UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ——————— ——————— ——————— FORM 10-Q ——————— (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ________ to ________. Commission file number 001-32277 Crexendo, Inc. (Exact name of registrant as specified in its charter) ...

Financial Data and Key Metrics Changes - Consolidated revenue for Q4 2020 was $4.3 million, a 16% increase from $3.7 million in Q4 2019 [20] - Net income for Q4 2020 was $7.2 million, or $0.40 per basic share, compared to $228,000, or $0.02 per basic share, in Q4 2019 [22] - Non-GAAP net income for Q4 2020 was $7.4 million, or $0.42 per basic share, compared to $347,000, or $0.02 per basic share, in the same period of the prior year [23] - Consolidated revenue for the year 2020 was $16.4 million, a 14% increase from $14.4 million in 2019 [24] - Net income for the year 2020 was $7.9 million, or $0.50 per basic share, compared to $1.1 million, or $0.08 per basic share, in 2019 [27] Business Line Data and Key Metrics Changes - UCaaS service revenue for 2020 increased 16% compared to 2019 [19] - Cloud Telecommunications Segment service revenue for Q4 2020 increased 16% to $3.7 million, while Web Services Segment service revenue decreased 21% to $121,000 [21] - Product revenue for Q4 2020 increased 32% to $526,000 compared to $397,000 in Q4 2019 [21] - Cloud Telecommunications Segment generated revenue of $15.8 million for the year, a 15% increase from $13.8 million in 2019 [24] Market Data and Key Metrics Changes - The Telecommunications segment backlog increased 9% to $28.6 million at December 31, 2020, compared to $26.1 million at the end of 2019 [26] - Approximately 60% of businesses have not yet migrated to the cloud for their communication needs, indicating significant market opportunity [34] Company Strategy and Development Direction - The company announced a merger agreement with NetSapiens, which is expected to be accretive and provide multiple synergies [9][11] - The acquisition aims to enhance Crexendo's offerings and expand its market presence, particularly in the cloud communications sector [35][38] - The company plans to rationalize data centers and accounting to reduce costs post-acquisition [45] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to continue profitable growth despite pandemic-related challenges [30] - The merger with NetSapiens is seen as a strategic move to accelerate growth and enhance product offerings [36][38] - Management highlighted the importance of cloud communications and the ongoing demand for flexible solutions in the current market [34] Other Important Information - The company completed an equity offering in September 2020, which contributed to a cash position of $17.7 million at the end of 2020, up from $4.3 million at the end of 2019 [28][33] - The company has been consistently profitable, achieving both GAAP and non-GAAP profitability [16] Q&A Session Summary Question: Can you comment on the growth, profitability trajectory, and margin profile of NetSapiens? - Management indicated that detailed information will be available in the upcoming proxy statement, as they cannot disclose specifics until the merger is approved [41][42] Question: Can you discuss the integration timeline and potential cost synergies? - Management mentioned plans to rationalize data centers and accounting, which should lead to cost reductions [45] Question: What is the pricing model and economics for Crexendo given that NetSapiens does not charge per seat? - Management explained that NetSapiens operates on a different model, selling platform applications to resellers, which presents significant growth opportunities [49][52] Question: What type of customers make up the 1.7 million users on the NetSapiens platform? - The user base consists of small to mid-sized enterprises, similar to Crexendo's customer demographics [53] Question: Can you explain the income tax benefit provision of $6 million? - Management clarified that the tax benefit resulted from a reassessment of deferred tax assets due to profitability [66][67] Question: Will there be challenges in converting customers to the new platform? - Management assured that the transition would be seamless for customers, as both platforms will run concurrently [70]

Part I [Business](index=4&type=section&id=ITEM%201.%20BUSINESS) Crexendo, Inc. provides cloud communications (UCaaS) and web services, primarily through its recurring revenue Cloud Telecommunications segment - The company operates through two segments: **Cloud Telecommunications**, the primary segment offering UCaaS, call center, and collaboration services, and Web Services[14](index=14&type=chunk) - Cloud telecommunications contracts typically span **36 to 60 months**, generating recurring service revenue, alongside product revenue from equipment sales and leases[16](index=16&type=chunk) Segment Revenue and Income | | Year Ended December 31, 2020 (in thousands) | Year Ended December 31, 2019 (in thousands) | | :--- | :--- | :--- | | **Revenue** | | | | Cloud telecommunications | $15,845 | $13,780 | | Web services | $542 | $656 | | **Consolidated revenue** | **$16,387** | **$14,436** | | **Income before income tax** | | | | Cloud telecommunications | $1,788 | $862 | | Web services | $111 | $283 | | **Consolidated income before tax** | **$1,899** | **$1,145** | - Research and development investment increased to **$1.189 million in 2020** from **$853,000 in 2019**, primarily for cloud telecommunications product enhancements[38](index=38&type=chunk) - As of December 31, 2020, the company employed **58 full-time individuals**[47](index=47&type=chunk) [Risk Factors](index=12&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces significant risks from the COVID-19 pandemic, intense competition, technological disruptions, regulatory changes, and substantial CEO ownership - The **COVID-19 pandemic** poses significant risks, including decreased demand, supply chain disruptions, and negative impacts on productivity and financial results[56](index=56&type=chunk)[57](index=57&type=chunk) - The company faces intense competition from traditional telecom providers, hardware providers, and other cloud companies[39](index=39&type=chunk)[76](index=76&type=chunk) - The utilization of approximately **$20.5 million in net operating loss (NOL) carry-forwards** may be limited by an ownership change under Section 382 of the Internal Revenue Code[74](index=74&type=chunk) - The business is subject to extensive government regulation by the FCC and state public utility commissions, including obligations for E-911 services and Universal Service Fund contributions[52](index=52&type=chunk)[127](index=127&type=chunk) - The CEO, Steven G. Mihaylo, holds approximately **56% of outstanding common stock**, granting substantial control over corporate matters[181](index=181&type=chunk) [Properties](index=29&type=section&id=ITEM%202.%20PROPERTIES) The company's principal property is its 22,000 square foot corporate office in Tempe, Arizona, acquired from its CEO in January 2020 - The company's principal property is its corporate office, an approximately **22,000 square foot building** in Tempe, Arizona[185](index=185&type=chunk) - In January 2020, the company purchased its corporate office building from a company owned by its CEO[185](index=185&type=chunk) [Legal Proceedings](index=29&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company periodically receives government inquiries, primarily related to discontinued seminar operations, generally resolved without formal charges - The company receives inquiries from government officials regarding discontinued seminar operations' sales and marketing practices, generally resolved without formal complaints[186](index=186&type=chunk) [Mine Safety Disclosures](index=29&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section is not applicable to the company's operations - Disclosure required by this item is not applicable[187](index=187&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=30&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock, ticker CXDO, uplisted to Nasdaq on July 8, 2020, with no dividends declared in 2019 or 2020 - On July 8, 2020, the company's stock uplisted from the OTCQX Marketplace to **The Nasdaq Stock Market** under ticker symbol **CXDO**[189](index=189&type=chunk) Quarterly Stock Price Range | Period | 2020 High | 2020 Low | 2019 High | 2019 Low | | :--- | :--- | :--- | :--- | :--- | | Q1 | $4.75 | $3.00 | $3.00 | $1.76 | | Q2 | $6.30 | $4.00 | $4.00 | $2.60 | | Q3 | $12.78 | $5.25 | $3.54 | $3.00 | | Q4 | $8.00 | $5.27 | $4.70 | $3.05 | - No dividends were declared for the years ended December 31, 2020 and 2019[192](index=192&type=chunk) [Selected Financial Data](index=30&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section is not required for the company as a smaller reporting entity - This section is not required[193](index=193&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Total revenue grew 13.5% to $16.4 million in 2020, driving a 66% increase in pre-tax income and a substantial improvement in liquidity to $17.6 million cash [Results of Consolidated Operations](index=31&type=section&id=Results%20of%20Consolidated%20Operations) Total revenue increased 13.5% to $16.39 million in 2020, leading to a 66% rise in pre-tax income and a net income of $7.94 million due to a significant tax benefit Consolidated Operations Summary | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Total revenue | $16,387 | $14,436 | | Income before income taxes | $1,899 | $1,145 | | Income tax benefit/(provision) | $6,041 | $(6) | | Net income | $7,940 | $1,139 | | Diluted earnings per common share | $0.46 | $0.07 | - The increase in income before tax was primarily due to a **$1.95 million increase in revenue** and a **$1.01 million gain from PPP debt extinguishment**, partially offset by a **$2.10 million increase in operating expenses**[208](index=208&type=chunk) - The company recorded a significant income tax benefit of **$6.04 million in 2020**, primarily due to a **$7.49 million valuation allowance release**[209](index=209&type=chunk) [Use of Non-GAAP Financial Measures](index=33&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) The company utilizes Non-GAAP net income and Adjusted EBITDA as supplemental performance measures, showing **Non-GAAP net income of $8.66 million** and **Adjusted EBITDA of $1.87 million** in 2020 Reconciliation of U.S. GAAP Net Income to Non-GAAP Net Income | | Year Ended Dec 31, 2020 (in thousands) | Year Ended Dec 31, 2019 (in thousands) | | :--- | :--- | :--- | | U.S. GAAP net income | $7,940 | $1,139 | | Share-based compensation | $623 | $399 | | Amortization of intangible assets | $92 | $53 | | **Non-GAAP net income** | **$8,655** | **$1,591** | Reconciliation of U.S. GAAP Net Income to Adjusted EBITDA | | Year Ended Dec 31, 2020 (in thousands) | Year Ended Dec 31, 2019 (in thousands) | | :--- | :--- | :--- | | U.S. GAAP net income | $7,940 | $1,139 | | Adjustments (Depreciation, Interest, Taxes) | $(5,807) | $12 | | **EBITDA** | **$1,249** | **$1,229** | | Share-based compensation | $623 | $399 | | **Adjusted EBITDA** | **$1,872** | **$1,628** | [Segment Operating Results](index=36&type=section&id=Segment%20Operating%20Results) Cloud Telecommunications revenue grew 15% to $15.8 million, with backlog increasing 9% to $28.6 million, while Web Services revenue declined 17% to $542,000 - Cloud Telecommunications service revenue increased **16% to $14.0 million in 2020**, driven by growth in contracted service revenue and usage charges[236](index=236&type=chunk) - The Cloud Telecommunications services backlog increased by **9% to $28.6 million** at the end of 2020 from **$26.1 million** in 2019[238](index=238&type=chunk) - Web Services revenue decreased **17% to $542,000 in 2020**, primarily due to a **$109,000 decrease in hosting revenue** as the company is not actively marketing these services[248](index=248&type=chunk)[95](index=95&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) The company's financial position strengthened in 2020, with cash increasing to **$17.6 million** and working capital to **$17.2 million**, primarily due to a **$10.8 million public stock offering** Cash and Stockholders' Equity | Metric | Dec 31, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $17,579 | $4,180 | | Working Capital | $17,218 | $2,845 | | Total stockholders' equity | $25,764 | $4,387 | - Cash provided by financing activities totaled **$13.7 million**, primarily from a **$10.8 million public offering**, **$2.0 million from option exercises**, and a **$1.0 million PPP loan** (later forgiven)[257](index=257&type=chunk) - In January 2020, the company purchased its corporate office building from a CEO-owned company for **$2.5 million**, partially financed by a **$2.0 million note payable**[271](index=271&type=chunk)[263](index=263&type=chunk) [Quantitative and Qualitative Disclosures About Market Risks](index=45&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISKS) This section is not required for the company as a smaller reporting entity - This section is not required[273](index=273&type=chunk) [Financial Statements and Supplementary Data](index=46&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) Audited financial statements for 2020 and 2019 are presented, highlighting critical audit matters, key financial results, and subsequent acquisitions of Centric Telecom and NetSapiens Key Financial Statement Data | Metric | Dec 31, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--- | :--- | :--- | | **Balance Sheet** | | | | Total Assets | $30,705 | $7,783 | | Total Liabilities | $4,941 | $3,396 | | Total Stockholders' Equity | $25,764 | $4,387 | | **Statement of Operations** | | | | Total Revenue | $16,387 | $14,436 | | Income from Operations | $991 | $1,135 | | Net Income | $7,940 | $1,139 | - The independent auditor identified **Revenue Recognition** and **Valuation Allowances on Deferred Tax Assets** as critical audit matters, due to significant judgment in performance obligations and future income estimation[282](index=282&type=chunk)[283](index=283&type=chunk)[288](index=288&type=chunk) - The company released **$7.487 million of its valuation allowance on deferred tax assets in 2020**, based on achieving three years of cumulative pretax income and projections of future profitability[407](index=407&type=chunk)[408](index=408&type=chunk) - Subsequent Event: On January 14, 2021, the company acquired Centric Telecom, Inc. for approximately **$2.2 million in cash** and **46,662 shares of common stock**, plus potential contingent consideration[439](index=439&type=chunk) - Subsequent Event: On March 5, 2021, the company entered into a merger agreement with NetSapiens, Inc. for approximately **$50 million** total consideration, comprising **$10 million in cash** and **$40 million in stock and stock options**[441](index=441&type=chunk) [Controls and Procedures](index=79&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes reported - Management concluded that as of December 31, 2020, the company's disclosure controls and procedures were effective at a reasonable assurance level[444](index=444&type=chunk) - Based on the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2020[447](index=447&type=chunk) - No material changes in internal control over financial reporting occurred during the year ended December 31, 2020[445](index=445&type=chunk) [Other Information](index=80&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) No information is reported under this item - None[449](index=449&type=chunk) Part III Part III incorporates information from the 2021 Proxy Statement regarding directors, executive officers, compensation, security ownership, related transactions, and accountant fees [Directors, Executive Officers and Corporate Governance](index=81&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information for this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[451](index=451&type=chunk) [Executive Compensation](index=81&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information regarding executive compensation is incorporated by reference from the 2021 Proxy Statement - Information for this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[453](index=453&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters](index=81&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDERS%20MATTERS) Information regarding security ownership of beneficial owners and management is incorporated by reference from the 2021 Proxy Statement - Information for this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[454](index=454&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=81&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Information regarding related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement - Information for this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[455](index=455&type=chunk) [Principal Accountant Fees and Services](index=81&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Information regarding principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement - Information for this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[456](index=456&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=82&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists documents filed as part of the annual report, including financial statements, schedules, and an index of exhibits like the NetSapiens merger agreement - This section includes the financial statements from Item 8, the financial statement schedule, and an index of all exhibits filed with the report[459](index=459&type=chunk) - A key exhibit filed is the Agreement and Plan of Merger and Reorganization with NetSapiens, Inc., dated March 5, 2021[461](index=461&type=chunk)

Financial Data and Key Metrics Changes - Consolidated revenue for Q3 2020 increased 15% to $4.1 million compared to $3.6 million in Q3 2019 [13] - Service revenue for Q3 2020 increased 12% to $3.7 million compared to $3.3 million in Q3 2019 [13] - Net income for Q3 2020 was $131,000 or $0.01 per share, down from $334,000 or $0.02 per share in Q3 2019 [15] - Gross margin for Q3 2020 decreased to 70% from 72% in Q3 2019 [15] - Consolidated operating expenses for Q3 2020 increased 22% to $4 million compared to $3.3 million in Q3 2019 [15] Business Line Data and Key Metrics Changes - Cloud Telecommunications segment service revenue for Q3 2020 increased 14% to $3.5 million compared to $3.1 million in Q3 2019 [14] - Web Service segment service revenue for Q3 2020 decreased 19% to $130,000 compared to $160,000 in Q3 2019 [14] - Product revenue for Q3 2020 increased 43% to $489,000 compared to $343,000 in Q3 2019 [14] Market Data and Key Metrics Changes - For the nine-month period, consolidated revenue increased 13% to $12.1 million compared to $10.7 million for the same period in 2019 [16] - Service revenue for the nine-month period increased 14% to $10.7 million compared to $9.4 million in the same period of 2019 [16] - Telecom backlog grew by $1 million to $28.3 million, indicating strong demand for cloud migration [24][45] Company Strategy and Development Direction - The company is focused on growth, both organic and through acquisitions, with a strong emphasis on increasing sales and marketing investments [12][26] - The successful uplisting to NASDAQ and capital raise have positioned the company to pursue accretive acquisitions [11][26] - The company aims to maintain profitability while expanding its footprint in the UCaaS industry [27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing the ongoing digital transformation accelerated by the COVID-19 pandemic [22][26] - The company has seen a decrease in customer churn, returning to pre-COVID levels, which is a positive sign for future growth [34] - Management believes that businesses are now better prepared for potential future COVID waves, which may sustain sales momentum [41] Other Important Information - The company raised $11.7 million in cash through financing activities, enhancing its cash position to $15.5 million [19] - The company received the 2020 Internet Telephony Excellence Award, recognizing its remote work capabilities [25] Q&A Session Summary Question: How many companies did you end the quarter with and hiring plans for the next 12 months? - Management indicated that hiring is critical, with plans to add channel managers and salespeople to support growth [29] Question: Actions on the bar business and timeline for revenue growth? - Management noted that 70% of businesses have yet to migrate to the cloud, indicating significant growth potential [31] Question: Current churn levels and customer performance? - Churn rates have returned to pre-COVID levels, which is promising for future stability [34] Question: Current M&A environment and potential opportunities? - Management reported increased M&A discussions and opportunities, with hopes for announcements within six months [36] Question: Trends in gross margins and revenue linearity through the quarter? - Management noted that promotional offers impacted product gross margins but expect a return to normal levels soon [39] Question: Marketing initiatives to offset pandemic headwinds? - The company launched a new website and initiated paid search and social media campaigns to drive lead generation [42]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ——————— ——————— ——————— Emerging growth company ☐ FORM 10-Q ——————— (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ________ to ________. Commission file number 001-32277 Crexendo, Inc. (Exact name of registrant ...

Crexendo Inc (NASDAQ:CXDO) Q2 2020 Results Conference Call August 10, 2020 4:30 PM ET Company Participants Steve Mihaylo - Chairman and Chief Executive Officer Doug Gaylor - President and Chief Operating Officer Ron Vincent - Chief Financial Officer Jeffrey Korn - Chief Legal Officer Conference Call Participants Andrew King - Dougherty & Company Joshua Nichols - B. Riley FBR, inc Kevin Dede - H.C. Wainwright & Co Arham Khan - Eden Capital Investment Group Edward Gilmore - Little Grapevine Michael Kaufman - ...

Revenue Performance - Cloud Telecommunications service revenue increased 16% or $487,000 to $3,469,000 for the three months ended June 30, 2020 compared to $2,982,000 for the same period in 2019[137]. - Total revenue for the three months ended June 30, 2020 was $4,054,000, an increase of 12% or $440,000 from $3,614,000 for the same period in 2019[147]. - Net income for the three months ended June 30, 2020 was $508,000, up 50% from $338,000 for the same period in 2019[147]. - For the six months ended June 30, 2020, service revenue increased 15% or $938,000 to $7,093,000 compared to $6,155,000 for the same period in 2019[152]. - Non-GAAP net income for Q2 2020 was $660,000, a 47% increase from $447,000 in Q2 2019[163]. - Total revenue for the Cloud Telecommunications segment was $3,918,000 in Q2 2020, up from $3,449,000 in Q2 2019, representing a 14% increase[168]. - Service revenue for Cloud Telecommunications increased 17% or $989,000, to $6,801,000 for the six months ended June 30, 2020 compared to $5,812,000 for the same period in 2019[179]. Product Revenue - Cloud Telecommunications product revenue decreased 4% or $18,000 to $449,000 for the three months ended June 30, 2020 compared to $467,000 for the same period in 2019[137]. - Product revenue for the six months ended June 30, 2020 decreased 13% or $123,000 to $828,000 compared to $951,000 for the same period in 2019[154]. - Product revenue decreased by 4% or $18,000 to $449,000 for Q2 2020, influenced by the timing of installations[170]. Backlog and Future Prospects - As of June 30, 2020, the backlog was $27,349,000, an increase from $24,772,000 as of June 30, 2019[137]. - Backlog increased by 10% or $2,577,000 to $27,349,000 as of June 30, 2020, compared to $24,772,000 as of June 30, 2019[172]. - Backlog increased 10% or $2,577,000 to $27,349,000 as of June 30, 2020 compared to $24,772,000 as of June 30, 2019[181]. Expenses - Research and development expenses rose by 26% or $49,000 to $236,000 for Q2 2020, driven by increased costs for customer interface maintenance and mobile application development[174]. - Selling and marketing expenses increased by 10% or $99,000 to $1,062,000 for Q2 2020, primarily due to higher salaries and commissions[175]. - General and administrative expenses increased 11% or $209,000, to $2,105,000 for the six months ended June 30, 2020 compared to $1,896,000 for the same period in 2019[187]. - Research and development expenses increased 27% or $105,000, to $498,000 for the six months ended June 30, 2020 compared to $393,000 for the same period in 2019[185]. - Selling and marketing expenses increased 13% or $238,000, to $2,100,000 for the six months ended June 30, 2020 compared to $1,862,000 for the same period in 2019[186]. Cost of Service Revenue - Cost of service revenue increased by 3% or $22,000 to $883,000 for Q2 2020, attributed to higher salaries and bandwidth costs[172]. - Cost of service revenue increased 7% or $124,000, to $1,828,000 for the six months ended June 30, 2020 compared to $1,704,000 for the same period in 2019[183]. - Cost of service revenue for Web Services increased 92% or $12,000, to $25,000 for the three months ended June 30, 2020 compared to $13,000 for the same period in 2019[192]. - Cost of service revenue increased by 6% or $3,000, to $50,000 for the six months ended June 30, 2020, primarily due to increased customer service salaries and benefits[199]. Financial Position - Working capital increased by 29% or $813,000, to $3,658,000 as of June 30, 2020, compared to $2,845,000 at December 31, 2019[205]. - Cash, cash equivalents, and restricted cash increased by 19% or $809,000, to $5,089,000 at June 30, 2020, compared to $4,280,000 at December 31, 2019[206]. - Total stockholders' equity increased by 32% or $1,387,000, to $5,774,000 as of June 30, 2020, compared to $4,387,000 at December 31, 2019[218]. - Notes payable increased to $2,979,000 at June 30, 2020, compared to $0 at December 31, 2019, due to financing for the corporate office building purchase and a Paycheck Protection Program loan[213]. - Inventories increased by 17% or $66,000, to $448,000 at June 30, 2020, compared to $382,000 at December 31, 2019[207]. - Prepaid expenses increased by 128% or $181,000, to $322,000 at June 30, 2020, compared to $141,000 at December 31, 2019[208]. Other Income and Expenses - Income before income taxes increased 49% or $169,000 to $511,000 for the three months ended June 30, 2020 compared to $342,000 for the same period in 2019[150]. - Net other expense increased 575% or $23,000, to $27,000 for the six months ended June 30, 2020 compared to $4,000 for the same period in 2019[189]. - Net other income decreased by 543% or $38,000, to $(31,000) for the six months ended June 30, 2020, due to increased foreign exchange losses[202]. Web Services Performance - Web Services revenue decreased 18% or $29,000 to $136,000 for the three months ended June 30, 2020 compared to $165,000 for the same period in 2019[138]. - Service revenue decreased by 15% or $51,000, to $292,000 for the six months ended June 30, 2020, compared to $343,000 for the same period in 2019[198].

Financial Data and Key Metrics Changes - Consolidated revenue for Q1 2020 increased by 11% to $3.9 million compared to $3.5 million in Q1 2019 [11] - Service revenue for Q1 2020 increased by 16% to $3.5 million compared to $3 million in Q1 2019 [11] - Net income for Q1 2020 was $140,000 or $0.01 per share, down from $239,000 or $0.02 per share in Q1 2019 [11] - Non-GAAP net income for Q1 2020 was $275,000 or $0.02 per share, compared to $343,000 or $0.02 per share in the same period of the prior year [12] - EBITDA for Q1 2020 was $284,000, up from $263,000 in the same period of the prior year [12] Business Line Data and Key Metrics Changes - UCaaS service revenue increased by 18% to $3.3 million in Q1 2020 compared to $2.8 million in Q1 2019 [11] - Product revenue decreased by 22% to $379,000 in Q1 2020 compared to $484,000 in Q1 2019 [11] - Web Service Segment service revenue decreased by 12% or $22,000 in Q1 2020 [11] Market Data and Key Metrics Changes - The company reported a 172% increase in usage of collaboration tools in March 2020 [16] - Sales backlog increased to $26.6 million, a 10% increase year-over-year [20] Company Strategy and Development Direction - The company is focused on increasing investment in the business to support long-term growth [9] - Plans to list on NASDAQ as the company has met all organic requirements [10] - The company is looking for accretive acquisitions to accelerate growth while maintaining focus on sales and service [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing the essential nature of their services during the COVID-19 pandemic [5] - The pandemic is expected to accelerate the migration of businesses to cloud communications [16] - Management believes the company is well-positioned to capitalize on post-COVID-19 opportunities [8] Other Important Information - The company took the FCC's Keep America Connected Pledge, agreeing not to disconnect customers for nonpayment during the crisis [7] - The company purchased its office building for $2.5 million, which is expected to save over $100,000 annually on facility costs [22] Q&A Session Summary Question: Changes in customer phone usage during lockdown - Management noted an increase in talk time due to remote work, with significant spikes in calling traffic [26] Question: Uptick in small business churn due to economic shutdown - Management indicated it is too early to assess the full impact but noted low attrition rates of less than 1% per quarter [27][28] Question: Impact of COVID-19 on product segments - Management attributed the decline in product revenue primarily to COVID-19, with previous high product revenue in Q1 2019 due to a rush install [30] Question: Changes in sales cycle since the pandemic - Management observed a slowdown in decision-making during the initial lockdown but noted that this is starting to recover [32] Question: Feedback from new partners - Management reported positive feedback from partners, especially those in non-telecom sectors who are now offering Crexendo products [34] Question: Competitive environment changes - Management acknowledged a competitive market but emphasized their strong positioning and focus on smaller, accretive acquisitions [41][42] Question: Metrics for purchasing the office building - Management evaluated the decision based on current lease rates and expected savings on operating expenses [44][45]

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Q1 2020 financial statements show revenue growth to $3.87 million, a net income decrease to $140,000, total assets of $9.8 million, and negative operating cash flow [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2020, total assets increased to $9.81 million, primarily due to a new office building, with total liabilities rising to $5.10 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | $5,251 | $5,731 | | **Total Assets** | **$9,812** | **$7,783** | | **Total Current Liabilities** | $2,671 | $2,886 | | **Total Liabilities** | **$5,096** | **$3,396** | | **Total Stockholders' Equity** | **$4,716** | **$4,387** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q1 2020, total revenue increased 10.7% to $3.87 million, but net income declined 41.4% to $140,000 due to a 13.4% rise in operating expenses Statement of Operations Summary (in thousands) | Metric | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | | :--- | :--- | :--- | | **Total Revenue** | **$3,867** | **$3,492** | | Service Revenue | $3,488 | $3,008 | | Product Revenue | $379 | $484 | | **Total Operating Expenses** | **$3,686** | **$3,251** | | **Income from Operations** | **$181** | **$241** | | **Net Income** | **$140** | **$239** | | **Diluted EPS** | **$0.01** | **$0.02** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) In Q1 2020, net cash decreased by $745,000, primarily due to $288,000 used in operations and $528,000 for investing activities, including property purchases Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | | :--- | :--- | :--- | | Net cash provided by/(used for) operating activities | $(288) | $294 | | Net cash used for investing activities | $(528) | $0 | | Net cash provided by/(used for) financing activities | $71 | $(49) | | **Net Increase/(Decrease) in Cash** | **$(745)** | **$245** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, segment reporting, and key events including the DoubleHorn acquisition, corporate office purchase, and a $1 million PPP loan - The company operates through two segments: Cloud Telecommunications and Web Services, with **over 90%** of total revenue generated from customers within North America[25](index=25&type=chunk)[62](index=62&type=chunk) - On December 31, 2019, the company acquired certain assets from DoubleHorn, LLC for approximately **$351,000**, accounted for as an asset acquisition[90](index=90&type=chunk) - In January 2020, the company entered into a **$2.0 million** term loan to finance the purchase of its corporate office building[97](index=97&type=chunk) - Subsequent to the quarter end, on April 21, 2020, the company received a **$1 million** loan pursuant to the Paycheck Protection Program (PPP) under the CARES Act[119](index=119&type=chunk) Revenue Disaggregation by Segment (Q1 2020 vs Q1 2019, in thousands) | Segment | Q1 2020 Revenue | Q1 2019 Revenue | YoY Change | | :--- | :--- | :--- | :--- | | Cloud Telecommunications | $3,711 | $3,314 | +12.0% | | Web Services | $156 | $178 | -12.4% | | **Total** | **$3,867** | **$3,492** | **+10.7%** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses 10.7% revenue growth, net income decline due to higher expenses, 10% growth in Cloud Telecommunications backlog to $26.6 million, and reduced liquidity [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Q1 2020 consolidated revenue increased due to services, but higher operating expenses led to a 41% decrease in income before tax to $143,000 - Service revenue increased **16% YoY**, driven by an **18%** increase in Cloud Telecommunications service revenue[135](index=135&type=chunk) - Product revenue decreased **22% YoY**, with management noting that revenue fluctuates based on the timing of customer installations[136](index=136&type=chunk) - The decrease in income before tax was primarily due to increased operating expenses, including a **$51,000** write-off of leasehold improvements and **$85,000** in additional salary and benefits related to employee profit sharing plans[137](index=137&type=chunk) [Use of Non-GAAP Financial Measures](index=32&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) The company uses Non-GAAP net income and Adjusted EBITDA, with Q1 2020 Non-GAAP net income at $275,000 and Adjusted EBITDA increasing to $389,000 Reconciliation of U.S. GAAP Net Income to Non-GAAP Measures (in thousands) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | U.S. GAAP net income | $140 | $239 | | Share-based compensation | $105 | $91 | | Amortization of intangible assets | $30 | $13 | | **Non-GAAP net income** | **$275** | **$343** | | **EBITDA** | **$284** | **$263** | | **Adjusted EBITDA** | **$389** | **$354** | [Segment Operating Results](index=34&type=section&id=Segment%20Operating%20Results) Cloud Telecommunications revenue grew 12% to $3.7 million with backlog increasing 10% to $26.6 million, while Web Services revenue declined 12% to $156,000 - Cloud Telecommunications service revenue increased **18% YoY**, driven by growth in contracted services and usage charges[151](index=151&type=chunk) - The Cloud Telecommunications backlog increased **10%** to **$26.6 million** as of March 31, 2020, compared to **$24.2 million** a year prior[154](index=154&type=chunk) - Web Services revenue decreased **12% YoY** primarily due to a decline in hosting revenue[164](index=164&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and equivalents decreased by $745,000 to $3.5 million due to cash used in operations and the corporate office building purchase - Cash and cash equivalents stood at **$3.5 million** as of March 31, 2020, down from **$4.3 million** at year-end 2019[169](index=169&type=chunk) - The company purchased its corporate office building from a related party (a company owned by the CEO) for **$2.5 million** in January 2020[187](index=187&type=chunk) - A new **$2.0 million** note payable was taken on to finance the building purchase[179](index=179&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section is not required for smaller reporting companies - Disclosure is not required for this item[189](index=189&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2020[189](index=189&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter[190](index=190&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any material pending or threatened legal proceedings - There are no material legal proceedings pending or threatened against the company[192](index=192&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) The COVID-19 outbreak is identified as a new material risk factor, potentially impacting customer demand, collections, and the supply chain, with uncertain future effects - The novel coronavirus (COVID-19) outbreak is identified as a **significant risk factor** that could adversely affect business operations, customer demand, and supply chain[193](index=193&type=chunk) - Potential impacts include reduced customer spending, contract terminations, supply chain disruptions from China, and challenges for the sales team due to travel restrictions[194](index=194&type=chunk)[196](index=196&type=chunk) - As of the filing date, the outbreak had not yet had a material adverse impact on operations, but the future impact remains **highly uncertain**[195](index=195&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None reported[198](index=198&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data - Lists required certifications from the CEO and CFO (pursuant to Rules 13a-14(a) and 18 U.S.C. Section 1350) and XBRL interactive data files as exhibits[199](index=199&type=chunk)

Crexendo, Inc. (NASDAQ:CXDO) Q4 2019 Earnings Conference Call March 3, 2020 5:30 PM ET Company Participants Steve Mihaylo - Chairman and CEO Doug Gaylor - President and COO Ron Vincent - CFO Jeff Korn - General Counsel Conference Call Participants Andrew King - Dougherty & Company Allen Klee - National Securities Kevin Dede - H.C. Wainright Maj Soueidan - GeoInvesting Edward Gilmore - Little Grapevine Michael Kaufman - MK Investments Operator Good day, ladies and gentlemen, and welcome to your Crescendo Fou ...