The declaration of dividends is solely at the discretion of our Board of Directors, which may change or terminate our dividend practice at any time for any reason without prior notice. On March 14, 2023, our Board of Directors declared a quarterly cash dividend of $0.005 per share. None Not required. Overview We generate product revenue, equipment financing revenue, and device as a service revenue from the sale and lease of our cloud telecommunications equipment. Revenues from the sale of equipment, includi ...

Crexendo, Inc. (NASDAQ:CXDO) Q3 2022 Earnings Conference Call November 10, 2022 4:30 PM ET Company Participants Steve Mihaylo – Chairman and Chief Executive Officer Jeff Korn – General Counsel Ron Vincent – Chief Financial Officer Doug Gaylor – President and Chief Operating Officer Anand Buch – Chief Strategy Officer Conference Call Participants Chris Sakai – Singular Research Michael Kaufman – MK Investments Operator Good day, everyone, and welcome to the Crexendo Third Quarter 2022 Earnings Call. [Operato ...

[PART I – FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents Crexendo, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements.](index=2&type=section&id=Item%201.%20Financial%20Statements.) This section presents Crexendo, Inc.'s unaudited condensed consolidated financial statements and comprehensive notes [Condensed Consolidated Balance Sheets](index=2&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section details the company's financial position, including assets, liabilities, and stockholders' equity Assets (in thousands) | Assets (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Cash and cash equivalents | $4,821 | $7,468 | | Trade receivables, net | $4,028 | $2,177 | | Total current assets | $11,595 | $11,560 | | Total Assets | $76,343 | $77,152 | Liabilities and Stockholders' Equity (in thousands) | Liabilities and Stockholders' Equity (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :---------------------------------- | :----------- | :----------- |\ | Total current liabilities | $7,923 | $10,572 | | Total liabilities | $10,109 | $11,219 | | Total stockholders' equity | $66,234 | $65,933 | | Total Liabilities and Stockholders' Equity | $76,343 | $77,152 | [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents the company's revenues, expenses, and net loss for the reported periods Three Months Ended September 30 (in thousands, except per share) | (in thousands, except per share) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :------------------------------- | :------------------------------ | :------------------------------ | | Service revenue | $4,473 | $4,325 | | Software solutions revenue | $3,875 | $3,784 | | Product revenue | $760 | $701 | | Total revenue | $9,108 | $8,810 | | Income/(loss) from operations | $(544) | $53 | | Net loss | $(696) | $(125) | | Basic EPS | $(0.03) | $(0.01) | | Diluted EPS | $(0.03) | $(0.01) | Nine Months Ended September 30 (in thousands, except per share) | (in thousands, except per share) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------- | :----------------------------- | :----------------------------- | | Service revenue | $13,427 | $12,791 | | Software solutions revenue | $10,741 | $4,796 | | Product revenue | $1,944 | $1,509 | | Total revenue | $26,112 | $19,096 | | Income/(loss) from operations | $(2,789) | $(2,013) | | Net loss | $(2,812) | $(1,843) | | Basic EPS | $(0.13) | $(0.09) | | Diluted EPS | $(0.13) | $(0.09) | [Condensed Consolidated Statements of Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section details the company's net loss and other comprehensive income, including foreign currency translation gains Three Months Ended September 30 (in thousands) | (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :------------- | :------------------------------ | :------------------------------ | | Net loss | $(696) | $(125) | | Foreign currency translation gain | $164 | $9 | | Comprehensive loss | $(532) | $(116) | Nine Months Ended September 30 (in thousands) | (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------- | :----------------------------- | :----------------------------- | | Net loss | $(2,812) | $(1,843) | | Foreign currency translation gain | $246 | $10 | | Comprehensive loss | $(2,566) | $(1,833) | [Condensed Consolidated Statements of Stockholders' Equity](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section outlines changes in equity accounts, including common shares, paid-in capital, and accumulated deficit Stockholders' Equity (in thousands, except share data) - January 1 to September 30, 2022 | (in thousands, except share data) | Balance, Jan 1, 2022 | Balance, Sep 30, 2022 | | :-------------------------------- | :------------------- | :-------------------- | | Common Shares | 22,054,239 | 22,686,911 | | Common Stock Amount | $22 | $23 | | Additional Paid-in Capital | $118,432 | $121,298 | | Accumulated Other Comprehensive Income | $12 | $258 | | Accumulated Deficit | $(52,533) | $(55,345) | | Total Stockholders' Equity | $65,933 | $66,234 | Stockholders' Equity (in thousands, except share data) - January 1 to September 30, 2021 | (in thousands, except share data) | Balance, Jan 1, 2021 | Balance, Sep 30, 2021 | | :-------------------------------- | :------------------- | :-------------------- | | Common Shares | 17,983,177 | 21,667,628 | | Common Stock Amount | $18 | $22 | | Additional Paid-in Capital | $75,834 | $117,593 | | Accumulated Other Comprehensive Income | $0 | $10 | | Accumulated Deficit | $(50,088) | $(51,931) | | Total Stockholders' Equity | $25,764 | $65,694 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes cash flows from operating, investing, and financing activities for the nine-month periods Nine Months Ended September 30 (in thousands) | (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------- | :----------------------------- | :----------------------------- | | Net cash used for operating activities | $(2,665) | $(473) | | Net cash used for investing activities | $(192) | $(10,596) | | Net cash provided by/(used for) financing activities | $(36) | $1,081 | | Effect of exchange rate changes on cash | $246 | $10 | | NET DECREASE IN CASH AND CASH EQUIVALENTS | $(2,647) | $(9,978) | | CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | $4,821 | $7,701 | [Notes to Condensed Consolidated Financial Statements (unaudited)](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Significant Accounting Policies](index=7&type=section&id=1.%20Significant%20Accounting%20Policies) This section outlines the company's significant accounting policies, from revenue recognition to recent pronouncements - Crexendo, Inc. is a premier provider of Unified Communications as a Service (UCaaS), Call Center as a Service (CCaaS), communication platform software solutions, and collaboration services, supporting over **2.5 million end users globally**[30](index=30&type=chunk) - The Company has two operating segments: cloud telecommunications services and software solutions. Approximately **99% of total revenue is generated from North America**[30](index=30&type=chunk)[72](index=72&type=chunk) - Foreign currency translation gains were **$164,000** for the three months ended September 30, 2022 (vs. $9,000 in 2021) and **$246,000** for the nine months ended September 30, 2022 (vs. $10,000 in 2021)[34](index=34&type=chunk) - Capitalized contract costs were **$1,869,000** as of September 30, 2022, an increase from $1,345,000 as of December 31, 2021. Amortization of these costs was **$391,000** for the three months ended September 30, 2022 (vs. $201,000 in 2021) and **$939,000** for the nine months ended September 30, 2022 (vs. $444,000 in 2021)[39](index=39&type=chunk) - The Company adopted ASU 2021-08 (Business Combinations) in October 2021, ASU 2019-12 (Income Taxes) effective January 1, 2021, and ASU 2020-06 (Convertible Instruments) effective January 1, 2022. None had a material impact on consolidated financial statements[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk) - The Company does not plan to early adopt ASU 2016-13 (Expected Credit Losses), effective for fiscal years beginning after December 15, 2022, and is evaluating its potential impact[77](index=77&type=chunk) [2. Revenue](index=11&type=section&id=2.%20Revenue) This note details revenue recognition policies across segments, disaggregated by product line and timing - Cloud Telecommunications Services revenue is derived from desktop devices, equipment financing, telecommunications services, and various fees. Contracts typically range from **36 to 60 months**[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk) - Software Solutions revenue comes from software licenses (perpetual, term-based, SaaS like SNAPaccel), subscription maintenance and support (including SNAPsolution®), and professional services[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) Revenue Disaggregation (in thousands) - Three Months Ended September 30 | Revenue Disaggregation (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | | **Cloud Telecommunications Segment** | | | | Desktop devices | $760 | $701 | | Equipment financing revenue | $87 | $63 | | Telecommunications services | $3,831 | $3,718 | | Fees, commissions, and other, recognized over time | $423 | $419 | | One time fees, commissions and other | $132 | $125 | | **Software Solutions Segment** | | | | Software licenses | $985 | $1,473 | | Software license and maintenance and support subscriptions | $2,759 | $2,213 | | Professional services and other | $131 | $98 | | **Total Revenue** | **$9,108** | **$8,810** | Revenue Disaggregation (in thousands) - Nine Months Ended September 30 | Revenue Disaggregation (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | | **Cloud Telecommunications Segment** | | | | Desktop devices | $1,944 | $1,509 | | Equipment financing revenue | $238 | $198 | | Telecommunications services | $11,392 | $10,995 | | Fees, commissions, and other, recognized over time | $1,269 | $1,252 | | One time fees, commissions and other | $528 | $346 | | **Software Solutions Segment** | | | | Software licenses | $2,394 | $2,210 | | Software license and maintenance and support subscriptions | $7,950 | $2,451 | | Professional services and other | $397 | $135 | | **Total Revenue** | **$26,112** | **$19,096** | Contract Balances (in thousands) | Contract Balances (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------- | :----------- | :----------- | | Receivables, net | $4,028 | $2,177 | | Contract assets | $265 | $261 | | Contract liabilities | $3,028 | $3,028 | Transaction Price Allocated to Remaining Performance Obligations (in thousands) | Transaction Price Allocated to Remaining Performance Obligations (in thousands) | 2022 (remaining) | 2023 | 2024 | 2025 | 2026 and thereafter | | :-------------------------------------------------------------- | :--------------- | :------ | :------ | :------ | :------------------ | | Desktop devices | $249 | | | | | | Telecommunications services | $4,138 | $11,444 | $7,549 | $4,588 | $2,095 | | Software Solutions | $3,796 | $6,105 | $2,315 | $1,107 | $21 | [3. Earnings Per Common Share](index=15&type=section&id=3.%20Earnings%20Per%20Common%20Share) This note details basic and diluted net income/(loss) per common share, noting anti-dilutive common share equivalents Earnings Per Common Share (in thousands, except per share) - Three Months Ended September 30 | (in thousands, except per share) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(696) | $(125) | | Basic EPS | $(0.03) | $(0.01) | | Diluted EPS | $(0.03) | $(0.01) | | Weighted-average basic shares outstanding | 22,620,703 | 21,596,415 | Earnings Per Common Share (in thousands, except per share) - Nine Months Ended September 30 | (in thousands, except per share) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(2,812) | $(1,843) | | Basic EPS | $(0.13) | $(0.09) | | Diluted EPS | $(0.13) | $(0.09) | | Weighted-average basic shares outstanding | 22,439,575 | 19,757,658 | - Potentially dilutive common stock, including stock options, were excluded from diluted EPS computation for both periods as they were **anti-dilutive due to net losses**[101](index=101&type=chunk)[102](index=102&type=chunk) [4. Acquisitions](index=16&type=section&id=4.%20Acquisitions) This note details the NetSapiens and Centric Telecom acquisitions, including purchase price and goodwill - On June 1, 2021, Crexendo acquired NetSapiens, Inc. for approximately **$49.1 million**, consisting of **$10 million in cash**, **$16.9 million in common stock** (3,097,309 shares), and **$22.1 million in stock options** (4,482,328 options)[103](index=103&type=chunk)[104](index=104&type=chunk) - The NetSapiens acquisition resulted in goodwill of **$34,981,000** as of December 31, 2021, primarily attributable to customer relationships, developed technology, trademark, and expected synergies[104](index=104&type=chunk)[106](index=106&type=chunk) - On January 14, 2021, Crexendo acquired Centric Telecom, Inc. for **$3,255,000**, comprising **$2,163,000 cash**, **46,662 shares of common stock** ($346,000), and **$746,000 in estimated contingent consideration**[119](index=119&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) - The Centric Telecom acquisition resulted in goodwill of **$1,719,000** as of December 31, 2021, primarily due to customer relationships and expected synergies[122](index=122&type=chunk)[123](index=123&type=chunk) - Acquisition-related expenses for NetSapiens were **$24,000** for the nine months ended September 30, 2022 (vs. $1,015,000 in 2021) and **$0** for Centric Telecom for the nine months ended September 30, 2022 (vs. $50,000 in 2021)[118](index=118&type=chunk)[130](index=130&type=chunk) [5. Trade Receivables, net](index=20&type=section&id=5.%20Trade%20Receivables%2C%20net) This note provides an analysis of the company's trade receivables, net of allowance for doubtful accounts Trade Receivables, net (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Gross trade receivables | $4,086 | $2,249 | | Less: allowance for doubtful accounts | $(58) | $(72) | | Trade receivables, net | $4,028 | $2,177 | [6. Prepaid Expenses](index=20&type=section&id=6.%20Prepaid%20Expenses) This note details the composition of prepaid expenses, including corporate insurance, software services, and deposits Prepaid Expenses (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Prepaid corporate insurance | $159 | $90 | | Prepaid software services and support | $291 | $160 | | Deposits | $437 | $0 | | Total prepaid expenses | $996 | $358 | [7. Property and Equipment](index=21&type=section&id=7.%20Property%20and%20Equipment) This note provides a breakdown of property and equipment, net of accumulated depreciation, and associated expenses Property and Equipment, net (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Building | $2,000 | $2,000 | | Land | $500 | $500 | | Computer and office equipment | $2,041 | $1,854 | | Less: accumulated depreciation | $(2,324) | $(2,111) | | Total property and equipment, net | $2,968 | $2,989 | - Depreciation and amortization expense for property and equipment was **$74,000** for the three months ended September 30, 2022 (vs. $63,000 in 2021) and **$213,000** for the nine months ended September 30, 2022 (vs. $158,000 in 2021)[135](index=135&type=chunk) [8. Intangible Assets and Goodwill](index=21&type=section&id=8.%20Intangible%20Assets%20and%20Goodwill) This note details acquired intangible assets subject to amortization, their useful lives, and changes in goodwill Acquired Intangible Assets (in thousands) | Acquired Intangible Assets (in thousands) | Gross Carrying Amount (Sep 30, 2022) | Accumulated Amortization (Sep 30, 2022) | Net Carrying Amount (Sep 30, 2022) | | :---------------------------------------- | :----------------------------------- | :-------------------------------------- | :--------------------------------- | | Customer relationships | $19,073 | $(2,515) | $16,558 | | Developed technologies | $4,900 | $(1,190) | $3,710 | | Trademark and trade names | $400 | $(156) | $244 | | Total acquired intangible assets | $24,373 | $(3,861) | $20,512 | - Weighted average remaining useful life for customer relationships was **14.4 years**, developed technologies **4.9 years**, and trademarks/trade names **2.9 years** as of September 30, 2022[136](index=136&type=chunk) Amortization Expense (in thousands) - Three Months Ended September 30 | Amortization Expense (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :---------------------------------- | :-------------------------- | :-------------------------- | | Customer relationships | $299 | $236 | | Developed technologies | $221 | $270 | | Trademark and trade name | $31 | $33 | Amortization Expense (in thousands) - Nine Months Ended September 30 | Amortization Expense (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------------- | :-------------------------- | :-------------------------- | | Customer relationships | $896 | $412 | | Developed technologies | $662 | $361 | | Trademark and trade name | $91 | $33 | Estimated Annual Amortization (in thousands) | Estimated Annual Amortization (in thousands) | Amount | | :------------------------------------------- | :----- | | 2022 remaining | $550 | | 2023 | $2,147 | | 2024 | $2,057 | | 2025 | $1,929 | | 2026 | $1,750 | | Thereafter | $12,079| | Total | $20,512| Goodwill (in thousands) | Goodwill (in thousands) | Amount | | :---------------------- | :----- | | Balance at December 31, 2021 | $36,972| | Additions | $0 | | Balance at September 30, 2022 | $36,972| [9. Accrued Expenses](index=22&type=section&id=9.%20Accrued%20Expenses) This note provides a detailed breakdown of accrued expenses, including wages, taxes, and product warranty liabilities Accrued Expenses (in thousands) | Accrued Expenses (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------ | :----------- | :----------- | | Accrued wages and benefits | $1,117 | $1,188 | | Accrued accounts payable | $828 | $609 | | Accrued sales and telecommunications taxes | $1,844 | $2,487 | | Product warranty liability | $71 | $50 | | Total accrued expenses | $4,222 | $4,904 | Product Warranty Liabilities (in thousands) | Product Warranty Liabilities (in thousands) | Amount | | :------------------------------------------ | :----- | | Balance at January 1, 2021 | $33 | | Accrual for warranties | $50 | | Warranty settlements | $(34) | | Balance at December 31, 2021 | $50 | | Accrual for warranties | $43 | | Warranty settlements | $(22) | | Balance at September 30, 2022 | $71 | - Product warranty expense was **$15,000** for the three months ended September 30, 2022 (vs. $15,000 in 2021) and **$43,000** for the nine months ended September 30, 2022 (vs. $27,000 in 2021)[141](index=141&type=chunk) [10. Notes Payable](index=22&type=section&id=10.%20Notes%20Payable) This note details the company's notes payable, primarily a fixed-rate term loan, and future principal payments Notes Payable (in thousands) | Notes Payable (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------- | :----------- | :----------- | | Notes payable | $1,818 | $1,873 | | Less: current notes payable | $(76) | $(1,873) | | Notes payable, net of current portion | $1,742 | $0 | - The company's **$2,000,000 fixed-rate term loan** (3.67% interest) with Bank of America, N.A. was reclassified from current to long-term as of September 30, 2022, after the bank waived all financial covenants[142](index=142&type=chunk) Future Principal Payments (in thousands) | Future Principal Payments (in thousands) | Amount | | :--------------------------------------- | :----- | | 2022 remaining | $19 | | 2023 | $77 | | 2024 | $79 | | 2025 | $82 | | 2026 | $85 | | Thereafter | $1,476 | | Total | $1,818 | [11. Fair Value Measurements](index=23&type=section&id=11.%20Fair%20Value%20Measurements) This note provides fair value measurements for financial assets and liabilities, including contingent consideration Financial Instruments (in thousands) | Financial Instruments (in thousands) | Carrying Value (Sep 30, 2022) | Estimated Fair Value (Sep 30, 2022) | Carrying Value (Dec 31, 2021) | Estimated Fair Value (Dec 31, 2021) | | :----------------------------------- | :---------------------------- | :---------------------------------- | :---------------------------- | :---------------------------------- | | **Assets:** | | | | | | Trade receivables, net | $4,028 | $4,028 | $2,177 | $2,177 | | Equipment financing receivables | $1,699 | $1,699 | $1,274 | $1,274 | | **Liabilities:** | | | | | | Finance lease obligations | $217 | $217 | $303 | $303 | | Notes payable | $1,818 | $1,818 | $1,873 | $1,873 | - The company had **no liabilities** for which fair value is recognized on a recurring basis as of September 30, 2022, and December 31, 2021[145](index=145&type=chunk) - Contingent consideration of **$746,000** related to the Centric Telecom acquisition was recorded in January 2021 and fully paid out by October 2021, with an additional **$126,000** paid based on revenue target achievements[146](index=146&type=chunk) [12. Income Taxes](index=23&type=section&id=12.%20Income%20Taxes) This note discusses the company's effective tax rates and the assessment of deferred tax assets for realizability Effective Tax Rate - Three Months Ended September 30 | Effective Tax Rate | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :----------------- | :-------------------------- | :-------------------------- | | Effective tax rate | (4.4%) | 1,141.4% | | Income tax benefit/(provision) | $32 | $(137) | Effective Tax Rate - Nine Months Ended September 30 | Effective Tax Rate | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------- | :-------------------------- | :-------------------------- | | Effective tax rate | (10.1%) | (11.8%) | | Income tax benefit | $315 | $247 | - Management determined that deferred tax assets of **$7,001,000 are realizable**, supported by three years of cumulative pretax income in the U.S. federal tax jurisdiction and projections of future pretax income[149](index=149&type=chunk) [13. Leases](index=24&type=section&id=13.%20Leases) This note details the company's lessee and lessor accounting for operating and finance leases, including ROU assets - The company leases office space and other assets under operating leases, and data center equipment, maintenance contracts, and vehicles under finance leases[150](index=150&type=chunk) - Operating lease ROU assets and liabilities are recognized at commencement based on the present value of lease payments, using the incremental borrowing rate when an implicit rate is not provided[151](index=151&type=chunk) Rental Expense (in thousands) - Three Months Ended September 30 | Rental Expense (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :---------------------------- | :-------------------------- | :-------------------------- | | Reston, Virginia office space | $13 | $9 | | La Jolla, California office space | $90 | $94 | | Other assets operating leases | $21 | $20 | | Data center colocation space | $36 | $13 | Maturity of Lease Liabilities (in thousands) | Maturity of Lease Liabilities (in thousands) | Operating Leases (Sep 30, 2022) | Finance Leases (Sep 30, 2022) | | :------------------------------------------- | :------------------------------ | :---------------------------- | | 2022 remaining | $139 | $24 | | 2023 | $115 | $98 | | 2024 | $96 | $77 | | 2025 | $1 | $22 | | 2026 | $1 | $3 | | 2027 | $1 | $0 | | Total minimum lease payments | $353 | $224 | | Less: amount representing interest | $(8) | $(7) | | Present value of minimum lease payments | $345 | $217 | Equipment Finance Receivables (in thousands) | Equipment Finance Receivables (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------------- | :----------- | :----------- | | Gross financing receivables | $2,392 | $1,822 | | Less: unearned income | $(693) | $(548) | | Financing receivables, net | $1,699 | $1,274 | | Less: current portion | $(542) | $(332) | | Finance receivables due after one year | $1,157 | $942 | [14. Commitments and Contingencies](index=26&type=section&id=14.%20Commitments%20and%20Contingencies) This note outlines the company's annual incentive bonus plan and its approach to legal proceedings and contingencies - The company has an annual incentive bonus plan for fiscal 2022 with pools of **$390,000 for executives** and **$350,000 for non-executives**. Bonus awards for executives are weighted **30% on annual revenue**, **30% on Adjusted EBITDA**, **20% on cash balance**, and **20% on Company stock price**[167](index=167&type=chunk) - As of September 30, 2022, none of the performance targets for bonuses were achieved, but it is estimated that approximately **$492,000 may be earned** during the three months ended December 31, 2022[167](index=167&type=chunk) - The company accrues for claims and contingencies when losses are probable and reasonably estimable, but as of September 30, 2022, **no liability for estimated losses from legal proceedings was recorded**[168](index=168&type=chunk)[169](index=169&type=chunk) [15. Segment Reporting](index=27&type=section&id=15.%20Segment%20Reporting) This note provides financial information disaggregated by Cloud Telecommunications Services and Software Solutions segments Segment Reporting (in thousands) - Three Months Ended September 30 | (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :------------- | :-------------------------- | :-------------------------- | | **Revenue:** | | | | Cloud telecommunications services | $5,233 | $5,026 | | Software solutions | $3,875 | $3,784 | | Consolidated revenue | $9,108 | $8,810 | | **Income/(loss) from operations:** | | | | Cloud telecommunications services | $(639) | $(253) | | Software solutions | $95 | $306 | | Total operating income/(loss) | $(544) | $53 | | **Income/(loss) before income tax provision:** | | | | Cloud telecommunications services | $(656) | $(275) | | Software solutions | $(72) | $287 | | Total income/(loss) before income tax provision | $(728) | $12 | Segment Reporting (in thousands) - Nine Months Ended September 30 | (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------- | :-------------------------- | :-------------------------- | | **Revenue:** | | | | Cloud telecommunications services | $15,371 | $14,300 | | Software solutions | $10,741 | $4,796 | | Consolidated revenue | $26,112 | $19,096 | | **Income/(loss) from operations:** | | | | Cloud telecommunications services | $(2,236) | $(2,004) | | Software solutions | $(553) | $(9) | | Total operating income/(loss) | $(2,789) | $(2,013) | | **Income/(loss) before income tax provision:** | | | | Cloud telecommunications services | $(2,288) | $(2,062) |\ | Software solutions | $(839) | $(28) | | Total income/(loss) before income tax provision | $(3,127) | $(2,090) | - Depreciation and amortization for the cloud telecommunications services segment was **$115,000** (3 months 2022) and **$344,000** (9 months 2022). For the software solutions segment, it was **$509,000** (3 months 2022) and **$1,518,000** (9 months 2022)[170](index=170&type=chunk) [16. Subsequent Events](index=27&type=section&id=16.%20Subsequent%20Events) This note discloses a significant business combination: the acquisition of Allegiant Networks, LLC in October 2022 - On October 17, 2022, Crexendo entered into an agreement to acquire Allegiant Networks, LLC for approximately **$9.4 million**. The transaction closed on November 1, 2022[174](index=174&type=chunk) - The purchase price for Allegiant Networks included **$2.0 million cash**, a **$1.1 million three-year promissory note**, and **2,461,538 shares of common stock valued at $2.57 per share**[174](index=174&type=chunk) - Acquisition-related costs of **$8,000** for Allegiant Networks were incurred for both the three and nine months ended September 30, 2022, and are reflected in general and administrative costs[175](index=175&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, operating results, and liquidity [OVERVIEW](index=28&type=section&id=OVERVIEW) This section provides an overview of Crexendo's business as a leading UCaaS/CCaaS provider and its service offerings - Crexendo is a leading provider of UCaaS, CCaaS, communication platform software, and collaboration services, supporting over **2.5 million end users globally** and recognized as the **fastest-growing UCaaS platform in the US**[178](index=178&type=chunk)[186](index=186&type=chunk) - The company offers Cloud Telecommunications Services (recurring revenue from voice, data, collaboration, broadband, and support, typically **36-60 month contracts**) and Software Solutions (software licenses, maintenance, and professional services)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk)[185](index=185&type=chunk) [OUR SERVICES AND PRODUCTS](index=29&type=section&id=OUR%20SERVICES%20AND%20PRODUCTS) This section details the features and offerings within Cloud Telecommunications Services and Software Solutions segments - Cloud Telecommunications Services include a wide array of business and individual productivity features (e.g., call recording, unlimited calling in US/Canada, voicemail, unified messaging), group productivity features (e.g., IVR, multi-party conferencing), call center features (e.g., ACD, call monitor), advanced UC features (e.g., Find-Me-Follow-Me), mobile features, traditional PBX features, expanded desktop device selection, advanced faxing, and web-based management portals[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) - Software Solutions include SNAPsolution® (an IP-based UC platform licensed by concurrent sessions), SNAPaccel (SaaS-based subscription), Subscription Maintenance and Support (software updates, bug fixes, customer support), and Professional Services (consulting, technical support, design, installation)[190](index=190&type=chunk)[192](index=192&type=chunk) [RESULTS OF OPERATIONS](index=30&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's total revenue, net loss, and EPS for the three and nine months ended September 30, 2022 and 2021 Results of Operations (in thousands, except per share) - Three Months Ended September 30 | (in thousands, except per share) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Dollar Change | Percent Change | | :------------------------------- | :-------------------------- | :-------------------------- | :------------ | :------------- | | Total revenue | $9,108 | $8,810 | $298 | 3% | | Income/(loss) before income taxes | $(728) | $12 | $(740) | -6167% | | Income tax benefit/(provision) | $32 | $(137) | $169 | -123% | | Net loss | $(696) | $(125) | $(571) | 457% | | Basic earnings per share | $(0.03) | $(0.01) | $(0.02) | 200% | Results of Operations (in thousands, except per share) - Nine Months Ended September 30 | (in thousands, except per share) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Dollar Change | Percent Change | | :------------------------------- | :-------------------------- | :-------------------------- | :------------ | :------------- | | Total revenue | $26,112 | $19,096 | $7,016 | 37% | | Loss before income taxes | $(3,127) | $(2,090) | $(1,037) | 50% | | Income tax benefit | $315 | $247 | $68 | 28% | | Net loss | $(2,812) | $(1,843) | $(969) | 53% | | Basic earnings per share | $(0.13) | $(0.09) | $(0.04) | 44% | - The increase in total revenue for the nine months was primarily driven by a **$5,945,000 increase in software solutions revenue**, largely due to nine months of revenue in 2022 compared to only four months in 2021 following the June 1, 2021 acquisition[198](index=198&type=chunk) - The increased loss before income tax for both periods was mainly due to **higher operating expenses**, particularly increases in salaries and benefits, and stock compensation expense[196](index=196&type=chunk)[201](index=201&type=chunk) [USE OF NON-GAAP FINANCIAL MEASURES](index=32&type=section&id=USE%20OF%20NON-GAAP%20FINANCIAL%20MEASURES) This section explains the company's use of Non-GAAP net income/(loss) and Adjusted EBITDA as supplemental performance measures - The company uses Non-GAAP net income/(loss) and Adjusted EBITDA as supplemental measures of operating performance, excluding share-based compensation, acquisition-related expenses, changes in fair value of contingent consideration, and amortization of intangibles[203](index=203&type=chunk) - EBITDA is defined as U.S. GAAP net income/(loss) before interest income, interest expense, other income and expense, provision for income taxes, and depreciation and amortization[203](index=203&type=chunk) - Adjusted EBITDA further adjusts EBITDA for acquisition-related expenses, changes in fair value of contingent consideration, and share-based compensation[203](index=203&type=chunk) - These non-GAAP measures have limitations, such as not reflecting cash expenditures for capital, working capital, debt service, or taxes, and may not be comparable to other companies' calculations[204](index=204&type=chunk) [RECONCILIATION OF NON-GAAP FINANCIAL MEASURES](index=33&type=section&id=RECONCILIATION%20OF%20NON-GAAP%20FINANCIAL%20MEASURES) This section provides a reconciliation of U.S. GAAP net loss to Non-GAAP net income and Adjusted EBITDA Reconciliation of U.S. GAAP Net Loss to Non-GAAP Net Income (in thousands) - Three Months Ended September 30 | Reconciliation of U.S. GAAP Net Loss to Non-GAAP Net Income (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :--------------------------------------------------------- | :-------------------------- | :-------------------------- | | U.S. GAAP net loss | $(696) | $(125) | | Share-based compensation | $851 | $415 | | Acquisition related expenses | $8 | $4 | | Amortization of intangible assets | $550 | $506 | | Non-GAAP net income | $713 | $800 | | Non-GAAP basic earnings per common share | $0.03 | $0.04 | | Non-GAAP diluted earnings per common share | $0.03 | $0.03 | Reconciliation of U.S. GAAP Net Loss to Non-GAAP Net Income (in thousands) - Nine Months Ended September 30 | Reconciliation of U.S. GAAP Net Loss to Non-GAAP Net Income (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------------------------------- | :-------------------------- | :-------------------------- | | U.S. GAAP net loss | $(2,812) | $(1,843) | | Share-based compensation | $2,762 | $1,150 | | Acquisition related expenses | $31 | $1,065 | | Amortization of intangible assets | $1,649 | $773 | | Non-GAAP net income | $1,630 | $1,145 | | Non-GAAP basic earnings per common share | $0.07 | $0.06 | | Non-GAAP diluted earnings per common share | $0.06 | $0.05 | Reconciliation of U.S. GAAP Net Loss to EBITDA to Adjusted EBITDA (in thousands) - Three Months Ended September 30 | Reconciliation of U.S. GAAP Net Loss to EBITDA to Adjusted EBITDA (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :--------------------------------------------------------------- | :-------------------------- | :-------------------------- | | U.S. GAAP net loss | $(696) | $(125) | | Depreciation and amortization | $623 | $569 | | Interest expense | $19 | $24 | | Interest and other expense | $165 | $17 | | Income tax provision/(benefit) | $(32) | $137 | | EBITDA | $79 | $622 | | Acquisition related expenses | $8 | $4 | | Share-based compensation | $851 | $415 | | Adjusted EBITDA | $938 | $1,041 | Reconciliation of U.S. GAAP Net Loss to EBITDA to Adjusted EBITDA (in thousands) - Nine Months Ended September 30 | Reconciliation of U.S. GAAP Net Loss to EBITDA to Adjusted EBITDA (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------------------------------------- | :-------------------------- | :-------------------------- | | U.S. GAAP net loss | $(2,812) | $(1,843) | | Depreciation and amortization | $1,862 | $931 | | Interest expense | $57 | $64 | | Interest and other expense | $281 | $13 | | Income tax provision/(benefit) | $(315) | $(247) | | EBITDA | $(927) | $(1,082) | | Acquisition related expenses | $31 | $1,065 | | Share-based compensation | $2,762 | $1,150 | | Adjusted EBITDA | $1,866 | $1,133 | [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=33&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section highlights key accounting policies and estimates that significantly impact the company's financial statements - The company's financial statements involve estimates, assumptions, and judgments that significantly impact reported revenue, operating income/loss, net income/loss, and asset/liability values. Key areas include valuation of goodwill and intangible assets, allowances for doubtful accounts, income tax benefits, deferred income tax assets, share-based payments, and long-lived asset recoverability[210](index=210&type=chunk) [Segment Operating Results](index=33&type=section&id=Segment%20Operating%20Results) This section provides a detailed analysis of the operating performance for each of the company's reportable segments [Operating Results of our Cloud Telecommunications Services Segment](index=34&type=section&id=Operating%20Results%20of%20our%20Cloud%20Telecommunications%20Services%20Segment) This section analyzes the Cloud Telecommunications Services segment's revenue, backlog, and operating expenses Cloud Telecommunications Services (in thousands) - Three Months Ended September 30 | Cloud Telecommunications Services (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Dollar Change | Percent Change | | :----------------------------------------------- | :-------------------------- | :-------------------------- | :------------ | :------------- | | Total revenue | $5,233 | $5,026 | $207 | 4% | | Operating loss | $(639) | $(253) | $(386) | 152% | | Loss before tax benefit/(provision) | $(656) | $(275) | $(381) | 139% | Cloud Telecommunications Services (in thousands) - Nine Months Ended September 30 | Cloud Telecommunications Services (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Dollar Change | Percent Change | | :----------------------------------------------- | :-------------------------- | :-------------------------- | :------------ | :------------- | | Total revenue | $15,371 | $14,300 | $1,071 | 7% | | Operating loss | $(2,236) | $(2,004) | $(232) | 12% | | Loss before tax benefit/(provision) | $(2,288) | $(2,062) | $(226) | 11% | - Service revenue increased by **$148,000 (3%)** for the three months and **$636,000 (5%)** for the nine months, driven by telecommunications services, sales-type lease interest, and various fees[213](index=213&type=chunk)[224](index=224&type=chunk) - Product revenue increased by **$59,000 (8%)** for the three months and **$435,000 (29%)** for the nine months, fluctuating with installation timing and discount allocations[214](index=214&type=chunk)[226](index=226&type=chunk) - Backlog for the Cloud Telecommunications segment decreased by **2% to $30,063,000** as of September 30, 2022, from $30,723,000 in 2021[217](index=217&type=chunk)[227](index=227&type=chunk) - Cost of service revenue increased by **14%** for the three months and **11%** for the nine months, primarily due to increased headcount, salary increases, and third-party installation services, partially offset by decreased telecommunication carrier costs[217](index=217&type=chunk)[227](index=227&type=chunk) - Selling and marketing expenses increased by **15%** for the three months and **16%** for the nine months, driven by higher commissions, sales team expansion, and travel costs[219](index=219&type=chunk)[229](index=229&type=chunk) - General and administrative expenses increased by **17%** for the three months and **3%** for the nine months, mainly due to increased administrative salaries and headcount, partially offset by decreased acquisition-related expenses in the nine-month period[221](index=221&type=chunk)[222](index=222&type=chunk)[230](index=230&type=chunk) - Research and development expenses decreased by **21%** for the three months and **18%** for the nine months, due to lower maintenance costs for mobile applications and reduced salaries/benefits[223](index=223&type=chunk)[231](index=231&type=chunk) [Operating Results of Software Solutions segment](index=39&type=section&id=Operating%20Results%20of%20Software%20Solutions%20segment) This section analyzes the Software Solutions segment's revenue, backlog, and operating expenses post-June 2021 acquisition Software Solutions (in thousands) - Three Months Ended September 30 | Software Solutions (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Software solutions revenue | $3,875 | $3,784 | | Operating income/(loss) | $95 | $306 | | Income/(loss) before tax benefit/(provision) | $(72) | $287 | Software Solutions (in thousands) - Nine Months Ended September 30 | Software Solutions (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Software solutions revenue | $10,741 | $4,796 | | Operating income/(loss) | $(553) | $(9) | | Income/(loss) before tax benefit/(provision) | $(839) | $(28) | - Software solutions revenue increased by **2%** for the three months and **124%** for the nine months, primarily due to the NetSapiens acquisition on June 1, 2021, providing nine months of revenue in 2022 compared to four months in 2021[235](index=235&type=chunk)[246](index=246&type=chunk) - Backlog for the Software Solutions segment increased by **6% to $13,334,000** as of September 30, 2022, from $12,558,000 in 2021[236](index=236&type=chunk)[247](index=247&type=chunk) - Cost of software solutions revenue decreased by **30%** for the three months but increased by **81%** for the nine months. The nine-month increase is mainly due to the full nine months of costs post-acquisition and reclassification of R&D expenses[239](index=239&type=chunk)[243](index=243&type=chunk)[249](index=249&type=chunk) - Selling and marketing expenses increased by **29%** for the three months and **163%** for the nine months, largely due to the full nine months of expenses post-acquisition, higher commissions, and increased salaries[240](index=240&type=chunk)[250](index=250&type=chunk) - General and administrative expenses decreased by **26%** for the three months but increased by **73%** for the nine months, primarily due to the full nine months of expenses post-acquisition and reclassification of R&D expenses[241](index=241&type=chunk)[251](index=251&type=chunk) - Research and development expenses significantly increased for both periods, primarily due to the reclassification of R&D expenses from cost of service revenue and general and administrative expenses[242](index=242&type=chunk)[244](index=244&type=chunk)[252](index=252&type=chunk) - Other expense increased significantly for both periods, primarily due to **net foreign exchange losses**[245](index=245&type=chunk)[254](index=254&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, cash flow activities, and ability to meet future cash requirements - Cash and cash equivalents decreased to **$4,821,000** as of September 30, 2022, from $7,468,000 as of December 31, 2021[255](index=255&type=chunk) - Net cash used in operating activities increased significantly to **$(2,665,000)** for the nine months ended September 30, 2022, from $(473,000) in the prior year, driven by net loss and changes in working capital[256](index=256&type=chunk) - Net cash used in investing activities decreased to **$(192,000)** for the nine months ended September 30, 2022, from $(10,596,000) in the prior year, as 2021 included significant cash outlays for the NetSapiens and Centric Telecom acquisitions[257](index=257&type=chunk)[258](index=258&type=chunk) - Net cash used in financing activities was **$(36,000)** for the nine months ended September 30, 2022, compared to $1,081,000 provided in the prior year, primarily due to dividend payments and net settlement of stock options[261](index=261&type=chunk)[262](index=262&type=chunk) - The company believes existing liquidity sources and operations will satisfy cash requirements for at least the **next twelve months**[255](index=255&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section addresses the company's exposure to market risks, primarily foreign currency risk, and its immaterial impact - The company's sales and operating expenses are primarily denominated in U.S. dollars, leading to **immaterial foreign currency risk** for the periods presented[266](index=266&type=chunk)[267](index=267&type=chunk) - As operations grow, the company's exposure to foreign currency risk may become more significant[267](index=267&type=chunk) [Item 4. Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective** as of September 30, 2022[268](index=268&type=chunk) - There have been **no material changes** in internal control over financial reporting during the three months ended September 30, 2022[270](index=270&type=chunk) [PART II - OTHER INFORMATION](index=45&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) This section states that routine legal matters are not expected to materially impact the company's financial condition - The company is involved in routine lawsuits, claims, investigations, and proceedings that arise in the ordinary course of business[271](index=271&type=chunk) - **No matters are pending or threatened** that are expected to have a material adverse impact on the company's business, results of operations, financial condition, or cash flows[271](index=271&type=chunk) [Item 1A. Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the Annual Report on Form 10-K for detailed information on material business risk factors - Information on material risk factors affecting the business and operations is incorporated by reference from the **2021 Annual Report on Form 10-K**[272](index=272&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section indicates no unregistered sales of equity securities or use of proceeds to report for the period - There were **no unregistered sales of equity securities** and use of proceeds to report[273](index=273&type=chunk) [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section provides a list of exhibits filed with the Form 10-Q, including certifications and XBRL documents Exhibits | Exhibit No. | Exhibit Description | | :---------- | :------------------------------------------------------------------------------- | | 31.1 | Certification Pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934 as amended | | 31.2 | Certification Pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934 as amended | | 32.1 | Certification Pursuant to 18 U.S.C. Section 1350 | | 32.2 | Certification Pursuant to 18 U.S.C. Section 1350 | | 101.INS | XBRL INSTANCE DOCUMENT | | 101.SCH | XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT | | 101.CAL | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT | | 101.DEF | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT | | 101.LAB | XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT | | 101.PRE | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE | [Signatures](index=45&type=section&id=Signatures) This section contains the required signatures for the Form 10-Q, confirming its submission by the CEO and CFO - The report was signed by Steven G. Mihaylo, Chief Executive Officer, and Ronald Vincent, Chief Financial Officer, on **November 10, 2022**[276](index=276&type=chunk)[277](index=277&type=chunk)[278](index=278&type=chunk)

Crexendo, Inc. (NASDAQ:CXDO) Q2 2022 Results Conference Call August 9, 2022 4:30 PM ET Company Participants Steven Mihaylo - Chairman and Chief Executive Officer Doug Gaylor - President and Chief Operating Officer Ron Vincent - Chief Financial Officer Jon Brinton - Chief Revenue Officer Anand Buch - Chief Strategy Officer Jeff Korn - General Counsel Conference Call Participants Griffin Boss - B. Riley Securities Bruce Goldfarb - Lake Street Capital Chris Sakai - Singular Research Michael Kaufman - MK Invest ...

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited condensed consolidated financial statements for Crexendo, Inc. for the quarterly period ended June 30, 2022, including Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows, along with detailed notes [Condensed Consolidated Balance Sheets](index=2&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a slight decrease in total assets to $75.9 million as of June 30, 2022, from $77.2 million at the end of 2021, primarily due to a reduction in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $4,876 | $7,468 | | Total current assets | $10,960 | $11,560 | | Goodwill | $36,972 | $36,972 | | Intangible assets, net | $21,062 | $22,161 | | **Total Assets** | **$75,868** | **$77,152** | | Total current liabilities | $9,463 | $10,572 | | **Total Liabilities** | **$9,984** | **$11,219** | | **Total Stockholders' Equity** | **$65,884** | **$65,933** | [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the second quarter of 2022, Crexendo reported a 53% year-over-year increase in total revenue to $8.8 million, largely driven by significant growth in software solutions revenue, resulting in a net loss of $0.9 million Q2 2022 vs Q2 2021 Statement of Operations (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Service revenue | $4,556 | $4,327 | 5.3% | | Software solutions revenue | $3,598 | $1,012 | 255.5% | | **Total revenue** | **$8,846** | **$5,779** | **53.1%** | | Loss from operations | ($852) | ($1,244) | (31.5%) | | **Net loss** | **($896)** | **($1,003)** | **(10.7%)** | | **Diluted EPS** | **($0.04)** | **($0.05)** | **(20.0%)** | H1 2022 vs H1 2021 Statement of Operations (in thousands, except per share data) | Metric | H1 2022 | H1 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Service revenue | $8,954 | $8,466 | 5.8% | | Software solutions revenue | $6,866 | $1,012 | 578.5% | | **Total revenue** | **$17,004** | **$10,286** | **65.3%** | | Loss from operations | ($2,245) | ($2,066) | 8.7% | | **Net loss** | **($2,116)** | **($1,718)** | **23.2%** | | **Diluted EPS** | **($0.09)** | **($0.09)** | **0.0%** | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the first six months of 2022, net cash used in operating activities increased significantly to $2.6 million from $0.2 million in the prior year, driven by net loss and working capital changes, while investing and financing activities had minimal impact Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used for operating activities | ($2,614) | ($224) | | Net cash used for investing activities | ($40) | ($10,546) | | Net cash provided by/(used for) financing activities | ($20) | $966 | | **Net decrease in cash** | **($2,592)** | **($9,803)** | [Notes to Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed information on significant accounting policies, revenue recognition, acquisitions, and segment reporting, including the company's two operating segments and a debt covenant default - The company operates through two segments: **Cloud Telecommunications Services** and **Software Solutions** The Software Solutions segment was established following the acquisition of NetSapiens[28](index=28&type=chunk)[67](index=67&type=chunk) - On June 1, 2021, the company acquired NetSapiens for an aggregate purchase price of approximately **$49.1 million**, consisting of **$10 million** in cash and the remainder in common stock and stock options[97](index=97&type=chunk) - As of June 30, 2022, the company was in default of the basic fixed charge coverage ratio on its **$2.0 million** loan with Bank of America, resulting in the entire note payable balance of **$1.8 million** being classified as a current liability[139](index=139&type=chunk) Segment Revenue and Operating Loss (Q2 2022, in thousands) | Segment | Revenue | Operating Loss | | :--- | :--- | :--- | | Cloud telecommunications services | $5,248 | ($543) | | Software solutions | $3,598 | ($309) | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting 53% total revenue growth in Q2 2022 driven by the Software Solutions segment, and provides analysis by operating segment, non-GAAP measures, liquidity, and capital resources [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Comparing Q2 2022 to Q2 2021, total revenue increased by 53% to $8.8 million, primarily due to a $2.6 million increase in software solutions revenue, while the loss before income taxes improved Q2 Revenue Comparison (in thousands) | Period | Total Revenue | Dollar Change | Percent Change | | :--- | :--- | :--- | :--- | | Q2 2022 | $8,846 | $3,067 | 53% | | Q2 2021 | $5,779 | | | - The increase in total revenue for Q2 2022 was primarily due to a **$2,586,000** increase in software solutions revenue following the NetSapiens acquisition[186](index=186&type=chunk) [Use of Non-GAAP Financial Measures](index=31&type=section&id=USE%20OF%20NON-GAAP%20FINANCIAL%20MEASURES) The company provides reconciliations for non-GAAP measures, including Non-GAAP Net Income of $512,000 and Adjusted EBITDA of $626,000 for Q2 2022, to their most comparable GAAP figures Reconciliation of GAAP Net Loss to Non-GAAP Measures (Q2 2022, in thousands) | Metric | Amount | | :--- | :--- | | U.S. GAAP net loss | ($896) | | Share-based compensation | $858 | | Amortization of intangible assets | $550 | | **Non-GAAP net income** | **$512** | Reconciliation to Adjusted EBITDA (Q2 2022, in thousands) | Metric | Amount | | :--- | :--- | | U.S. GAAP net loss | ($896) | | Adjustments (Depreciation, Interest, Taxes, etc.) | $558 | | **EBITDA** | **($232)** | | Share-based compensation | $858 | | **Adjusted EBITDA** | **$626** | [Segment Operating Results](index=32&type=section&id=Segment%20Operating%20Results) The Cloud Telecommunications segment saw Q2 revenue grow 10% year-over-year to $5.2 million with a narrowing operating loss and increased backlog, while the Software Solutions segment generated $3.6 million in revenue with an operating loss of $0.3 million - The Cloud Telecommunications segment backlog increased **8%** year-over-year, from **$27.2 million** as of June 30, 2021, to **$29.5 million** as of June 30, 2022[209](index=209&type=chunk) - The Software Solutions segment backlog was **$12.7 million** as of June 30, 2022 This segment did not exist in the prior-year period[235](index=235&type=chunk) Segment Performance (Q2 2022 vs Q2 2021, in thousands) | Segment | Revenue (Q2 2022) | Revenue (Q2 2021) | Operating Loss (Q2 2022) | Operating Loss (Q2 2021) | | :--- | :--- | :--- | :--- | :--- | | Cloud Telecommunications | $5,248 | $4,767 | ($543) | ($929) | | Software Solutions | $3,598 | $1,012 | ($309) | ($315) | [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, the company's cash and cash equivalents decreased to $4.9 million, primarily due to $2.6 million in cash used for operating activities, though existing liquidity is expected to meet requirements for the next 12 months - Cash and cash equivalents decreased from **$7,468,000** at December 31, 2021, to **$4,876,000** at June 30, 2022[248](index=248&type=chunk) - Net cash used in operating activities for the first six months of 2022 was **$2,614,000**, a significant increase from the **$224,000** used in the same period of 2021[249](index=249&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company states that its sales and operating expenses are predominantly denominated in U.S. dollars, leading management to believe its exposure to foreign currency risk is not material - The company's sales and operating expenses are predominately denominated in U.S. dollars, and it has not had material foreign currency risk[259](index=259&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[262](index=262&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[263](index=263&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not currently involved in any legal proceedings expected to have a material adverse impact on its business, financial condition, or cash flows - As of the filing date, there are no pending or threatened legal matters that are expected to have a material adverse impact on the company[264](index=264&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) This section refers the reader to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021, indicating no material changes to those risks - The company refers to the risk factors detailed in its 2021 Form 10-K and does not list any new or materially changed risk factors in this report[265](index=265&type=chunk) [Item 6. Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, which include CEO and CFO certifications pursuant to the Sarbanes-Oxley Act and XBRL data files Signatures

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, 2022 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) | --- | --- | |----------------- ...

Crexendo, Inc. (NASDAQ:CXDO) Q4 2021 Earnings Conference Call March 21, 2022 4:30 PM ET Company Participants Steve Mihaylo - Chairman and CEO Jeff Korn - General Counsel Doug Gaylor - President and COO Ron Vincent - CFO Anand Buch - CSO Jon Brinton - CRO Conference Call Participants Josh Nichols - B. Riley Eric Martinuzzi - Lake Street Andrew King - Colliers Securities Christopher Sakai - Singular Research Michael Kaufman - MK Investments Operator Good day ladies and gentlemen, and welcome to the Crexendo F ...

PART I [Business](index=3&type=section&id=ITEM%201.%20BUSINESS) Crexendo, Inc. provides Unified Communications as a Service (UCaaS) and Call Center as a Service (CCaaS) solutions through its Cloud Telecommunications Services and Software Solutions segments, achieving $28.1 million in total revenue in 2021, largely driven by the NetSapiens acquisition - Crexendo provides UCaaS, CCaaS, and other collaboration services through two main offerings: Cloud Telecommunications Services and Software Solutions[18](index=18&type=chunk) - The company's solutions support over **two million** end-users globally and have been recognized as the fastest-growing UCaaS platform in the United States[18](index=18&type=chunk)[26](index=26&type=chunk) - Research and development expenses increased to **$1,396,000** in 2021 from **$1,189,000** in 2020, focusing on enhancements to cloud products and software solutions[38](index=38&type=chunk) - As of December 31, 2021, the company had **121** full-time employees[48](index=48&type=chunk) Segment Financial Performance (2021 vs. 2020) | Metric | Segment | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | :--- | | **Revenue** | Cloud telecommunications services | $19,426 | $16,387 | | | Software solutions | $8,666 | $0 | | | **Consolidated Total** | **$28,092** | **$16,387** | | **Income/(Loss) Before Tax** | Cloud telecommunications services | $(2,713) | $1,899 | | | Software solutions | $(197) | $0 | | | **Consolidated Total** | **$(2,910)** | **$1,899** | [Risk Factors](index=9&type=section&id=ITEM%201A.RISK%20FACTORS.) The company faces significant risks from the COVID-19 pandemic, intense competition, acquisition integration challenges, reliance on third-party infrastructure, financial volatility, regulatory changes, and substantial CEO ownership - The COVID-19 pandemic poses risks of decreased demand, supply chain disruptions, and a prolonged economic recession[57](index=57&type=chunk)[58](index=58&type=chunk) - The company faces risks related to its acquisition strategy, particularly the integration of NetSapiens, which could lead to loss of key employees, disruption of business, and failure to realize anticipated synergies[202](index=202&type=chunk)[203](index=203&type=chunk)[209](index=209&type=chunk) - The ability to utilize approximately **$27.0 million** in Net Operating Loss (NOL) carry-forwards may be limited by ownership changes under Section 382 of the Internal Revenue Code[85](index=85&type=chunk) - The telecommunications industry is highly competitive, with rivals including traditional hardware providers (Cisco, Avaya), other cloud companies (8x8, RingCentral), and large internet companies (Microsoft, Amazon)[39](index=39&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk) - The company is subject to extensive regulation by the FCC and state authorities, and changes in laws, such as net neutrality rules, could adversely impact the business[54](index=54&type=chunk)[144](index=144&type=chunk)[162](index=162&type=chunk) - The CEO, Steven G. Mihaylo, owns approximately **47%** of the outstanding common stock, giving him substantial control over corporate matters, including the election of directors and major transactions[198](index=198&type=chunk) [Properties](index=26&type=section&id=ITEM%202.%20PROPERTIES) Crexendo's principal corporate office is a 22,000 square foot space in Tempe, Arizona, supplemented by additional offices in La Jolla, California, and Reston, Virginia - The principal corporate office is located at 1615 South 52nd Street, Tempe, Arizona 85281[221](index=221&type=chunk) - The company also has offices in La Jolla, California and Reston, Virginia[221](index=221&type=chunk) [Legal Proceedings](index=26&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company periodically receives government inquiries, primarily concerning discontinued seminar operations, which have generally been resolved without formal complaints, though future resolutions are not guaranteed to be without material adverse effect - The company receives inquiries from federal, state, and local government officials, mainly concerning its discontinued seminar operations regarding sales practices and customer service[222](index=222&type=chunk) - While most inquiries have been resolved without formal charges, the company cannot guarantee that the ultimate resolution of these matters will not have a material adverse effect on its business or operations[223](index=223&type=chunk) [Mine Safety Disclosures](index=27&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This disclosure item is not applicable to the company - The disclosure required by this item is not applicable[224](index=224&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Crexendo's common stock trades on Nasdaq under 'CXDO', with 197 shareholders of record as of December 31, 2021, and a quarterly cash dividend of $0.005 per share declared post-year-end - The company's common stock is listed on The Nasdaq Stock Market under the ticker symbol 'CXDO'[225](index=225&type=chunk) - As of December 31, 2021, there were **197** shareholders of record[227](index=227&type=chunk) - Subsequent to year-end 2021, the company declared a quarterly cash dividend of **$0.005** per common share, payable on February 28, 2022[228](index=228&type=chunk) Quarterly Stock Price Range (2021-2020) | Period | 2021 High | 2021 Low | 2020 High | 2020 Low | | :--- | :--- | :--- | :--- | :--- | | Q1 | $8.38 | $5.51 | $4.75 | $3.00 | | Q2 | $6.93 | $4.90 | $6.30 | $4.00 | | Q3 | $7.20 | $5.35 | $12.78 | $5.25 | | Q4 | $6.20 | $4.39 | $8.00 | $5.27 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) In 2021, Crexendo's total revenue increased by 71% to $28.1 million, primarily due to the NetSapiens acquisition, yet the company reported a pre-tax loss of $2.9 million driven by a $15.5 million increase in operating expenses and a significant decrease in cash and cash equivalents [Results of Consolidated Operations](index=29&type=section&id=Results%20of%20Consolidated%20Operations) For fiscal year 2021, consolidated revenue grew 71% to $28.1 million, driven by the new Software Solutions segment and increased Cloud Telecommunications service revenue, but a $2.9 million pre-tax loss resulted from a $15.5 million surge in operating expenses - The **71%** increase in total revenue was mainly driven by an **$8,666,000** contribution from the new software solutions segment following the NetSapiens acquisition[249](index=249&type=chunk) - The decrease in income before tax was primarily due to a **$15,506,000** increase in operating expenses, which included **$1,037,000** in one-time acquisition-related expenses[250](index=250&type=chunk) Consolidated Financial Highlights (2021 vs. 2020) | Metric (in thousands, except EPS) | 2021 | 2020 | | :--- | :--- | :--- | | Total Revenue | $28,092 | $16,387 | | Income/(Loss) Before Income Taxes | $(2,910) | $1,899 | | Net Income/(Loss) | $(2,445) | $7,940 | | Diluted EPS | $(0.12) | $0.46 | [Use of Non-GAAP Financial Measures](index=30&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) The company uses Non-GAAP financial measures, including Non-GAAP net income and Adjusted EBITDA, to provide a clearer view of operating performance by excluding items like share-based compensation and acquisition-related expenses, reporting $1.7 million in Non-GAAP net income and $1.6 million in Adjusted EBITDA for 2021 Reconciliation of GAAP Net Income to Non-GAAP Net Income (FY 2021 vs. 2020) | Metric (in thousands) | Year Ended 2021 | Year Ended 2020 | | :--- | :--- | :--- | | U.S. GAAP net income/(loss) | $(2,445) | $7,940 | | Share-based compensation | $1,628 | $623 | | Acquisition related expenses | $1,037 | $0 | | Amortization of intangible assets | $1,391 | $92 | | **Non-GAAP net income** | **$1,737** | **$8,655** | Reconciliation of GAAP Net Income to Adjusted EBITDA (FY 2021 vs. 2020) | Metric (in thousands) | Year Ended 2021 | Year Ended 2020 | | :--- | :--- | :--- | | U.S. GAAP net income/(loss) | $(2,445) | $7,940 | | Depreciation and amortization | $1,626 | $258 | | Income tax provision/(benefit) | $(465) | $(6,041) | | **EBITDA** | **$(1,184)** | **$1,249** | | Acquisition related expenses | $1,037 | $0 | | Share-based compensation | $1,628 | $623 | | **Adjusted EBITDA** | **$1,607** | **$1,872** | [Segment Operating Results](index=33&type=section&id=Segment%20Operating%20Results) The company's two segments, Cloud Telecommunications Services and Software Solutions, reported varied performance in 2021, with the former seeing revenue growth but an operating loss, and the latter, established mid-year, generating $8.7 million in revenue with a minimal operating loss [Cloud Telecommunications Services Segment](index=34&type=section&id=Cloud%20Telecommunications%20Services%20Segment) The Cloud Telecommunications segment's total revenue increased to $19.4 million in 2021, driven by growth in service and product revenue, but reported an operating loss of $2.6 million due to significantly increased costs, while its backlog grew 6% to $30.2 million - Service revenue increased by **18%** (**$2,558,000**) and product revenue increased by **26%** (**$481,000**) year-over-year[281](index=281&type=chunk)[283](index=283&type=chunk) - Backlog for the segment increased by **6%** to **$30,189,000** as of December 31, 2021[284](index=284&type=chunk) Cloud Telecommunications Segment Performance (2021 vs. 2020) | Metric (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total Revenue | $19,426 | $16,387 | | Total Operating Expenses | $22,069 | $15,396 | | Operating Income/(Loss) | $(2,643) | $991 | [Software Solutions Segment](index=37&type=section&id=Software%20Solutions%20Segment) The Software Solutions segment, formed after the June 1, 2021 NetSapiens acquisition, generated $8.7 million in revenue from software licenses, maintenance, and professional services for its seven months of operation, incurring an operating loss of $167,000 and ending the year with an $11.5 million revenue backlog - The segment's revenue of **$8,666,000** is included in results from the acquisition date of June 1, 2021[296](index=296&type=chunk) - The segment's revenue backlog was **$11,528,000** as of December 31, 2021[298](index=298&type=chunk) Software Solutions Segment Performance (2021) | Metric (in thousands) | 2021 (from June 1) | | :--- | :--- | | Total Revenue | $8,666 | | Total Operating Expenses | $8,833 | | Operating Loss | $(167) | [Liquidity and Capital Resources](index=39&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's cash and cash equivalents significantly decreased from $17.6 million to $7.5 million in 2021, primarily due to $12.16 million in cash used for the NetSapiens and Centric Telecom acquisitions, though management believes current liquidity is sufficient for the next 12 months - Cash and cash equivalents decreased to **$7,468,000** at Dec 31, 2021 from **$17,579,000** at Dec 31, 2020[303](index=303&type=chunk) - The company used **$10 million** in cash for the NetSapiens merger and **$2.16 million** in cash for the Centric Telecom acquisition during 2021[305](index=305&type=chunk)[306](index=306&type=chunk) Cash Flow Summary (2021 vs. 2020) | Cash Flow Activity (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | $(1,006) | $647 | | Net cash used in investing activities | $(9,867) | $(921) | | Net cash provided by financing activities | $650 | $13,673 | [Quantitative and Qualitative Disclosures About Market Risks](index=40&type=section&id=ITEM%207A.QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISKS) The company reports minimal market risk exposure, with foreign currency risk deemed immaterial due to predominantly U.S. dollar-denominated transactions, and no material effect from inflation on its financial results - Foreign currency risk is not considered material as the company's sales and expenses are primarily in U.S. dollars[316](index=316&type=chunk) - The company does not believe inflation has had a material effect on its business, financial condition, or results of operations[319](index=319&type=chunk) [Financial Statements and Supplementary Data](index=41&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents the company's audited consolidated financial statements for 2021 and 2020, including balance sheets, statements of operations, and cash flows, with the auditor's report highlighting critical audit matters related to revenue recognition, deferred tax assets, and intangible asset valuation from business combinations - The Report of Independent Registered Public Accounting Firm identified three Critical Audit Matters: Revenue Recognition, Income Taxes (Valuation Allowances on Deferred Tax Assets), and Business Combinations (Valuation of Intangible Assets)[326](index=326&type=chunk)[331](index=331&type=chunk)[334](index=334&type=chunk) - The company acquired NetSapiens, Inc. on June 1, 2021, for a total consideration of approximately **$49.1 million**, consisting of **$10 million** in cash and **$39.1 million** in stock and options[434](index=434&type=chunk) - The company acquired Centric Telecom, Inc. on January 14, 2021, for an aggregate purchase price of **$3.255 million**, including cash, stock, and contingent consideration[452](index=452&type=chunk) Consolidated Balance Sheet Highlights (As of Dec 31) | Account (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $7,468 | $17,579 | | Goodwill | $36,972 | $272 | | Intangible assets, net | $22,161 | $252 | | **Total Assets** | **$77,152** | **$30,705** | | Total liabilities | $11,219 | $4,941 | | Total stockholders' equity | $65,933 | $25,764 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total revenue | $28,092 | $16,387 | | Total operating expenses | $30,902 | $15,396 | | Income/(loss) from operations | $(2,810) | $991 | | **Net income/(loss)** | **$(2,445)** | **$7,940** | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=73&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) No changes in or disagreements with accountants on accounting and financial disclosure were reported for the period - None[530](index=530&type=chunk) [Controls and Procedures](index=73&type=section&id=ITEM%209A.CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2021, with no material changes during the fourth quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[531](index=531&type=chunk) - Management's report on internal control over financial reporting concluded that it was effective as of December 31, 2021, based on the COSO 2013 framework[533](index=533&type=chunk) - No changes in internal control over financial reporting occurred during the year that materially affected, or are reasonably likely to materially affect, internal controls[532](index=532&type=chunk) [Other Information](index=73&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) No other information is reported for this period - None[535](index=535&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=73&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 company's 2022 Annual Meeting of Stockholders proxy statement, and the company maintains a code of ethics on its website - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement[536](index=536&type=chunk) [Executive Compensation](index=73&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information concerning executive compensation is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - Information regarding executive compensation is incorporated by reference from the 2022 Proxy Statement[538](index=538&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters](index=74&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDERS%20MATTERS) Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - Information regarding security ownership is incorporated by reference from the 2022 Proxy Statement[539](index=539&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=74&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Information concerning related party transactions and director independence is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2022 Proxy Statement[540](index=540&type=chunk) [Principal Accountant Fees and Services](index=74&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Information regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - Information regarding principal accountant fees and services is incorporated by reference from the 2022 Proxy Statement[541](index=541&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=74&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section details the documents filed as part of the Annual Report, including consolidated financial statements, a financial statement schedule, and an index of exhibits such as the NetSapiens merger agreement and corporate governance documents - This section contains the list of financial statements, the financial statement schedule, and the exhibit index for documents filed with the report[543](index=543&type=chunk) - Key exhibits listed include the Agreement and Plan of Merger with NetSapiens, Inc., Articles of Incorporation, Bylaws, and certifications by the CEO and CFO[545](index=545&type=chunk)

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 September 30, 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) | --- | --- | |------------- ...

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 June 30, 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) | --- | --- | |------------------ ...