Crexendo, Inc. (CREX) - Q2 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2026. Crexendo, Inc. is a provider of cloud communication platform software and unified communications as a service (UCaaS). The company operates through two segments: Cloud Telecommunications and Software Solutions. A significant event during the period was the acquisition of Estech Systems, LLC ("ESI") on March 1, 2026, for approximately $34.7 million.
Key Financial Metrics
| Metric | Q2 2026 | Q2 2025 | YTD 2026 | YTD 2025 |
|---|---|---|---|---|
| Total Revenue | $24.65M | $16.55M | $45.36M | $32.61M |
| Net Income | $1.05M | $1.23M | $1.63M | $2.40M |
| Diluted EPS | $0.03 | $0.04 | $0.05 | $0.08 |
| Operating Cash Flow (YTD) | $4.79M | $2.53M | - | - |
| Cash & Equivalents (End of Period) | $18.29M | $23.45M | - | - |
| Total Debt (Notes Payable) | $4.86M | $0.11M | - | - |
Note: All figures in millions unless otherwise noted. YTD refers to the six months ended June 30.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 49% in Q2 and 39% YTD compared to the prior year. This growth was primarily driven by the ESI acquisition, which contributed $6.96M in Q2 revenue and $9.06M in YTD revenue.
- Profitability Decline: Despite revenue growth, Net Income decreased 15% in Q2 and 32% YTD. This was due to a significant increase in operating expenses ($8.14M increase in Q2) driven by the ESI acquisition integration, higher amortization of intangible assets, and increased share-based compensation.
- Balance Sheet Expansion: Total assets grew from $77.7M to $101.0M, largely due to the acquisition of ESI, which added $23.4M in intangible assets and $4.7M in goodwill. Cash reserves decreased by $13.1M YTD, primarily due to the $26.2M cash outflow for the ESI acquisition.
- Debt Financing: In May 2026, the company secured a $5.0M Term Loan and a $5.0M Revolving Credit Facility from Wells Fargo. As of June 30, 2026, the full $5.0M Term Loan was drawn, while the Revolver remained undrawn.
Guidance, Outlook, and Risks
- Outlook: Management highlights strong recurring revenue trends. Annualized Exit Monthly Recurring Revenue (AERR) increased to $81.2M (up from $53.9M in Q2 2025). Net Monthly Subscription Dollar Retention Rate remains stable at 99%.
- Non-GAAP Metrics: Adjusted EBITDA for Q2 2026 was $4.13M, compared to $2.78M in Q2 2025, indicating improved core operating performance before non-cash charges and acquisition costs.
- Legal Proceedings: ReadyComm LLC filed a patent infringement lawsuit against Crexendo in March 2026 regarding U.S. Patent No. 9,179,011. Crexendo denies the allegations and has filed counterclaims. No loss is currently considered probable, and no reserve has been recorded.
- Contingencies: The company has a $5.4M non-cancelable hosting contract with Oracle. Additionally, management has accrued $750k for employee bonuses based on probable achievement of revenue and Adjusted EBITDA targets.
Key Investor Verification Points
- Acquisition Integration: Verify the timeline for finalizing the purchase price allocation for the ESI acquisition, as preliminary goodwill and intangible asset valuations are subject to change.
- Debt Covenants: Review the restrictive covenants in the new Wells Fargo Credit Agreement, specifically regarding the net leverage ratio, to ensure compliance.
- Patent Litigation: Monitor the status of the ReadyComm LLC lawsuit for any updates on potential damages or settlement discussions.
- Recurring Revenue Quality: Assess the sustainability of the 99% retention rate and the $81.2M AERR in the context of the new ESI customer base.
- Amortization Impact: Confirm the long-term impact of the increased amortization expense ($2.96M YTD vs $1.51M prior YTD) on future GAAP net income.