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Crexendo, Inc. (CXDO)·Q3 2025 Earnings Summary

Executive Summary

  • Delivered a strong quarter: revenue +12% YoY to $17.5M, GAAP EPS $0.05, and non-GAAP EPS $0.10, with consolidated gross margin expanding 200 bps YoY to 63% .
  • Beat Wall Street S&P Global consensus on revenue ($17.50M vs $17.02M*) and on non-GAAP EPS ($0.10 vs $0.073*); margin expansion and 28% YoY software growth were key drivers .
  • Execution highlights: surpassed 7+ million end users, RPO backlog rose to $87.9M (from $83.5M in Q2) signaling durable demand and visibility .
  • Narrative catalysts: accelerating AI product cycle (AI Receptionist “Kairo”), Oracle Cloud Infrastructure (OCI) migration cost savings in early 2026, and active M&A pipeline with a potential deal by early next year .

What Went Well and What Went Wrong

What Went Well

  • Software momentum: Software solutions revenue +28% YoY to $7.5M; segment gross margin up 300 bps YoY to 74%, reflecting scale and mix benefits .
  • Non-GAAP profitability and cash: non-GAAP net income $3.0M ($0.10/share); adjusted EBITDA $2.9M (17% of revenue); cash & equivalents rose to $28.6M, up from $18.2M at year-end 2024 .
  • Platform scale and AI: “We surpassed 7 million end users on our platform” and introduced AI Receptionist Orchestrator (Kairo) with expectations for high attach and ARPA uplift potential, reinforcing product-led growth .

What Went Wrong

  • Product revenue and margins: Product revenue fell 25% YoY to $1.4M; product gross margin declined ~300 bps YoY to 35% due to mix and selective pullback from lower-margin deals .
  • Services gross margin dipped: Service revenue gross margin decreased 100 bps YoY to 57%, partially offset by stronger software margins .
  • No formal numeric guidance: Management reiterated directional/qualitative targets (double-digit growth, services acceleration, margin benefits post-OCI), but did not provide formal revenue/EPS guidance, leaving models to infer from commentary .

Financial Results

Core P&L trend (oldest → newest)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($M)$16.06 $16.55 $17.50
GAAP Diluted EPS$0.04 $0.04 $0.05
Non-GAAP Diluted EPS$0.06 $0.09 $0.10
EBITDA ($M)$1.90 (text) $1.96 $2.14
Adjusted EBITDA ($M)$2.60 (text) $2.78 $2.94

Year-over-Year comps (Q3-only)

MetricQ3 2024Q3 2025
Revenue ($M)$15.63 $17.50
GAAP Diluted EPS$0.00 $0.05
Non-GAAP Diluted EPS$0.06 $0.10
Consolidated Gross Margin61% 63%
Operating Margin1% 7%

Margin profile (oldest → newest)

MarginQ3 2024Q2 2025Q3 2025
Consolidated Gross Margin61% 63% 63%
Operating Margin1% 7% 7%

Segment Revenue breakdown ($M; oldest → newest)

SegmentQ3 2024Q2 2025Q3 2025
Service$7.95 $8.37 $8.57
Software Solutions$5.86 $6.98 $7.52
Product$1.81 $1.20 $1.41
Total$15.63 $16.55 $17.50

Segment margins (Q3 2025)

MetricQ3 2025
Service Gross Margin57%
Software Solutions Gross Margin74%
Product Gross Margin35%
Consolidated Gross Margin63%

KPIs and balance indicators (oldest → newest)

KPIQ3 2024Q2 2025Q3 2025
End users on platform—6M+ (text) 7M+
Remaining Performance Obligations (RPO)$77.3M $83.5M $87.9M
Cash & Equivalents—$23.45M $28.57M

Results vs S&P Global Consensus (Q3 2025)

MetricConsensus*ActualSurprise
Revenue ($)17,017,860*17,497,000 +479,140
Primary EPS (non-GAAP)0.0729*0.10 +0.0271

Values marked with * retrieved from S&P Global.

Drivers of the beat: outsized software growth (+28% YoY) and higher consolidated gross margin (+200 bps YoY), partially offset by weaker product mix and lower service gross margin (-100 bps YoY) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal revenue/EPS guidanceFY/Q4 2025NoneNoneMaintained (no numeric guidance)
Growth outlook2025–2026Double-digit (qualitative)Continues to expect double-digit growth through next yearReiterated
Service revenue trajectoryNear-term—Expect growth to continue/accelerate from 8% YoYPositive qualitative
Product gross marginNear-term—Expected to improve back to low-40s rangePositive qualitative
OCI migration cost savingsEarly 2026International done (Q2)Complete U.S. migration; cost savings in early 2026Timed cost tailwind
Classic→VIP migration savingsStarting Q1 (next year)—“Nearly complete,” incremental savings beginning in Q1Positive qualitative
M&A pipelineEarly next yearUnder reviewOne deal likely (potentially $5–10M, possibly ~$20M rev run-rate)Positive optionality

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
AI/technology initiativesIntroduced/expanded AI suite; planned AI assistant/operator; software GM 78% in Q1; strong AI roadmap Launched AI Receptionist “Kairo”; 41 EVP partners; 10+ AI apps showcased; Version 46 “Horizon” UX preview for 2026 Accelerating product cadence and ecosystem engagement
OCI migration / costInternational data centers migrated in Q2; U.S. migration ongoing; savings weighted to 2026 U.S. migration expected complete by end of Q1; cost savings in early 2026 Cost tailwind approaching
Services growth+4% YoY in Q2; disciplined approach; master agent bookings +88% YoY +8% YoY in Q3; mgmt expects continued/accelerating growth; bookings conversion improving Improving and building confidence
Software platform scaleSurpassed 6M users in Q1; strong licensee adds/upgrades; 31% YoY growth in Q2 Surpassed 7M users; 28% YoY growth; 12 upgrades, 6 new logos in quarter Strong, sustained momentum
Channel/master agentsQ2 bookings +88% YoY; focus on select TSDs Bookings +28% YoY; momentum expected to continue Healthy growth, moderation from Q2
InternationalOCI enables fast global deployment; Europe/Australia focus Still <10% of rev; growing faster than domestic; first Africa customer onboarded Early-stage growth runway
Competitive landscapeWins from BroadSoft/Metaswitch; rational pricing concerns persist Continued opportunities amid competitor uncertainty; value/service differentiation emphasized Share gains via product and service differentiation
M&AActive but disciplined; accretive in ≤3 quarters targeted One acquisition likely by early next year; size bucket $5–10M or ~20M run-rate Increasing probability of near-term deal

Management Commentary

  • “Crexendo delivered another blockbuster quarter, highlighted by 12% year-over-year revenue growth, $1.5 million in GAAP net income, and $3 million in non-GAAP net income.”
  • “The highlight for me personally was being able to announce that we surpassed 7 million end users on our platform.”
  • “Adjusted EBITDA for the quarter was $2.9 million, or 17% of total revenue.”
  • “We are nearly complete with our classic to VIP migration, which will add additional cost savings beginning in Q1… [and] anticipate additional cost savings… beginning in early 2026.”
  • On AI Receptionist (Kairo): “We think that our take rate is going to be extremely high, and… increase our average revenue per account upwards by 40% or 50%.”

Q&A Highlights

  • Pipeline and services growth: Retail services growth +8% YoY with faster conversion to implementation; management expects growth to continue and potentially accelerate given service differentiation and customer support .
  • AI monetization: Kairo positioned for broad SMB adoption with high attach; management targets meaningful ARPA uplift (40–50%) and plans an aggressive rollout across base and new customers .
  • OCI migration: U.S. legacy data center migration expected to be completed by end of Q1 (next) with cost savings beginning early 2026 .
  • Product gross margin: Expected to rebound to low-40s after a Q3 dip driven by some lower-margin sales in the quarter .
  • M&A: One deal likely by early next year; if ~$20M run-rate, probably the only acquisition for the year; otherwise $5–10M could allow a second deal .

Estimates Context

  • Q3 2025 results beat S&P Global consensus on revenue ($17.50M vs $17.02M*) and on non-GAAP EPS ($0.10 vs $0.073*), aided by 28% software growth and consolidated gross margin improvement .
  • Q4 2025 consensus stands at revenue ~$18.08M* and EPS ~$0.082*; given mgmt commentary on services acceleration, AI attach, and backlog, upward bias to top-line and non-GAAP EPS estimates is plausible, while product mix and timing of OCI savings temper near-term margin expansion.
    Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Software-led engine with operating leverage: 28% YoY software growth and 74% segment GM underpin gross margin resilience and non-GAAP earnings power .
  • Visible growth runway: RPO at $87.9M and record platform scale (7M+ users) support revenue visibility into 2026 .
  • AI monetization catalyst: Kairo (AI Receptionist) should support higher ARPA and competitive win rates; watch attach/uptake and partner-led channel sell-through .
  • Margin trajectory: Near-term GM supported by mix; larger cost tailwinds (U.S. OCI shutdown, Classic→VIP) skew to early 2026 .
  • Capital and optionality: $28.6M cash and likely M&A by early next year provide inorganic upside; sizing will determine integration bandwidth in 2026 .
  • Modeling note: Keep using non-GAAP EPS for comp vs Street; factor conservative product margin recovery and services GM stabilization; potential estimate revisions bias upward on revenue and non-GAAP EPS, with most opex savings deferred to 2026 .

Appendix: Additional Press Releases (Q3 2025)

  • NUSO partnership expands global delivery footprint to 40+ countries for Crexendo platform providers; creates new revenue opportunities for licensees .
  • SNOM sponsorship underscores ecosystem engagement at 2025 UGM; record sponsor/attendee levels signal platform adoption strength .