Business Context and Reporting Period
Company: Crexendo, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2026
Business Overview: Crexendo is a provider of cloud communication platform software and unified communications as a service (UCaaS), operating through two segments: Cloud Telecommunications and Software Solutions. The company supports over seven million end users globally.
Key Financial Metrics
| Metric (in thousands) | Q1 2026 | Q1 2025 |
|---|---|---|
| Total Revenue | $20,710 | $16,057 |
| Net Income | $578 | $1,171 |
| Operating Income | $440 | $1,150 |
| Operating Margin | 2.1% | 7.2% |
| Net Cash from Operating Activities | $2,037 | $1,238 |
| Cash and Cash Equivalents (End of Period) | $7,249 | $21,207 |
| Total Debt (Notes Payable) | $0 | $114 |
| Adjusted EBITDA (Non-GAAP) | $3,175 | $2,719 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 29% to $20.7 million, driven by the acquisition of Estech Systems, LLC ("ESI") on March 1, 2026, which contributed $2.1 million in revenue. Organic growth also contributed to increases in product revenue (+141%) and software solutions revenue (+12%).
- Profitability Decline: Net income decreased 51% to $0.6 million, and operating income dropped 62% to $0.4 million. This was primarily due to a $5.4 million increase in operating expenses, including $2.1 million in costs from the ESI acquisition, $0.8 million in acquisition-related expenses, and higher third-party hosting and commission costs.
- Liquidity Impact: Cash and cash equivalents decreased significantly from $31.4 million to $7.2 million. This $24.1 million reduction was primarily due to a $26.2 million cash outflow for the ESI acquisition.
- Balance Sheet Expansion: Total assets grew to $91.3 million from $77.7 million, with significant increases in intangible assets ($40.1 million vs. $17.9 million) and goodwill ($14.2 million vs. $9.5 million) resulting from the ESI purchase price allocation.
Guidance, Outlook, and Risks
- Acquisition Integration: The company is integrating ESI, with preliminary purchase price allocation subject to revision. The acquisition added significant intangible assets and goodwill, which will increase future amortization expenses.
- Non-GAAP Performance: Management highlights Adjusted EBITDA of $3.2 million (up 17% YoY) and Non-GAAP Net Income of $3.3 million as better indicators of core operating performance, excluding acquisition costs and amortization.
- Remaining Performance Obligations (RPO): Total RPOs increased 98% to $135.6 million, with the Cloud Telecommunications segment RPOs rising to $108.1 million, indicating a strong future revenue pipeline.
- Subsequent Financing: In May 2026, the company secured a new credit agreement with Wells Fargo for a $5 million Term Loan and a $5 million Revolving Credit Facility to support operations and growth.
- Risks: Risks include the ability to realize deferred tax assets (a valuation allowance of $7.7 million remains), integration risks associated with the ESI acquisition, and potential increases in third-party hosting costs.
Investor Verification Checklist
- Acquisition Accounting: Verify the final purchase price allocation for the ESI acquisition, specifically the valuation of intangible assets and goodwill, as preliminary figures may change.
- Cash Burn Rate: Monitor the cash balance ($7.2 million) relative to the new debt covenants and the timing of the new Wells Fargo credit facility drawdowns.
- Amortization Impact: Assess the long-term impact of the increased intangible asset base ($40.1 million) on future GAAP earnings due to higher amortization charges.
- Deferred Tax Assets: Review the justification for the continued valuation allowance on deferred tax assets given the company's recent profitability and future projections.
- Segment Margins: Analyze the Cloud Telecommunications segment, which reported an operating loss of $0.3 million in Q1 2026 compared to a profit of $0.2 million in Q1 2025, to understand the margin compression drivers.