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CI

Crexendo, Inc. (CXDO)·Q4 2024 Earnings Summary

Executive Summary

  • Record quarter: Revenue rose to $16.2M (+15% YoY), GAAP EPS $0.02, Non-GAAP EPS $0.06 diluted; EBITDA $1.5M and Adjusted EBITDA $2.2M .
  • Software Solutions strength: segment revenue +32% YoY to $7.0M, driving consolidated gross margin to 61% (+200bps YoY); Software GM 68% (+200bps YoY) .
  • Backlog and cash provide visibility: RPO/backlog reached $85.6M (+34% YoY), with $38.5M scheduled for recognition in 2025; cash and equivalents ended at $18.2M .
  • Strategic catalysts: disruption from Microsoft’s sale of Metaswitch and Cisco BroadSoft changes are accelerating licensee migrations to Crexendo; management reiterates at least double-digit growth outlook and improving adjusted EBITDA margins .
  • Consensus estimates: S&P Global consensus could not be retrieved at this time; estimate comparisons unavailable.

What Went Well and What Went Wrong

  • What Went Well

    • Software Solutions acceleration: Q4 software revenue up 32% YoY to $7.0M; consolidated revenue up 15% YoY to $16.2M .
    • Margin expansion: consolidated GM 61% (+200bps YoY); Software GM 68% (+200bps) and Product GM 42% (+100bps) .
    • Backlog momentum and liquidity: RPO/backlog $85.6M; $38.5M slated for 2025; cash $18.2M, operating cash flow FY $6.3M .

    Management quotes:

    • “We are seeing tremendous growth in our software solutions segment… This disruption plays to our strengths—a highly stable, adaptable platform.” – CEO Jeff Korn .
    • “We expect continued substantial growth in Europe… at least double-digit growth over the next year and beyond.” – CEO Jeff Korn .
    • “We expect some improvement to continue on the adjusted EBITDA margins as well.” – CFO Ron Vincent .

  • What Went Wrong

    • OpEx growth: Q4 operating expenses rose 11% YoY to $15.6M; full-year OpEx +8% YoY to $59.0M, reflecting investment in OCI, accounting systems, and headcount .
    • Telecom services margin headwinds: Telecom/retail margins impacted by MSP mix; service GM flat YoY at 57% in Q4 .
    • Sequential services softness in Q3 (for trend context): services revenue essentially flat sequentially in Q3 due to churn in one national account and mix shift, though management expected sequential improvement into Q4 .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$14.2 $15.6 $16.2
GAAP EPS ($USD, Diluted)$0.00 $0.00 $0.02
Non-GAAP EPS ($USD, Diluted)$0.06 $0.06 $0.06
Net Income ($USD Millions)$0.06 $0.148 $0.507
EBITDA ($USD Millions)$0.916 $0.964 $1.452
Adjusted EBITDA ($USD Millions)$1.653 $1.745 $2.161
Consolidated Gross Margin %59% 61% 61%

Segment revenue breakdown:

Segment RevenueQ4 2023Q3 2024Q4 2024
Service ($USD Millions)$7.7 $8.0 $8.0
Software Solutions ($USD Millions)$5.3 $5.9 $7.0
Product ($USD Millions)$1.2 $1.8 $1.2

Segment gross margins:

Segment GM %Q4 2023Q3 2024Q4 2024
Service GM %57% 58% 57%
Software Solutions GM %66% 71% 68%
Product GM %41% 40% 42%

KPIs and balance sheet:

KPIQ3 2024Q4 2024
RPO/Backlog ($USD Millions)$77.4 $85.6
Backlog slated for 2025 ($USD Millions)—$38.5
Cash & Cash Equivalents ($USD Millions)$15.5 $18.2
Non-GAAP Net Income ($USD Millions)$1.7 $2.0
Operating Cash Flow (period)$4.1 (9M’24) $6.3 (FY’24)

Non-GAAP adjustments (context):

  • Non-GAAP adds back share-based compensation and amortization of intangibles; Q4’24 add-backs included $0.709M SBC and $0.755M amortization, yielding $1.971M non-GAAP net income .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue growth (YoY)FY 2025“Double-digit organic growth” expectation “At least double-digit growth over the next year and beyond” Maintained/strengthened
Adjusted EBITDA marginFY 2025Improve over time (directional) “Expect some improvement to continue” Maintained
Data center/OCI migration savingsFY 2025–2026Savings estimated ~100–150 bps upon closures Migration to OCI expected by year-end; savings to show into 2026 Timing refined
Quantitative guidance (revenue, margins, tax rate, OpEx)FY 2025None providedNone providedNo formal numeric guidance

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
AI/technology initiativesRolled out AI features, API 2.0; ecosystem building; version 44.2; 50+ vendors at UGM AI-powered contact center, call recording summaries/sentiment, Video AI Studio; continued ecosystem vendor program traction Expanding breadth and adoption
OCI/data center migrationStarting OCI deployments; migration expected Q1/Q2 next year; 100–150 bps savings upon closures Close data centers; migrate to OCI by year-end; savings redeployed and to flow into 2026 Execution progressing; savings visibility improving
Competitor disruption (Microsoft Metaswitch; Cisco BroadSoft)End-of-life signals; wins from Metaswitch/BroadSoft; pipeline strong; webinar interest Metaswitch sale created uncertainty; 7 Metaswitch and 3 BroadSoft licensees migrated in 2024; sessions vs seats pricing advantage Tailwind strengthening
International growthBuilding EU/Pacific presence; new logos; lower cloud adoption abroad Strong EU demand; international ~5% of mix; continued momentum Growing from small base
Backlog visibilityQ2: $71.16M; Q3: $77.4M; 2025 backlog >$24–$29M queued Backlog $85.6M (+34% YoY); $38.5M slated for 2025 Building steadily
Capital allocationInvesting in OCI, accounting; cautious M&A; dividend removed Considering tuck-in AI/UCaaS M&A, potential buybacks if market deteriorates Optionality widening

Management Commentary

  • “Crexendo delivered another outstanding performance… We are seeing tremendous growth in our software solutions segment… Microsoft recently announced the sale of its Metaswitch platform division… This disruption plays to our strengths.” – CEO Jeff Korn .
  • “Our sessions-based pricing model offers customers the flexibility to migrate at their own pace… We have price advantages… and flexible contract terms.” – CEO Jeff Korn .
  • “We are in the process of closing data centers and migrating to the Oracle Cloud Infrastructure… These actions will generate substantial cost savings.” – CEO Jeff Korn .
  • “We’ve maintained our streak of GAAP profitability for now the sixth consecutive quarter and non-GAAP net income for the 25th consecutive quarter.” – CEO Jeff Korn .
  • “We expect some improvement to continue on the adjusted EBITDA margins.” – CFO Ron Vincent .

Q&A Highlights

  • Capital allocation priorities: management evaluating acquisitions (including small AI tuck-ins), potential share repurchases if market deteriorates; believes shares undervalued .
  • Competitor migration dynamics: 7 Microsoft Metaswitch and 3 Cisco BroadSoft licensees moved in 2024; average licensee TCV about $0.475M; sticky customer base with negligible churn in software solutions .
  • Sales cycle and onboarding: mixed pacing post-Metaswitch sale; onboarding aided by improved migration scripts and sessions-based model .
  • Competitive landscape (Alianza): management positions focus on business/enterprise vs. Alianza’s historical residential focus; uncertainty around potential forced migrations .
  • Pricing and ARPU: retail ARPU ~$20/user; wholesale licensee pays nearly ~$6,000/month per account on average; contracts limit mid-term price changes .

Estimates Context

  • S&P Global consensus estimates for Q4 2024 EPS and revenue could not be retrieved due to access limits; therefore, comparisons vs consensus are unavailable at this time.
  • Management noted Q2 results “exceeded analyst expectations,” but no explicit Q4 beat/miss commentary was provided in filings or call .

Key Takeaways for Investors

  • Software Solutions is the growth engine: +32% YoY in Q4 with expanding margins; expect continued double-digit top-line growth as platform conversions accelerate from Metaswitch/BroadSoft disruptions .
  • Visibility improving: backlog $85.6M and $38.5M slated for 2025 recognition underpin revenue trajectory; cash balance $18.2M supports M&A optionality .
  • Margin drivers ahead: OCI migration and data center closures should unlock 100–150 bps in cost savings, with benefits flowing through in 2026; adjusted EBITDA margin expected to improve .
  • Retail/Telecom steady with mix work: retail ARPU ~$20 and service GM flat YoY; MSP mix headwinds remain but management targeting efficiency and mix optimization .
  • Ecosystem and AI as moat: expanding EVP/vendor ecosystem and embedded AI features enhance differentiation and stickiness for licensees/end users .
  • Trading implications: near-term catalysts include additional licensee migrations from Metaswitch/BroadSoft uncertainty, backlog conversion, and updates on OCI progress/M&A; lack of consensus data today limits immediate beat/miss framing .
  • Medium-term thesis: platform scale, international expansion, and margin uplift from OCI underpin profitable growth; watch execution on migrations, ecosystem monetization, and disciplined capital deployment .