Crexendo, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial amounts below are in millions of dollars unless stated otherwise. Crexendo provides cloud telecommunications services and software solutions; its platforms supported over three million end users globally.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $12.670 | $8.846 | $25.161 | $17.004 |
| Operating loss | $(0.517) | $(0.852) | $(2.091) | $(2.245) |
| Net loss | $(0.545) | $(0.896) | $(2.127) | $(2.116) |
| GAAP loss per share, diluted | $(0.02) | $(0.04) | $(0.08) | $(0.09) |
| Adjusted EBITDA (non-GAAP) | $1.238 | $0.626 | $1.987 | $0.928 |
- Growth and margins: Revenue rose 43% in Q2 and 48% for the first half. Gross margin, calculated from reported revenue and direct revenue costs, was approximately 58.4% in Q2 versus 66.8% a year earlier, and 58.9% for the first half versus 62.6%. Operating losses narrowed, but the first-half net loss was slightly higher than in 2022.
- Revenue mix: Q2 cloud telecommunications revenue was $8.740 million, up from $5.248 million; software solutions revenue was $3.930 million, up from $3.598 million. Management attributed most cloud revenue growth to the November 2022 Allegiant Networks acquisition. For the first half, Allegiant contributed $5.156 million of the $5.512 million increase in service revenue and $1.168 million of the $1.473 million increase in product revenue.
- Cash flow and liquidity: First-half operating cash use was $0.673 million, compared with $2.614 million in 2022; investing cash use was $0.092 million and financing cash use was $0.486 million. Cash declined to $4.200 million from $5.475 million at year-end. Current assets were $14.045 million and current liabilities $9.637 million.
- Debt and credit: June 30 notes payable totaled $3.032 million, finance lease obligations $0.136 million, and the $0.700 million asset-secured line of credit was undrawn. The company reported $0.700 million available under the line, which expires February 2024 and has financial covenants. Notes payable also carry financial covenants.
- Other balance-sheet items: Total assets were $54.076 million and stockholders’ equity $41.064 million. Trade receivables were $3.549 million; net equipment-financing receivables were $2.273 million. Goodwill was $9.454 million following a $32.6 million impairment recorded in 2022.
Changes, outlook and risks
- Revenue growth included substantial acquired revenue from Allegiant; the acquisition also added operating costs. Shares outstanding were 25,972,804 at June 30, 2023, compared with 22,537,435 a year earlier.
- Cloud telecommunications backlog was $35.752 million, up 21% year over year; software solutions backlog was reported as $15.649 million, up 22%. Backlog is contract value not yet recognized as revenue, not a guarantee of future results.
- Management stated that operating cash flows and existing liquidity sources should meet cash requirements for at least the next 12 months. The filing provides no quantified revenue or earnings guidance.
- After quarter-end, the company sold its Tempe headquarters on August 9, 2023, for $4.0 million, repaid the $1.8 million Bank of America note, and reported approximately $2.0 million net proceeds after closing costs. It entered an 18-month leaseback at $19,000 monthly plus property costs, with an option to end the initial term after 12 months with notice.
- The company adopted the expected-credit-loss standard in January 2023, recording a $0.159 million cumulative reduction to equity. It reported no recorded legal-loss liability and no pending or threatened matter expected to have a material adverse impact. Management identified risks including competition, technological change, economic conditions, customer retention, and estimation uncertainty for credit losses and asset valuations.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing includes non-GAAP measures; management cautions these are supplemental and do not replace GAAP results or cash-flow analysis.
Important facts for investors to verify
- How much of reported growth and backlog conversion is organic versus attributable to Allegiant, and whether acquired operations improve margins.
- Drivers of gross-margin compression and the sustainability of positive Adjusted EBITDA alongside continuing GAAP losses and operating cash use.
- Post-sale debt and liquidity position, including the use of headquarters-sale proceeds, leaseback costs, credit-line availability, and compliance with debt covenants.
- Receivable quality and future credit-loss provisions following adoption of the expected-credit-loss standard.
- Potential dilution from outstanding equity awards and the effect of the acquisition-related share issuance.