Crexendo, Inc. (CXDO)·Q1 2025 Earnings Summary

Executive Summary

• Crexendo delivered a solid Q1 2025: revenue rose 12% year-over-year to $16.1M, GAAP net income was $1.2M ($0.04 diluted EPS), and non-GAAP diluted EPS was $0.08; consolidated gross margin expanded to 65% on strong software mix .
• Versus S&P Global consensus, Crexendo posted a revenue beat ($16.06M vs $15.80M*) and an EPS beat ($$0.08 vs $0.0617*), aided by 33% software solutions revenue growth and 78% software gross margins; product revenue weakness (-22% YoY) was a partial offset .
• Management reaffirmed “minimum double-digit” FY 2025 revenue growth and introduced full-year software gross margin guidance of 73–75%; the OCI migration is targeted to complete by year-end 2025, expected to drive cost savings and further margin improvement .
• Strategic catalysts: platform now supports over 6 million users, RPO rose to $82M (+22% YoY) with >$30M slated for recognition in 2025; industry disruption (Cisco BroadSoft changes, Metaswitch sold to Alianza) is creating share capture opportunities .

What Went Well and What Went Wrong

What Went Well

• Software Solutions momentum: revenue +33% YoY to $6.9M and gross margin expanded to 78% (+500bps YoY, +1,000bps sequential), showcasing scalability and operating leverage. “We surpassed 6 million users… software solutions gross margins expanding to 78%” — Jeff Korn .
• Profitability and cash: GAAP net income of $1.2M; non-GAAP net income $2.6M; adjusted EBITDA $2.6M; cash increased to $21.2M with operating cash flow of $1.2M in the quarter .
• Strategic positioning: management highlighted partner ecosystem (EVP) traction and targeted acquisition strategy, plus OCI migration expected to improve margins and reduce costs .

What Went Wrong

• Hardware softness: product revenue fell 22% YoY to $1.0M, tempering consolidated revenue growth despite software strength .
• UCaaS growth headwinds: telecom services grew service revenue only 4% YoY; management emphasized avoiding unsustainable competitor pricing (spiffs/incentives) and pursuing profitable growth .
• Seasonality and backlog cadence: RPO next-12-month recognition was >$30M in 2025 but bookings are seasonally softer in Q1; management cautioned quarter-to-quarter variability despite reaffirming full-year double-digit growth .

Financial Results

Segment breakdown

Segment margins and consolidated mix

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We grew total revenue by 12% year-over-year to $16.1 million, fueled by a 33% increase in software solutions revenue. We surpassed 6 million users… software solutions gross margins expanding to 78%” — Jeff Korn .
• “Our goal to close our current hosted data centers and fully migrate to Oracle Cloud Infrastructure (OCI) by the end of 2025 will drive substantial cost savings and allow us to focus resources on innovation and customer success… margin expansion and growth” — Jeff Korn .
• “We reported strong net income on a GAAP and non-GAAP basis… I remain confident that we will continue to deliver double-digit revenue growth moving forward” — Jeff Korn .
• “Our telecom services segment grew service revenue by 4%… overall growth was impacted by a 22% decline in product revenue… strategically focused on accelerating telecom growth… leveraging… customer service… dealer partners and direct sales” — Jeff Korn .

Q&A Highlights

• Growth cadence: Management reaffirmed “minimum double-digit” revenue growth on a full-year basis, cautioning quarter-to-quarter variability; guidance pertains to 2025 rather than specifically Q2 .
• Pricing discipline: Competitor spiffs/incentives viewed as unsustainable; Crexendo will prioritize profitable UCaaS growth and product/service differentiation .
• Software margins: Q1 software gross margin 78%; full-year target 73–75%, not guiding to sustain 78% each quarter .
• Market disruption: Metaswitch sale to Alianza and legacy platform uncertainty (Mitel bankruptcy, Avaya focus shift) driving licensee conversions and partner interest .
• Seasonality and RPO: Q1 bookings are typically softer; RPO >$30M slated for recognition in remainder of 2025; backlog growth remains strong (+22% YoY) .

Estimates Context

• Q1 2025: Actual non-GAAP diluted EPS $0.08 vs S&P Global consensus $0.0617*; revenue $16.06M vs consensus $15.80M* — both beats, driven by software growth and margin expansion; product revenue decline a partial offset .
• Q4 2024: Actual non-GAAP diluted EPS $0.06 vs consensus $0.048*; revenue $16.24M vs consensus $15.64M* — beats, supported by software strength .

Values retrieved from S&P Global.

Where estimates may need to adjust:

• Full-year model assumptions likely move higher for Software Solutions gross margin (toward 73–75%) and consolidated margin trajectory given OCI savings potential and reduced software COGS in Q1 (−$667K) .
• Product revenue trajectory remains a watch item; consensus may temper hardware contribution assumptions given persistent declines .

Key Takeaways for Investors

• Software-led model is scaling: 33% software revenue growth and 78% segment margin drove consolidated GM to 65%, supporting sustained earnings beats .
• Profit discipline in UCaaS is strategic: management refuses unprofitable spiffs, positioning for durable margin structure and risk-controlled growth .
• OCI migration is a tangible margin/cost catalyst targeted by year-end 2025; expect operating leverage to improve as hosted data centers are closed .
• Demand signals are healthy: platform surpasses 6M end users; RPO $82M (+22% YoY) with >$30M due in 2025, supporting forward revenue visibility .
• Industry disruption creates share opportunities (Cisco BroadSoft changes, Metaswitch to Alianza; Mitel/Avaya channel uncertainty), where Crexendo’s flexible deployment and session-based pricing resonate .
• Near-term trading setup: continued consensus beats are plausible if software margins hold within 73–75% and OCI-related efficiencies commence; watch product revenue mix and Q2 seasonality .
• Medium-term thesis: a higher-quality revenue mix, disciplined go-to-market, and selective M&A could compound margin expansion and EPS growth through 2025–2026 .