Good day, ladies and gentlemen, and welcome to the Intellinetics’ First Quarter 2023 Earnings Call. At this time all participants are in a listen-only mode and the floor will be opened for questions and comments following the presentation. [Operator Instructions] As a reminder, this conference is being recorded. At this time, it is my pleasure to turn the call over to Tom Baumann, FNK IR. Sir, the floor is yours.

Thank you, Karen. Thank you, and good afternoon, everyone. I am pleased to welcome you to Intellinetics’ 2023 first quarter conference call. Before we begin, I would like to remind listeners that during this conference call, comments made by management may includes forward-looking statements regarding Intellinetics Inc. that are not historical facts. These forward-looking statements are based on current expectations and beliefs of management, and they are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. And Intellinetics, Inc. undertakes no duty to update any forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release issued today as well as risks and uncertainties included in the section under the caption Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Intellinetics Form 10-Q filed today. Also, please note that on the call today, management will discuss non-GAAP financial measures, such as adjusted EBITDA and total contract value. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies. A reconciliation between GAAP and non-GAAP measures can be found in the press release issued today and the total contract value will be described on today’s call. I would now like to turn the call over to Jim DeSocio, Intellinetics’ President and CEO. Jim, the call is yours.

Thank you, Tom. This was a great start to 2023 for Intellinetics. Our business model is working. We are growing revenue and growing recurring revenue even faster. Recurring revenue now represents nearly three fifths of our total revenue, reducing quarter-to-quarter volatility. This makes it easier for us to plan investments and spending levels too, among other things, enable consistent profitability. We continue to expand our market share as demand for our solutions is robust, and we deliver a tangible ROI for customers. Finally, our cross-selling initiatives are yielding results as we grow our wallet-share with customers. We significantly grew our operating income and adjusted EBITDA, delivering positive net income and earnings per share. We are on the right track. Our quarterly revenue increased 55%, while our SaaS revenue increased 187%. As a result, our net income increased $133,000 from negative $20,000 to $113,000, and our adjusted EBITDA increased 48%, even as we invested in technology and marketing tools to enable continued growth. This performance is due in large part to the tremendous success of the Yellow Folder acquisition, which we closed in April of 2022. We are leveraging the success of the Yellow Folder and working to cross-sell our services to our broader customer base. As an example, we recently sold Barrington, Illinois School District multiple Intellinetics solutions. The School District committed to an annual SaaS special education agreement for $9,000 and system setup of $3,000. At the same time, we’ve agreed to digitally transform historical physical student records for $172,000. We are investing in our sales and marketing capabilities to bolster our cross-selling initiatives, which enable us to further penetrate existing as well as new markets. In particular, we’ve expanded the use of our CRM system, which is improving our sales execution. We are also investing to improve website,…

Thanks, Jim. I will now review our financial results for the first quarter of 2023. Total revenue for the quarter increased 55% to $4.2 million as compared to $2.7 million for the same period last year. The following are the components of our revenue. SaaS, including hosting revenue, increased 187% to $1.2 million for the quarter from $431,000 for the same period last year. Yellow Folder contributed $730,000 of the increase. Without Yellow Folder, SaaS growth was 18%. Software maintenance services revenue grew 4% with price increases and expansion offsetting a small amount of attrition and also certain customers migrating from our on-premise solution to our cloud solution, which shifts the revenue from our maintenance to our SaaS. Every migration case this quarter resulted in higher overall revenues. The combined SaaS and software maintenance revenue growth without Yellow Folder was 12% year-over-year for Q1. Professional services revenue increased 45% to $2.3 million for the quarter from $1.6 million for the same period last year. As a percentage of total revenue, professional service revenue decreased to 55% of total revenue for the quarter compared to 59% of total revenue for the same period last year. Despite the very strong performance of our digital transformation business in 2023, there was still a decrease in overall percentage of revenue due to Yellow Folder contribute primarily SaaS. Storage and retrieval services revenue was relatively flat at $284,000 for the first quarter of 2023 compared to $283,000 for the first quarter of 2022. Software revenue, which is comprised of perpetual license revenue, continued to decline relative to our other revenue streams as we transition to SaaS offerings. We expect sales of these on-premise software solutions to be a minor part of our revenue as we focus on SaaS. Gross margin increased 283 basis points to…

[Operator Instructions] And we’ll take our first question from Howard Halpern from Taglich Brothers. Please go ahead, Howard.

Congratulations. Great quarter, guys.

Thanks, Howard.

In terms of what’s going on growth wise with the business, are you seeing an increase in engagement size? And has that turned into a little bit of an increase in the sales cycle? Or is engagement size just rising and you’re able to execute even quicker?

Well, let’s say, depending on the division or the business unit that’s selling the product, things move a little quicker and different – K-12 deal, document management deal moves a little quicker than a $900,000 Wayne County prosecutor’s deal does. But what we were talking about before is implementing a CRM package or taking better advantage of the CRM system we had and more diligence and specifics which allows us to forecast better and get a better understanding of how things are moving through the pipeline based on our historical track record of adding deals to the pipeline and then how quickly they move to the pipeline. So the increase – the deals are increasing in size, which is phenomenal. But we really haven’t seen a tremendous extension on how long those deals are taking to close. And the other really good thing is we have a very large backlog of total contract value, which allows us to contribute that to revenue going forward as well. So two different things. The total contract value of selling deals and then recognizing the revenue as we perform the services to fulfill those contracts.

Okay. And could you talk a little bit about, I guess, your sales team that you put in place now. I know you’ve been investing a little bit more on it. Where are they in, I guess, the productivity cycle and reaching capacity where you might need to add additional salespeople, which is a good thing.

Right. We are currently looking for additional salespeople. We did let one sales performer go, but we have six people on site, on staff right now that are doing very well. So the sales team that we have in place are experienced and are executing at the highest level and delivering another very good sales quarter for us. And we do have open head count for another two sales reps that we are actively looking for right now.

Okay. And in terms of the IPAS, how many are actually operational? And are you moving beyond just the one industry that you’ve targeted initially?

Yes. IPAS is a brand new – fairly new release of a product that we released the fall of last year. We have five customers up and running live now. They are very sophisticated users of our product, which is great. So the average cost of sale there, we only have a handful of deals at this point, but it’s well in the $40,000, $50,000, $60,000 range as compared to the $10,000 range for the K-12 products – software products. So we do have those customers live. We’re getting excellent feedback from them. And this is a very exciting product, Howard. And we are right now looking at expanding into different areas with that product as well because it is an agnostic product that we could take across different vertical organizations.

Okay. Well thanks and keep up the great work guys.

Thank you, Howard.

[Operator Instructions] And there appear to be no further questions at this time. I’ll turn the floor to Jim DeSocio for closing remarks.

Thank you, Karen. In summary, this was a strong start to the year, finishing up on a strong 2022. We are delivering robust revenue growth, especially recurring and SaaS revenue, enabling sustainable profitability. We are focused on effectively cross-selling and broadening our addressable markets. We are excited about where Intellinetics is and our future opportunities. And we appreciate the continued support of our longtime shareholders and aim to attract new investors as well by delivering strong and consistent financial results. So thank you, everybody, for joining us today. Very, very exciting of where Intellinetics is today and fiscal year 2023, we are very excited about the opportunity for fiscal year 2023 as well. So everybody, have a great evening, and we appreciate you joining our call.

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.