Core Insights - Crexendo (NASDAQ: CXDO) is experiencing organic software growth of 20-25%, indicating strong market demand and operational efficiency [1] - The integration of AI technology is expected to enhance Crexendo's value proposition while requiring less investment, suggesting a strategic advantage in leveraging technology for growth [1] Company Performance - The company is positioned to capitalize on its current growth trajectory, with a focus on maintaining and potentially increasing its organic growth rate [1] Market Position - Crexendo's emphasis on quality and reasonable valuation aligns with investment philosophies that prioritize long-term fundamentals, which could attract investors looking for sustainable growth [1]

Group 1 - Lake Street raised the price target on Crexendo (CXDO) to $9 from $8.50 while maintaining a Buy rating on the shares [1] - The acquisition of ESI for $35 million is the company's largest since 2021, indicating a strategic move towards larger targets compared to typical reseller deals of $5 million to $10 million [1] - Analysts believe that the acquisition was made at a good price and that the company's increased scale will lead to improved leverage [1]

Core Insights - Crexendo (CXDO) reported revenue of $18.06 million for the quarter ended December 2025, marking an 11.5% year-over-year increase and a surprise of +1.3% over the Zacks Consensus Estimate of $17.83 million [1] - The company achieved an EPS of $0.09, compared to $0.06 a year ago, resulting in a surprise of +20% against the consensus EPS estimate of $0.08 [1] Revenue Breakdown - Service revenue was reported at $8.6 million, slightly below the two-analyst average estimate of $8.67 million, reflecting a year-over-year increase of +7.7% [4] - Product revenue was $1.1 million, which is below the two-analyst average estimate of $1.41 million, showing a year-over-year decline of -9.3% [4] - Software solutions revenue reached $8.3 million, exceeding the average estimate of $7.76 million based on two analysts, with a year-over-year change of +17.9% [4] Stock Performance - Over the past month, Crexendo's shares have returned -12.3%, in contrast to the Zacks S&P 500 composite's -1.3% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Core Insights - Crexendo achieved a strong financial performance in 2025, reporting $68.2 million in revenue, a 12% year-over-year organic growth, and a net income of $5.1 million, marking its 10th consecutive GAAP profitable quarter [2][3][7] Financial Performance - The fourth quarter revenue rose 11% to $18.1 million, with net income of $1.2 million and non-GAAP net income of $2.8 million [2] - Crexendo ended 2025 with $31.4 million in cash, up from $18.2 million at the end of 2024, and reported non-GAAP free cash flow of $9.3 million, representing a 14% free cash flow margin [10] - Adjusted EBITDA for the year was $11.2 million, or 17% of total revenue, an increase from $8.2 million (13.5%) the prior year [9] Growth Strategy - The company highlighted a year of double-digit organic growth and sustained GAAP profitability, with a focus on investments in artificial intelligence, security, and infrastructure [4][16] - Crexendo completed the migration of hosted licensees to Oracle Cloud Infrastructure, which is expected to improve margins [17] Acquisition Details - Crexendo announced the acquisition of Estech Systems (ESI) for $35 million, consisting of $27.3 million in cash and $7.7 million in stock, with ESI generating approximately $26 million in 2025 [6][13][14] - The acquisition is expected to be accretive and contribute to Crexendo's goal of reaching a $100 million revenue run rate [6][12] Product and Market Development - The company is rolling out AI products, including the CAIRO AI receptionist, which could increase average retail revenue per account by over 25% [5][18] - Crexendo's telecom services retail segment grew 5% organically in the quarter, with a 46% year-over-year increase in sales bookings from master agent technology service distributors [22] Future Outlook - Management is targeting double-digit organic growth in 2026 while continuing to invest in platform and security enhancements [23]

Financial Data and Key Metrics Changes - In 2025, the company generated a net income of $5.1 million and non-GAAP income of $11.4 million on revenue of $68.2 million, representing a 12% year-over-year organic growth [6][18] - Fourth quarter revenue increased 11% to $18.1 million, with net income of $1.2 million and non-GAAP net income of $2.8 million, marking the 10th consecutive GAAP profitable quarter [6][14] - Operating expenses for the quarter increased 8% to $16.9 million, while the operating margin improved to 6% from 4% year-over-year [15] Business Line Data and Key Metrics Changes - Service revenue for the year increased 6% to $33.8 million, while software solutions revenue increased 27% to $29.7 million [17] - Product revenue for the year decreased 16% to $4.7 million, with service revenue gross margins decreasing by 1% year-over-year to 58% [17] - The software solutions segment saw a strong quarter with 14 upgrade orders and five new logos, contributing to an 18% growth for the quarter and 28% organic growth for 2025 [22][23] Market Data and Key Metrics Changes - The telecom services retail segment grew at 5% organically for the quarter, with telecom services revenue up 8% organically [25] - The Master Agent technology service distributors experienced a 46% increase in sales bookings year-over-year, indicating strong demand for offerings [25][26] - Remaining Performance Obligations increased to $89.1 million, a 4% increase from Q4 of 2024, indicating a strong future revenue stream [26] Company Strategy and Development Direction - The company aims to reach a $100 million revenue run rate by the end of 2026, supported by the recent acquisition of ESI [30][31] - The acquisition of ESI for $35 million is expected to enhance revenue, earnings, and cash flow, with a focus on achieving accretive growth through disciplined M&A strategy [7][8] - Investments in AI, security, and infrastructure are seen as strategic decisions to protect the business and lead in the cloud communication market [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continuing to deliver double-digit organic growth while making necessary investments in the business [59] - The company is optimistic about the future, citing strong demand for its product offerings and the potential of new AI solutions to drive growth [32] - Management highlighted the importance of maintaining financial discipline and operational efficiency to ensure long-term shareholder value [13] Other Important Information - The company was included in the Russell 2000 Index in 2025 and received top honors in 42 categories for cloud communication providers [21] - The AI strategy is advancing, with early feedback on the AI receptionist/assistant being highly encouraging [10] Q&A Session Summary Question: Impact of ESI acquisition on customer acquisition costs - Management indicated that the acquisition would not materially impact customer acquisition costs, as they expect similar costs to organic customer acquisition [35][36] Question: Free cash flow expectations for 2026 - Management stated there are no anticipated large capital improvements that would impact free cash flow, expecting similar conversion rates from adjusted EBITDA [41] Question: Demand environment for new licensees - Management noted strong partner interest and demand for the platform, particularly from legacy platforms lacking investment [42][43] Question: Contribution of Master Agents to service bookings - Management confirmed strong contributions from both direct sales and Master Agents, with record retail sales bookings in Q4 [49] Question: Sustainability of service gross margin increase - Management expressed confidence that the current gross margin percentage is sustainable, though no further increases are projected at this time [50] Question: Applicability of AI Receptionist to customer base - Management believes the AI Receptionist is applicable to almost all customers, with strong early adoption feedback [51][52]

Financial Data and Key Metrics Changes - In 2025, the company generated a net income of $5.1 million and non-GAAP income of $11.4 million on revenue of $68.2 million, representing a 12% year-over-year organic growth [6][18] - Fourth quarter revenue increased 11% to $18.1 million, with net income of $1.2 million and non-GAAP net income of $2.8 million, marking the 10th consecutive GAAP profitable quarter [6][14] - Operating expenses for the quarter increased 8% to $16.9 million, while the operating margin improved to 6% from 4% year-over-year [15] Business Line Data and Key Metrics Changes - Service revenue for the year increased 6% to $33.8 million, while software solutions revenue grew 27% to $29.7 million [17] - The software solutions segment saw an 18% growth for the quarter and 28% organic growth for 2025, driven by upgrade orders and new customer acquisitions [22][23] - Telecom services retail segment grew at 5% organically for the quarter, with an 8% increase in telecom services revenue [25] Market Data and Key Metrics Changes - The Remaining Performance Obligations increased to $89.1 million, indicating a strong future revenue stream [26] - The company was included in the Russell 2000 Index in 2025, reflecting its growth and market presence [21] Company Strategy and Development Direction - The company aims to reach a $100 million annual revenue run rate by the end of 2026, supported by the recent acquisition of ESI [30] - The acquisition of ESI for $35 million is expected to enhance revenue, earnings, and cash flow, with a focus on operational efficiencies and cross-selling opportunities [7][9] - Investments in AI and cloud infrastructure are seen as strategic to protect the business and enhance customer offerings [12][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining double-digit organic growth while making necessary investments in the business [59] - The company anticipates that AI solutions will significantly enhance efficiency and profitability for small and mid-sized businesses [29][32] - Management remains optimistic about future growth opportunities, driven by strong demand for product offerings and a talented workforce [31][32] Other Important Information - The company has successfully migrated all legacy hosted infrastructure to Oracle Cloud Infrastructure, which is expected to improve margins [22] - The AI Receptionist Orchestrator (CAIRO) is anticipated to increase average revenue per account by over 25% [29] Q&A Session Summary Question: Impact of ESI acquisition on customer acquisition costs - Management indicated that the acquisition would not materially impact customer acquisition costs, as they expect similar costs to organic customer acquisition [35][36] Question: Free cash flow expectations for 2026 - Management expects to generate similar free cash flow from adjusted EBITDA without significant one-time items impacting the ratio [41] Question: Demand environment for new licensees - Management noted strong partner interest and demand for the platform, particularly from legacy platforms lacking investment [42][43] Question: Contribution of master agents to service bookings - Management confirmed strong contributions from both direct sales and master agents, with record retail sales bookings in Q4 [49] Question: Sustainability of service gross margin increase - Management believes the current gross margin percentage is sustainable, although no further increases are projected at this time [50] Question: Applicability of AI Receptionist to customer base - Management believes the AI Receptionist is applicable to almost all customers, with strong initial interest and feedback [51][52] Question: Timeline for facilities consolidation and OCI migration - Management has not yet discussed the timeline for savings from the ESI acquisition but hopes to complete it within the year [75] Question: Organic growth pace for software solutions - Management hopes to maintain the current growth level, although macroeconomic conditions may influence timing for larger deals [81]

Financial Data and Key Metrics Changes - In 2025, the company generated a net income of $5.1 million and non-GAAP income of $11.4 million on revenue of $68.2 million, representing a 12% year-over-year organic growth [6][19] - Fourth quarter revenue increased 11% to $18.1 million, with net income of $1.2 million and non-GAAP net income of $2.8 million, marking the 10th consecutive GAAP profitable quarter [6][14] - Operating expenses for the quarter increased 8% to $16.9 million, while the operating margin improved to 6% from 4% year-over-year [16] Business Line Data and Key Metrics Changes - Service revenue for the year increased 6% to $33.8 million, while software solutions revenue increased 27% to $29.7 million [18] - Product revenue for the year decreased 16% to $4.7 million, with service revenue gross margins decreasing by 1% year-over-year to 58% [18] - The software solutions segment grew at 18% for the quarter and saw 28% organic growth for 2025 [23] Market Data and Key Metrics Changes - The telecom services retail segment grew at 5% organically for the quarter, with telecom services revenue up 8% organically [26] - The master agent technology service distributors saw a 46% increase in sales bookings year-over-year, indicating strong demand for offerings [26] Company Strategy and Development Direction - The company aims to reach a $100 million annual revenue run rate by the end of 2026, supported by the recent acquisition of ESI [32] - The acquisition of ESI for $35 million is expected to enhance revenue, earnings, and cash flow, with a focus on operational efficiencies and cross-selling opportunities [8][10] - The company is committed to investing in AI, security, and infrastructure to maintain a competitive edge in the rapidly evolving cloud communication market [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving double-digit organic growth while making necessary investments in the business [62] - The company anticipates continued strong demand for its product offerings, driven by a unique pricing and support model [25] - Management highlighted the importance of AI solutions in enhancing business efficiency and profitability for small and mid-sized businesses [29] Other Important Information - The company completed the migration of all legacy hosted infrastructure to Oracle Cloud Infrastructure, which is expected to improve margins going forward [22] - The Remaining Performance Obligations increased to $89.1 million, indicating a strong future revenue stream [27] Q&A Session Summary Question: Impact of ESI acquisition on customer acquisition costs - Management indicated that the acquisition would not significantly impact customer acquisition costs, as they expect similar costs to organic customer acquisition [37][39] Question: Free cash flow expectations for 2026 - Management stated there are no anticipated large capital improvements that would impact free cash flow, expecting similar conversion rates from adjusted EBITDA [44] Question: Demand environment for new licensees - Management reported strong partner interest and demand for the platform, with many potential new licensees considering the transition from legacy platforms [46] Question: Sustainability of service gross margin increase - Management expressed confidence that the current gross margin percentage is sustainable, although no further increases are projected at this time [53] Question: Applicability of AI Receptionist to customer base - Management believes the AI Receptionist is applicable to almost all customers, with strong early feedback and interest from the community [54][56]

Revenue Growth - Cloud Telecommunications service revenue increased by 6% or $1,933 to $33,782 for the year ended December 31, 2025, compared to $31,849 for 2024[263]. - Software solutions revenue increased by 27% or $6,290 to $29,664 for the year ended December 31, 2025, compared to $23,374 for 2024[267]. - Total revenue for the year ended December 31, 2025, was $68,167, representing a 12% increase of $7,329 compared to $60,838 for 2024[272]. - Cloud Telecommunications Services segment total revenue for the year ended December 31, 2025, was $38,503, a 2.8% increase from $37,464 in 2024[309]. - Service revenue increased by $1,933 to $33,782 for the year ended December 31, 2025, representing a 6% growth compared to 2024[313]. - Software solutions revenue increased by $6,290, or 27%, from $23,374 in 2024 to $29,664 in 2025[325]. - Total revenue for the year ended December 31, 2025, was $68.167 million, with $38.503 million from the Cloud Telecommunications segment and $29.664 million from the Software Solutions segment[441]. Net Income and Earnings - Net income for the year ended December 31, 2025, was $1,677, down from $5,071 in 2024[270]. - U.S. GAAP net income for Q4 2025 was $1,218,000, compared to $507,000 in Q4 2024, representing a 140% increase[282]. - Non-GAAP net income for Q4 2025 was $2,802,000, up from $1,971,000 in Q4 2024, reflecting a 42% growth[282]. - The company reported a total revenue increase for the year ended December 31, 2025, with U.S. GAAP net income of $5,071,000, up from $1,677,000 in 2024, a growth of 203%[282]. - Basic Non-GAAP earnings per share for the year ended December 31, 2025, was $0.38, compared to $0.29 in 2024, marking a 31% increase[282]. - Net income for the year ended December 31, 2025, was $5,071,000, compared to $1,677,000 for 2024, resulting in a basic earnings per share of $0.17 for 2025, up from $0.06 in 2024[450]. - The diluted earnings per share for 2025 was $0.16, compared to $0.06 for 2024[450]. Operating Expenses - Operating expenses increased by $4,463, primarily due to higher salaries, benefits, and bonuses[275]. - Total operating expenses for the Cloud Telecommunications Services segment were $37,733 for the year ended December 31, 2025, slightly up from $37,210 in 2024[309]. - Operating expenses for 2025 totaled $63,477 million, an increase of 8% from $59,014 million in 2024[368]. - General and administrative expenses decreased by $740, or 9%, from $7,816 in 2024 to $8,556 in 2025[319]. - Research and development expenses decreased by $307, or 39%, from $788 in 2024 to $481 in 2025[320]. - Selling and marketing expenses increased by $884 to $12,448 for the year ended December 31, 2025, an increase of 8% from $11,564 in 2024[318]. - Selling and marketing expenses increased by $349, or 7%, from $4,974 in 2024 to $5,323 in 2025[329]. - General and administrative expenses increased by $1,634, or 31%, from $5,273 in 2024 to $6,907 in 2025[331]. - Research and development expenses increased by $475, or 10%, from $4,764 in 2024 to $5,239 in 2025[333]. Cash Flow and Liquidity - As of December 31, 2025, the company had cash and cash equivalents of $31,378, compared to $18,193 as of December 31, 2024, reflecting a significant increase of 73%[335]. - Net cash provided by operating activities for the year ended December 31, 2025 was $9,297, an increase of $3,013 or 48% from $6,284 in 2024[337]. - Net cash used in investing activities for the year ended December 31, 2025 was $(18), a decrease of 33% from $(27) in 2024[340]. - Net cash provided by financing activities for the year ended December 31, 2025 was $3,882, an increase of $2,287 or 143% from $1,595 in 2024[342]. - Cash received from the exercise of stock options in 2025 amounted to $4,870, significantly higher than $2,370 in 2024[343]. - The company believes that existing liquidity sources will satisfy cash requirements for at least the next 12 months, indicating a stable financial outlook[336]. Assets and Equity - Total assets increased to $77,686 million in 2025, up from $64,938 million in 2024, reflecting a growth of 19%[366]. - Total stockholders' equity rose to $63,821 million in 2025, up from $51,413 million in 2024, marking a 24% increase[366]. - Cash and cash equivalents at the end of 2025 were $31,378 million, an increase of 73% from $18,193 million in 2024[374]. - The outstanding balance of the related party note payable as of December 31, 2025 was $98, down from $478 in 2024, indicating a reduction in liabilities[346]. Performance Obligations and Revenue Recognition - Remaining Performance Obligations (RPOs) increased by 10%, or $5,325, to $60,694 as of December 31, 2025, compared to $55,369 in 2024[315]. - The company expects to recognize a substantial portion of RPOs as revenue within the next thirty-six to sixty months[315]. - The company recognizes revenue when it satisfies a performance obligation by transferring control over a product, service, or software solution to a customer[428]. - Revenue from the sale of telecommunications equipment is recognized when the customer takes possession of the devices[430]. - The company recognizes revenue from sales-type leases upon installation, while revenue from operating leases is recognized ratably over the service period[431]. - Cloud telecommunications services contracts typically have a term of 39 to 90 months, with revenue recognized as services are provided[432]. Credit Risk and Allowances - The company believes its credit risk for contract assets and equipment financing receivables is low due to client diversification and small account balances[302][303]. - The allowance for credit losses is continually evaluated and adjusted as necessary, reflecting a low credit risk due to client diversification[385]. - The allowance for credit losses as a percentage of gross contract assets increased to 26.4% at December 31, 2025, up from 23.8% at December 31, 2024[447]. - The total balance of the allowance for credit losses for trade receivables was $124,000 at December 31, 2025, down from $146,000 at December 31, 2024[453]. - The allowance for credit losses for equipment financing receivables decreased to 3.3% at December 31, 2025, down from 6.1% at December 31, 2024[457]. Acquisitions and Business Segments - The company completed the acquisition of Allegiant Networks for a total consideration of $2.0 million in cash, a $1.1 million promissory note, and 2,461,538 shares of common stock[346]. - The company reorganized into two operating segments: cloud telecommunications services and software solutions, with no single customer accounting for 10% or more of total revenue for the years ended December 31, 2025 and 2024[420].

Revenue Growth - Total revenue for Q4 2025 increased by 11%, reaching $18.1 million compared to $16.2 million in Q4 2024[3] - Full-year total revenue for 2025 increased by 12% to $68.2 million, up from $60.8 million in 2024[8] - Total revenue for the year ended December 31, 2025, was $68,167 million, representing a 11% increase from $60,838 million in 2024[27] Service Revenue - Service revenue for Q4 2025 rose by 8% to $8.6 million, up from $8.0 million in Q4 2024[3] - Service revenue increased to $33,782 million in 2025, up from $31,849 million in 2024, reflecting a growth of 6%[27] Software Solutions Revenue - Software solutions revenue for Q4 2025 grew by 18%, totaling $8.3 million compared to $7.0 million in Q4 2024[4] - Software solutions revenue rose to $29,664 million, a significant increase of 27% compared to $23,374 million in 2024[27] Net Income - Net income for Q4 2025 was $1.2 million, or $0.04 per share, compared to $0.5 million, or $0.02 per share in Q4 2024[5] - Net income for 2025 was $5,071 million, compared to $1,677 million in 2024, marking a substantial increase of 203%[28] Earnings Per Share - Basic earnings per share increased to $0.17 in 2025 from $0.06 in 2024, representing a growth of 183%[28] Cash Flow - The company reported a cash flow from operating activities of $9.3 million for 2025, compared to $6.3 million in 2024[15] - Cash provided by operating activities for 2025 was $9,297 million, an increase from $6,284 million in 2024[30] User Base Growth - The user base expanded from over 4 million to more than 7 million, representing a growth of approximately 75% in under three years[16] Strategic Initiatives - The company announced the acquisition of ESI to accelerate growth through strategic M&A[16] - Crexendo's AI strategy, particularly the CAIRO operator, received positive early feedback, indicating potential for significant market impact[16] Adjusted EBITDA - Adjusted EBITDA for the year ended December 31, 2025, was $11,205 million, compared to $8,187 million in 2024, reflecting a growth of 37%[39] Capitalization of Development Costs - The company capitalized $410 million in software development costs during the year[31] Cash and Cash Equivalents - The company reported a net increase in cash and cash equivalents of $13,185 million, up from $7,846 million in 2024[31] Shares Outstanding - The weighted-average common shares outstanding increased to 29,681,847 in 2025 from 26,757,242 in 2024[28]

Core Viewpoint - Crexendo, Inc. has completed the acquisition of Estech Systems, LLC, marking a significant step in its growth strategy and enhancing its position in the cloud communications market [1] Company Summary - Crexendo, Inc. is a software technology company that provides cloud communication platform software and unified communications as a service (UCaaS) offerings, including voice, video, contact center, and managed IT services [1] - Estech Systems, LLC is recognized as a provider of cloud communication solutions and has been a long-term licensee of Crexendo's NetSapiens platform [1] Industry Impact - The acquisition is expected to transform Crexendo's growth strategy and strengthen its competitive position within the cloud communications market [1]