Crexendo, Inc. (NASDAQ:CXDO) Q1 2024 Earnings Call Transcript

Crexendo, Inc. (NASDAQ:CXDO) Q1 2024 Earnings Call Transcript May 10, 2024

Crexendo, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the Crexendo First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode and question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host Mr. Jeff Korn. Sir you may begin.

Jeff Korn: Thank you, Ollie and good afternoon everyone. Welcome to the Crexendo Q1 2024 conference call. I'm Jeff Korn, Chairman of the Board of Directors and CEO. On the call with me today are Doug Gaylor, our President and COO; Ron Vincent, our CFO; Jon Brinton, our CRO; and Anand Buch, our CSO. In a moment, Jon will read our Safe Harbor statement. After that, I will give some brief comments on our performance for the first quarter. Ron will then provide more detail on the numbers before handing the call over to Doug to provide a business and sales update. After that, we'll open up the call to questions. Jon would you please read the Safe Harbor statement?

Jon Brinton: Thank you, Jeff. I want to take this opportunity to remind listeners that this call will contain forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. All statements made in this conference call, other than statements of historical fact, are forward-looking statements. Forward-looking statements include but are not limited to words like believe, expect, anticipate, estimate, will, and other similar statements of expectation identifying forward-looking statements. Investors should be aware that any forward-looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today.

These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission including the Form 10-K for the fiscal year ended December 31, 2023 and the Forms 10-Q as filed. Crexendo does not undertake any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. I'd now like to turn the call back to Jeff. Jeff?

Jeff Korn: Thank you, Jon. I'm very excited to report that in the first quarter, Crexendo maintained its streak of achieving GAAP profitability for the third consecutive quarter and non-GAAP net income for the 22nd consecutive quarter. This performance reflects on the dedication of our entire team who work to make certain that we provide the best cloud communication software in the industry. We combine that with superb customer service where G2 ranked us the Number One in 19 customer satisfaction categories in G2's Spring 2024 Report, making the fifth consecutive quarter that Crexendo has been rated first in multiple satisfaction categories. This shows that we strive for operational excellence and delivering value to our shareholders and our customers.

With that said, we don't rest on our laurels and we are always looking for ways to improve our cloud communication software and our customer service. We know there are multiple solutions and we will continue to work to be the solution of choice both on the software solution business and on the telecom services business. The strong financial results in Q1 included a 14% year-over-year organic increase in total revenues to $14.3 million which was driven by a 25% growth in the Software Solutions segment as well as near double-digit increase in Telecom Services revenue which equated to very solid performances across all revenue segments. Our efforts are certainly bearing fruit and is evident by the GAAP earnings of $434,000 and non-GAAP net income of $1.9 million and adjusted EBITDA of $2.1 million.

Our goal is to deliver profitable growth and create value for our shareholders. The transition of customers from our Crexendo Classic system to the cutting-edge VIP platform continues to advance effectively. We remain optimistic about completing this migration by year-end. This will allow us to vacate our current premises and move to a new location. The cost savings of not maintaining two platforms, together with the reduction in rent costs and other ancillary expenses, should result in substantial cost reductions. We continue to aggressively manage costs. With that said however, we will make strategic investments in the business, so that we can continue to be the Cloud Communication leader. Last month was a really big month for us. We announced that we now serve over 4.5 million users, on our platform.

We continue to add users at a steady pace, and I see no end in sight. Frost & Sullivan who in their recent 2024 report awarded us the Competitive Strategy Leadership Award for Excellence, in Cloud Communications, confirmed that we are the fastest-growing UCaaS platform in the industry. Our team and our disruptive business model of Sessions Not Seats, continues to give us a competitive edge. We were also given the honor of ringing the NASDAQ closing bell. Our exceptional team was able to join us either in person or by video and many of our employees had their images flashed on the Times Square billboard. I must -- it was very exciting for us to share that honor with some of our licensees, who joined us as we had our Partner Advisory Council meeting at the NASDAQ offices.

We have a Partner Advisory meeting every quarter, to make sure that we constantly stay in touch with our licensees. And we are adapting to their needs. That's one of the ways that Crexendo excels. But it was really a thrill for us and me in particular, to get to close the market that day. Our work with Oracle is also progressing rapidly and smoothly. As you may have seen we put out a press release today, to celebrate, what I am sure will be a great winning combination. We are very excited about the growth of our hosted offering, and anticipate even more positive developments. We expect substantial growth as more-and-more customers are looking for a more turnkey solution and seek to have us do the hosting for them. Our tremendous team working with the Oracle team should make us the top hosted solution in the industry.

With that said, we will continue to improve our non-hosted solutions and keep them the best in the industry also. Lastly, I would like to touch on our recent filing today, of a shelf registration, which you should be able to find on EDGAR. While this is not for immediate use, it's a testament to our commitment to good corporate governance. This is something I've personally advocated, for some time even before becoming CEO. The shelf is good for three years and gives us flexibility to determine when and if, we use it and under what terms. We anticipate that if we use the shelf, it will be for future strategic investments most likely in accretive acquisitions. It's just one more tool in our arsenal, to effectively close deals that make sense.

In conclusion, I want to reiterate our expectation for double-digit organic growth. We are poised for continued success. And I'm confident in our ability to deliver outstanding results in the quarters to come. The future looks bright. And we could not be more excited. I'll now turn over the call to Ron, to provide some financial highlights. Ron?

Ron Vincent: Thank you, Jeff. Good afternoon, everyone. Some financial highlights for the first quarter of 2024 are as follows. Total revenue for the quarter increased 14% to $14.3 million, compared to $12.5 million for the first quarter of the prior year. Our service revenue for the quarter increased 10% to $7.8 million, compared to $7.1 million for the first quarter of the prior year. Software solutions segment contributed 25% growth in revenue to $5.1 million, compared to $4.1 million for the first quarter of the prior year. Our product revenue increased 6% to $1.3 million, compared to $1.2 million for the first quarter of the prior year. We continue to see strong gross margins for the quarter. Service gross margin came in at 60% for the quarter; product revenue gross margin 44%; for an overall telecom services segment gross margin of 58%.

That's compared to 55% in Q4 of last year. Software solutions gross margin 73%. That's compared to 66% in Q4 and 59% -- 71% in Q1 of the prior year. Overall gross margins 63%. Our operating expenses -- excuse me, for the quarter decreased 2% to $13.8 million compared to $14 million for the first quarter of the prior year. We reported net income as Jeff mentioned of $434,000 for the quarter that's $0.02 per basic and $0.01 per diluted common share, compared to a net loss of $1.6 million or a $0.06 loss per basic and diluted common share for the first quarter of the prior year. We also reported non-GAAP net income of $1.9 million for the quarter, that's $0.07 per basic and $0.06 per diluted common share compared to a non-GAAP net income of $625000 or $0.02 per basic and diluted common share for the first quarter of the prior year.

EBITDA for the quarter was $1.3 million compared to a loss of $666,000 for the first quarter of the prior year. Adjusted EBITDA came in at approximately $2.1 million; that's compared to $749,000 for the first quarter of the prior year. We ended the quarter with a strong cash balance of $11 million; that's compared to $10.3 million at December 31, 2023. We used $166,000 for operating activities during the quarter mostly to pay down accrued liabilities and accounts payables balances. Cash used for investing activities was zero for the quarter compared to $9000 in the prior period. And cash provided by financing activities for the quarter was $859,000 compared to cash used for investing activities of $200000 for the same period of the prior year.

I will now turn it over to Doug Gaylor, our President and COO for additional comments on business and sales.

Doug Gaylor: Thanks Ron. We had another very strong performance in Q1 and I'm very pleased with our momentum to start 2024. Our 14% year-over-year increase in Q1 revenues along with our third consecutive GAAP profitable quarter were the direct result of our focus on growing organically and managing to the fundamentals. We had GAAP net income of $434000 for the quarter or $0.02 a share. And on a non-GAAP basis we had strong non-GAAP net income of $1.92 million for the quarter or $0.07 per share and this is our 22 consecutive quarter with non-GAAP net income. Our results for the quarter continue to highlight our success in managing costs and recognizing significant synergies from our acquisitions, allowing us to quickly leverage the opportunity to grow our business.

Our entire team worked tirelessly together to improve business processes and make our company more efficient and we believe we will continue to see more efficiencies and cost synergies as we continue our growth. We had significant organic growth in both segments of our business for the quarter. Our software solutions segment achieved 25% organic growth year-over-year while our telecom services segment saw a 9% organic growth rate for the quarter. The combined 14% organic growth rate highlights the growing demand for our products and services. The 25% organic growth rate in our software solutions segment allowed us to eclipse the 4.5 million users mark on our platform during the quarter. The rapid growth we are experiencing on our platform was further highlighted by Frost & Sullivan awarding us their 2024 North American Strategy Leadership Award during the quarter and highlighting our outstanding 36% user surge in 2023, which was nearly double the industry average.

Our Crexendo licensees and agents continue to benefit from the rapid migration by small and midsize and enterprise-level businesses to the cloud. And our licensees continue to grow. And as they do they need additional services and increase their spend with Crexendo. Our telecom services segment grew at 9% organically and we continue to see strong demand for our offerings from our channel partners and saw an 85% growth rate in our sales from our master agent partnerships compared to Q1 of 2023. Our channel partners sell our services to their prospects and customers on a revenue share basis and we continue to see nice growth from our existing channel partners, who have great confidence in our solutions because of our 100% uptime guarantee and our best-in-class customer service and customer satisfaction results.

And that was further highlighted by our 19 first place awards in Q1 from the leading industry review site G2.com. Our backlog continues to grow and is now at $67.4 million, an increase of 41% from Q1 of 2023. Our backlog number is the sum of the remaining contract values of our telecom services and our software solutions customers that will be recognized on a sliding scale over the next 60 months and it's a strong indicator of our future revenue stream. We continue to focus on improving our gross margins and saw a nice increase from 69% at the end of Q4 to 73% in Q1 gross margins in our software solutions segment. And in our telecom service margins, they increased from 60% compared to 58% at the end of 2023. And the telecom services gross margins continue to be affected by the lower margins from our Allegiant acquisition that really focuses on MSP services.

But without that we're still seeing nice growth in our gross margins. And our telecom services product margins were also up quarter-over-quarter from 44% compared to 40% at the end of last year. We recently released our Version 44.1 software on our platform that continues to enhance and expand our product offerings. With our enhanced API integrations, we're seeing more and more artificial intelligence applications being developed and deployed on our platform. With hundreds of third party developers building solutions to integrate on our platform, we're on the leading edge in regards to delivering AI-type solutions that every end user and every end user business can use and afford. As we've mentioned previously our past acquisitions have been remarkably successful and we are proactively looking for our next synergistic acquisition to complement our organic growth.

We're optimistic that our efforts will result in significant inorganic growth opportunities in the near future. We started 2024 with a strong first quarter and had a lot of momentum and I couldn't be more excited about the future direction and opportunity for Crexendo. We continue to execute well on our plan for organic and inorganic growth and increasing margins and managing expenses. Our rapid end user growth highlights that there is still great demand for our product offerings and solutions and the future enhancements and developments around AI will ensure that that demand continues. We're also committed to delivering the best UCaaS, CCaaS and CPaaS offerings in our sector to our customers and our partners and the best return for our shareholders, and that's evident by our continued growth and our continued success.

I'll now turn it back over to Jeff for any further comments.

Jeff Korn: At this time, I don't have any further comments. So Ally, I'd like to open the call up to questions please.

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