-Tel when we first started.

Neal Goldman - Goldman Capital Management

Of the public companies out there, would be similar offerings as to what you are offering?

Steve Mihaylo

Well, there is nobody that offers everything that we’re offering right now, but there are similar companies Eight by Eight is similar on the telecom side, what webdombot …

Neal Goldman - Goldman Capital Management

Web.com is similar.

Steve Mihaylo

Yes probably similar on the other side. But they have a much smaller customers than we will be handling.

Neal Goldman - Goldman Capital Management

Okay, very good, thanks.

Steve Mihaylo

You bet.

Operator

We’ll take our next question from Jeff Bash [Ph] a private investor.

Steve Mihaylo

Good afternoon Jeff.

Jeff Bash

Hi Steve, how are you? You made an excellent presentation today and I think it was very helpful. And of course, Neal's questions were good. I have one different way of looking at the numbers that I’d like to ask about.

The net loss for the second quarter was $9,345,000 and if you take away the tax effect, it was $3,183,000, and the reduction in revenue versus the reduction in expenses is going to create a gain of $3.8 million. So, do you think it would be fair to say that, if this has been in place for the last quarter, you would have been $3.8 million better off than $3.183 million that you actually lost on an operating basis?

Steve Mihaylo

Well, I’m going to trust you math, Jeff. I’m going to also let John Erickson talk about the details on what you are asking.

John Erickson

Yes, Jeff, so the numbers that I disclosed is what revenue would have been reduced and what expenses would have been reduced is based upon the actual Q2 numbers. So had we not had seminars.

Jeff Bash

You would have been $3.8 million better off?

John Erickson

Correct.

Jeff Bash

And since your loss before taxes was $3.2 million and the fact you would add an operating profit of $600,000 – you would added a net income of $600,000?

John Erickson

Well additionally $1,75,000 about $3.1 million loss was related to restructuring and other one-time charges associated with this

Jeff Bash

Okay, so actually you are pushing $2 million in terms of where you are starting with going forward?

Steve Mihaylo

That’s correct.

John Erickson

But keep in mind what I said about, expenses will increase in Crexendo as we add sales force and our receivables and interest will start to trend down as time progresses.

Jeff Bash

Yes, I am aware of that but then also expenses in other areas might decrease.

Steve Mihaylo

That’s correct.

Jeff Bash

And then I had some general questions about the new Crexendo initiatives. Roughly, how many business customers you have in Crexendo today excluding StoresOnline type related customers?

Steve Mihaylo

We have approximately 400.

Jeff Bash

And, do you have any feel as to -well let me introduce this question. When I look at the numbers and I’d say, well, Q1 was $479,000 sales in Crexendo, Q2 was $550,000, which is up 15%, your backlog went from 972 to 1196, up 23%, which are decent quarter-to-quarter gains, but it’s going to obviously that that rate, take some time before you see material absolute numbers. So I’m just wondering, do you have an image as to how long it’s going to take before you go from, let's say from 4000 customers - from 400 customers to, let's say 4,000 customers?

Steve Mihaylo

That’s surely a function of the number of sales people that we have in the company. But I think it’s doable by the end of next year.

Jeff Bash

Okay. Good.

Steve Mihaylo

And then that would just be the Crexendo customers. Telecom I think we can do a little bit better because you are actually looking at savings for each of these customers. So it’s almost a no-brainer.

Jeff Bash

Would it be fair to say since your answer to Steve's question about the market opportunity that you saw that’s been very sizeable, but you see a destiny was - as within your own control and execution expertise, as opposed to a situation or maybe you are going after a limited market where it might be tough to make a sale? In other words if you execute well we’re going to see success here and it’s less dependent on the environment per se?

Steve Mihaylo

I would agree with that statement Jeff. Every potential business out there needs our services regardless of their size. Now obviously we are not in a position to handle large, large accounts yet. But at some point in time, just like in Inter-Tel, where we could handle customers with thousands of employees will be there. I’m not going to predict when that will be, but it’ll certainly be within the next four or five years.

Jeff Bash

And you could achieve reasonably good margins in this business, despite the fact that some of the products are considered sort of commodity type products?

Steve Mihaylo

Yes, because we are also going to have a lot of services over and above premium services like call centers suite applications which is a very sophisticated software sale and we sell it on a SaaS model. Also operator services where we’ll have live operators and these people will not be in India or China, they’ll be on the United States speaking with a nice Midwestern accent. What we are talking to Rajiv or anything like that. So, I think people will be very happy with the fact that we’re going to be employing Americans. And obviously that’s not to discourage Indian people, but we want to keep the sales here in the United States and the jobs in the United States.

Jeff Bash

Okay. Now does the challenge the small business face - still face, which has been given lots of coverage from time-to-time in the press, do you think make it easier or harder to achieve success with your offering or does it vary some the web services may be a little more reluctant to spend the money and on the telecom you can offer real savings. So there is less reluctance. Is that sort of a fair assessment?

Steve Mihaylo

Well, not really. I think, you are forgetting the fact that the money we save on telecom can be used for web services to help them increase their sales. And we are finding that as time goes on, most of our customers wind up eliminating the yellow pages. That’s becoming very passé.

They can have both services and eventually network services and also data storage and retrieval for probably less than what they are spending now for everything. All their sales and marketing, yellow pages, people that do these things in their company as opposed to outsourcing it to us. Another thing that I think would be important is to have Dave Krietzberg talk about network services and when we expect to launch that. Dave, you want to?

Dave Krietzberg

Sure, yes thank you, Steve, as you said earlier, the gist of the hedge is really a cost savings initiative as we bundle our telephony features and product offerings along with the bundled broadband services and web services, we think we’ll have a unique offering to offer cost savings to the customers currently paying plus a very flexible payment plan, because it’s on a monthly basis and they are using the services they need on a monthly basis.

So as the business grows, they’ll be able to easily add on to the services as needed. As far as the actual broadband telephony services, we are finalizing the implementation with levels we backbone. So we’ll be able to offer high quality broadband services to majority of the markets that we will be in and we should have – starting to see some of that growth I would say next quarter.

Jeff Bash

When are you coming to New Jersey?

Dave Krietzberg

We can convert your phones right now in New Jersey.

Jeff Bash

With Verizon.

Steve Mihaylo

No, with Crexendo.

Jeff Bash

No, no, no, if you have a Verizon backbone?

Steve Mihaylo

Oh, yes it would be Verizon for now, but if you wait probably, about two months we’ll be able to give you backbone from Crexendo. We have to finalize our billing software and some other things. But like we found out at Inter-Tel the more products and services you offer, the stickier the customer is. And sticky is really important. We have less than a 1% attrition rate at Inter-Tel and I think we can get to that with our Crexendo customers probably by the middle of next year.

Jeff Bash

Okay, terrific. Thanks for your guidance and help.

Steve Mihaylo

You bet, Jeff.

Operator

We’ll take our next question from Walter Disney [Ph], a private investor.

Steve Mihaylo

Good afternoon Walter.

Walter Disney

Yeah, a couple of questions that I had. One of them was on your $24.7 million Receivables, is that the total amount of receivables at this point? Or is that the total amount you think that you are going to be able to collect?

Steve Mihaylo

Based on our historical collections rate, that’s the amount that we expect to collect. However, our gross receivables are considerably more than that.

John Erickson

That’s the net receivable balance.

Walter Disney

Okay.

John Erickson

Earlier and we feel confident that that will be collected.

Walter Disney

Okay, great. And other question that I had was, on the hiring of your new salespeople, what is the period from hire to when they’re actually able to get through training and do some selling?

Steve Mihaylo

It depends on their experience level. Some of them hit the ground running others take anywhere from 60 to 120 days. Do you want to expand on that, Clint?

Clint Sanderson

Yeah, based on what we’ve done to this point in Crexendo, we are planning on 90-days as a ramp up period and that’s what we built into our model moving forward and that’s what our training programs are built on as well. Is a 90-day ramp to full productivity.

Walter Disney

Okay, and one last on the sales, you had indicated that you were doing promotional free period sales. Is that are you expecting to be doing that as a standard as you’re getting more of the in-house sales people?

Steve Mihaylo

That was only done through the seminars when we were initially testing the telecom product and it was….

Walter Disney

That’s not continuing, then?

Steve Mihaylo

No, not at all.

Walter Disney

Okay.

John Erickson

On the website for the online offering you will however see some 30-day free trial periods and things like that online websites.

Walter Disney

That’s basically for individuals, consumers?

Steve Mihaylo

The StoresOnline type customers.

Walter Disney

Okay, and one other question is, do you have any –

Steve Mihaylo

So all of you too go up on our website and convert away from that expensive offering that you have from your local telephone company.

Walter Disney

Sounds good to me and you have also – do you have any web-based sales initiatives going?

Steve Mihaylo

Yes. As I said earlier, we are looking at affiliate programs, we’re looking at web sales and we’re looking at inside sales to reach out to the potential customers.

Walter Disney

Okay, and then last question, which may be just clarifying that, do you - are you establishing sales partners through banks or professional companies that can partner with you to offer services, that part of your service?

Steve Mihaylo

We are looking at banks, we are looking at insurance companies, we are looking at anybody that has a customer base that fits into our profile.

Walter Disney

Right and have any signed up so far?

Steve Mihaylo

We’ve had a trickle from Bank of the West, but we’re aggressively working with several banks. These things take a long time because there is such an approvals process but eventually we think it’s going to pan out for us.

Walter Disney

Okay, great. Thanks then.

Steve Mihaylo

You bet.

Operator

And with no further questions in the queue, I would like to turn the call back to Steve Mihaylo for any additional or closing remarks.

Steve Mihaylo

Thank you, Ann. I’d like to thank all of you for being with us today. We’ll be releasing our third quarter results probably in early October, say again. I’m sorry, early November. Yeah, the quarter ends in September 30 which is essentially early October. So it’ll be early November. We look forward to being with all of you at that time and wish you a good day and a good evening.

Operator

This does conclude today’s conference. We thank you for your participation.

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