Crexendo(US:CXDO)2024-05-07 20:00First Quarter 2024 Financial Results Overview Crexendo's Q1 2024 results show a 14% revenue increase to $14.3 million, achieving GAAP net income of $434 thousand and non-GAAP net income of $1.9 million, marking a significant turnaround from the prior year's net loss Key Financial Highlights Crexendo reported a 14% increase in total revenue to $14.3 million, achieving GAAP net income of $434 thousand and non-GAAP net income of $1.9 million for Q1 2024, marking a significant turnaround from a net loss in the prior year Revenue Performance Total revenue grew 14% year-over-year to $14.3 million in Q1 2024, driven by strong performance in service and software solutions revenue Q1 2024 Revenue Performance | Metric | Q1 2024 ($ million) | Q1 2023 ($ million) | YoY Change ($ million) | YoY Change (%) | | :--------------------------- | :------------------ | :------------------ | :--------------------- | :------------- | | Total Revenue | 14.3 | 12.5 | 1.8 | 14% | | Service Revenue | 7.8 | 7.1 | 0.7 | 10% | | Software Solutions Revenue | 5.1 | 4.1 | 1.0 | 25% | | Product Revenue | 1.3 | 1.2 | 0.1 | 6% | Profitability Metrics Crexendo achieved GAAP net income of $0.4 million and non-GAAP net income of $1.9 million in Q1 2024, a substantial improvement from a net loss in the prior year Q1 2024 Profitability Metrics | Metric | Q1 2024 ($ million) | Q1 2023 ($ million) | | :--------------------------- | :------------------ | :------------------ | | GAAP Net Income | 0.4 | (1.6) | | Non-GAAP Net Income | 1.9 | 0.6 | | GAAP Basic EPS | 0.02 | (0.06) | | GAAP Diluted EPS | 0.01 | (0.06) | | Non-GAAP Basic EPS | 0.07 | 0.02 | | Non-GAAP Diluted EPS | 0.06 | 0.02 | | EBITDA | 1.3 | (0.7) | | Adjusted EBITDA | 2.0 | 0.7 | Cash and Liquidity Cash and cash equivalents increased to $11.0 million by March 31, 2024, with positive cash flow from financing activities offsetting operating cash usage Cash and Cash Equivalents & Cash Flow | Metric | March 31, 2024 ($ million) | December 31, 2023 ($ million) | | :----------------------------------- | :------------------------- | :---------------------------- | | Cash and Cash Equivalents | 11.0 | 10.3 | | Cash Flow Activity | Q1 2024 ($ million) | Q1 2023 ($ million) | | :----------------------------------- | :------------------ | :------------------ | | Cash used for Operating Activities | (0.2) | (1.6) | | Cash used for Investing Activities | 0.0 | (0.0) | | Cash provided by Financing Activities| 0.8 | (0.2) | Management Commentary CEO Jeff Korn highlighted strong Q1 2024 performance with 14% organic revenue growth and GAAP profitability, emphasizing strategic focus on organic expansion and accretive acquisitions - CEO Jeff Korn highlighted a 14% year-over-year organic increase in total revenue to $14.3 million and GAAP profitability, noting strong performance across all revenue segments, particularly 25% growth in software solutions12 - The company achieved GAAP net income of $434 thousand, non-GAAP net income of $1.9 million, and Adjusted EBITDA of $2.1 million, marking the third consecutive quarter of GAAP profitability12 - Future strategic focus includes driving organic growth, pursuing larger opportunities, and exploring accretive acquisitions to accelerate expansion12 Company Information This section provides an overview of Crexendo's business, its forward-looking statement, and investor contact details About Crexendo This section provides a brief overview of Crexendo's business, describing it as an award-winning provider of cloud communication, video collaboration, and managed IT services for businesses of all sizes - Crexendo, Inc. is an award-winning premier provider of cloud communication platform and services, video collaboration, and managed IT services, offering enterprise-class cloud solutions to businesses of any size14 Safe Harbor Statement The Safe Harbor Statement clarifies that the press release contains forward-looking statements, which are subject to risks and uncertainties, and the company undertakes no obligation to update them, except as required by law - The press release contains forward-looking statements, identified by words like 'believe,' 'expect,' 'anticipate,' and 'estimate,' which are subject to risks and uncertainties as detailed in SEC filings (Form 10-K, 10-Qs)1516 Company Contact This section provides contact information for investor inquiries, listing Doug Gaylor as President and Chief Operating Officer - Contact information for investor inquiries is provided, with Doug Gaylor as President and COO1723 Condensed Consolidated Financial Statements This section presents Crexendo's condensed consolidated balance sheets, statements of operations, cash flows, and supplemental segment data for the reporting period Condensed Consolidated Balance Sheets The condensed consolidated balance sheets provide a snapshot of Crexendo's financial position as of March 31, 2024, compared to December 31, 2023, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheets | Assets | March 31, 2024 ($ thousand) | December 31, 2023 ($ thousand) | | :--------------------------------------------------------------------------------------------------------------- | :-------------------------- | :----------------------------- | | Current assets: | | | | Cash and cash equivalents | 11,041 | 10,347 | | Trade receivables, net | 4,216 | 3,476 | | Inventories | 381 | 382 | | Equipment financing receivables, net | 884 | 856 | | Contract costs | 1,601 | 1,345 | | Prepaid expenses | 899 | 508 | | Other current assets | 23 | 35 | | Total current assets | 19,045 | 16,949 | | Contract assets, net | 320 | 342 | | Long-term equipment financing receivables, net | 1,869 | 1,768 | | Property and equipment, net | 590 | 670 | | Operating lease right-of-use assets | 860 | 1,009 | | Intangible assets, net | 22,796 | 23,556 | | Goodwill | 9,454 | 9,454 | | Contract costs, net of current portion | 2,396 | 2,273 | | Other long-term assets | 137 | 139 | | Total Assets | 57,467 | 56,160 | | Liabilities and Stockholders' Equity | | | | Current liabilities: | | | | Accounts payable | 619 | 769 | | Accrued expenses | 5,002 | 5,951 | | Finance leases | 76 | 75 | | Notes payable | 462 | 457 | | Operating lease liabilities | 476 | 566 | | Income tax payable | 80 | 53 | | Contract liabilities | 2,898 | 2,390 | | Total current liabilities | 9,613 | 10,261 | | Contract liabilities, net of current portion | 198 | 198 | | Finance leases, net of current portion | 4 | 23 | | Notes payable, net of current portion | 475 | 592 | | Operating lease liabilities, net of current portion | 412 | 473 | | Total liabilities | 10,702 | 11,547 | | Stockholders' equity: | | | | Common stock | 27 | 26 | | Additional paid-in capital | 134,604 | 132,888 | | Accumulated deficit | (88,033) | (88,467) | | Accumulated other comprehensive income | 167 | 166 | | Total stockholders' equity | 46,765 | 44,613 | | Total Liabilities and Stockholders' Equity | 57,467 | 56,160 | Condensed Consolidated Statements of Operations The condensed consolidated statements of operations detail Crexendo's revenues, operating expenses, and net income (or loss) for the three months ended March 31, 2024, compared to the same period in 2023, showing a significant shift from a net loss to net income Condensed Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2024 ($ thousand) | Three Months Ended March 31, 2023 ($ thousand) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Revenue: | | | | Service revenue | 7,845 | 7,158 | | Software solutions revenue | 5,146 | 4,108 | | Product revenue | 1,295 | 1,225 | | Total revenue | 14,286 | 12,491 | | Operating expenses: | | | | Cost of service revenue | 3,109 | 3,044 | | Cost of software solutions revenue | 1,392 | 1,185 | | Cost of product revenue | 730 | 839 | | Selling and marketing | 4,027 | 3,809 | | General and administrative | 3,296 | 3,997 | | Research and development | 1,249 | 1,191 | | Total operating expenses | 13,803 | 14,065 | | Income/(loss) from operations | 483 | (1,574) | | Other income/(expense): | | | | Interest expense | (13) | (42) | | Other income/(expense), net | (9) | 58 | | Total other income/(expense), net | (22) | 16 | | Income/(loss) before income tax | 461 | (1,558) | | Income tax (provision)/benefit | (27) | (24) | | Net income/(loss) | 434 | (1,582) | | Earnings per common share: | | | | Basic | 0.02 | (0.06) | | Diluted | 0.01 | (0.06) | | Weighted-average common shares outstanding: | | | | Basic | 26,314,903 | 25,734,049 | | Diluted | 30,142,100 | 25,734,049 | Condensed Consolidated Statements of Cash Flows The condensed consolidated statements of cash flows illustrate Crexendo's cash generation and usage across operating, investing, and financing activities for the three months ended March 31, 2024, showing a net increase in cash and cash equivalents Condensed Consolidated Statements of Cash Flows | CASH FLOWS FROM OPERATING ACTIVITIES | Three Months Ended March 31, 2024 ($ thousand) | Three Months Ended March 31, 2023 ($ thousand) | | :------------------------------------------------------------------------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net income/(loss) | 434 | (1,582) | | Adjustments to reconcile net income/(loss) to net cash provided by/(used for) operating activities: | | | | Depreciation and amortization | 840 | 908 | | Allowance for credit losses | 14 | 55 | | Share-based compensation | 728 | 1,414 | | Non-cash operating lease amortization | (2) | - | | Changes in assets and liabilities: | | | | Trade receivables | (749) | (548) | | Contract assets | 25 | (5) | | Equipment financing receivables | (137) | (239) | | Inventories | 1 | 40 | | Contract costs | (379) | (268) | | Prepaid expenses | (391) | (190) | | Other assets | 14 | 163 | | Accounts payable and accrued expenses | (1,099) | (1,110) | | Income tax payable | 27 | 23 | | Contract liabilities | 508 | (215) | | Net cash provided by/(used for) operating activities | (166) | (1,554) | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | Purchase of property and equipment | - | (9) | | Net cash provided by/(used for) investing activities | - | (9) | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | Proceeds from notes payable | - | 278 | | Borrowing on line of credit, net | - | (82) | | Repayments made on finance leases | (18) | (30) | | Repayments made on notes payable | (112) | (152) | | Proceeds from exercise of options | 1,049 | 40 | | Taxes paid on the net settlement of stock options and RSUs | (60) | (257) | | Net cash provided by/(used for) financing activities | 859 | (203) | | Effect of exchange rate changes on cash | 1 | (21) | | NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 694 | (1,787) | | CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR | 10,347 | 5,475 | | CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR | 11,041 | 3,688 | | Supplemental disclosure of cash flow information: | | | | Cash used during the year for: | | | | Interest expense | (13) | (24) | | Supplemental disclosure of non-cash investing and financing information: | | | | Transfer of property and equipment, net to property and equipment, held for sale | - | 2,333 | Supplemental Segment Financial Data This section provides a breakdown of revenue and operating income (or loss) by Crexendo's key segments: Cloud telecommunications services and Software solutions, highlighting their individual contributions to the consolidated results Supplemental Segment Financial Data | Metric | Three Months Ended March 31, 2024 ($ thousand) | Three Months Ended March 31, 2023 ($ thousand) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Revenue: | | | | Cloud telecommunications services | 9,140 | 8,383 | | Software solutions | 5,146 | 4,108 | | Consolidated revenue | 14,286 | 12,491 | | Operating income/(loss) from operations: | | | | Cloud telecommunications services | 78 | (1,179) | | Software solutions | 405 | (395) | | Total operating income/(loss) | 483 | (1,574) | | Income/(loss) before income tax provision: | | | | Cloud telecommunications services | 73 | (1,218) | | Software solutions | 388 | (340) | | Income/(loss) before income tax provision | 461 | (1,558) | Non-GAAP Financial Measures This section details Crexendo's use of Non-GAAP financial measures, including their definitions, rationale, and reconciliations to U.S. GAAP results Use of Non-GAAP Financial Measures This section explains Crexendo's rationale for using Non-GAAP financial measures like Non-GAAP net income, EBITDA, and Adjusted EBITDA as supplemental indicators of operating performance, while also outlining their definitions and inherent limitations - Crexendo uses Non-GAAP net income and Adjusted EBITDA as supplemental measures to evaluate operating performance, adjusting for items like share-based compensation, acquisition expenses, and amortization of intangibles28 - EBITDA is defined as U.S. GAAP net income/(loss) before interest, taxes, depreciation, and amortization, while Adjusted EBITDA further adjusts for acquisition-related expenses and share-based compensation28 - These Non-GAAP measures have limitations, such as not reflecting cash expenditures for capital, working capital, debt service, or taxes, and should not be considered in isolation from GAAP results29 Reconciliation of Non-GAAP Net Income This section provides a detailed reconciliation of U.S. GAAP net income (or loss) to Non-GAAP net income, showing the specific adjustments made for share-based compensation, acquisition-related expenses, and amortization of intangible assets Reconciliation of Non-GAAP Net Income | Metric | Three Months Ended March 31, 2024 ($ thousand) | Three Months Ended March 31, 2023 ($ thousand) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | U.S. GAAP net income/(loss) | 434 | (1,582) | | Share-based compensation | 728 | 1,414 | | Acquisition related expenses | - | 1 | | Amortization of intangible assets | 760 | 792 | | Non-GAAP net income | 1,922 | 625 | | Non-GAAP earnings per common share: | | | | Basic | 0.07 | 0.02 | | Diluted | 0.06 | 0.02 | | Weighted-average common shares outstanding: | | | | Basic | 26,314,903 | 25,734,049 | | Diluted | 30,142,100 | 27,523,334 | Reconciliation of EBITDA to Adjusted EBITDA This section provides a reconciliation from U.S. GAAP net income (or loss) to EBITDA and then to Adjusted EBITDA, detailing adjustments for depreciation, amortization, interest, taxes, acquisition-related expenses, and share-based compensation Reconciliation of EBITDA to Adjusted EBITDA | Metric | Three Months Ended March 31, 2024 ($ thousand) | Three Months Ended March 31, 2023 ($ thousand) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | U.S. GAAP net income/(loss) | 434 | (1,582) | | Depreciation and amortization | 840 | 908 | | Interest expense | 13 | 42 | | Other, net | 14 | (58) | | Income tax provision/(benefit) | 27 | 24 | | EBITDA | 1,328 | (666) | | Acquisition related expenses | - | 1 | | Share-based compensation | 728 | 1,414 | | Adjusted EBITDA | 2,056 | 749 |