Crexendo, Inc. — Q1 2022 Form 10-Q
Business context and period: The filing covers the three months ended March 31, 2022, compared with Q1 2021. Crexendo provides cloud telecommunications services and communications software. Its software solutions segment reflects the NetSapiens acquisition, completed in June 2021, and therefore has no comparable Q1 2021 segment revenue.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $8.158 million | $4.507 million; up 81% |
| GAAP operating loss | $1.393 million | $0.822 million loss |
| GAAP net loss | $1.220 million; $0.05 per diluted share | $0.715 million; $0.04 per diluted share |
| Adjusted EBITDA | $0.302 million | $0.245 million |
| Operating cash flow | $(1.738) million | $(0.248) million |
| Cash and cash equivalents | $5.690 million at March 31, 2022 | $7.468 million at December 31, 2021 |
| Total assets / liabilities | $76.075 million / $10.268 million | At December 31, 2021: $77.152 million / $11.219 million |
| Notes payable | $1.854 million, all classified current | $1.873 million at December 31, 2021 |
Service revenue was $4.398 million, up 6%; software solutions revenue was $3.268 million; and product revenue was $0.492 million, up 34%. Reported gross margin, calculated from revenue less the three disclosed revenue-cost lines, was approximately 58% versus 67% in Q1 2021; the comparison is affected by the acquired software business. Cash declined $1.778 million during the quarter. Working capital was approximately $1.174 million at quarter-end. The filing reports a $0.201 million income tax benefit.
Material changes versus the prior comparable period
- Revenue increased by $3.651 million, primarily because Q1 2022 included $3.268 million of NetSapiens software solutions revenue; cloud telecommunications service revenue rose by $0.259 million.
- Operating expenses rose by $4.222 million. Management attributed much of the increase to the acquired software segment, higher compensation and share-based compensation; Q1 2022 share-based compensation was $1.053 million versus $0.282 million.
- Net loss widened by $0.505 million, while operating cash use increased by $1.490 million.
- Weighted-average basic shares increased to 22.24 million from 18.19 million. Q1 2022 included a $0.111 million dividend payment.
Outlook, risks, and unusual items
- Liquidity outlook: Management stated that operations and existing liquidity sources should meet cash requirements for at least the next 12 months. No numeric earnings or revenue guidance is provided.
- Debt covenant default: The company disclosed that it was in default of the basic fixed charge coverage ratio on its Bank of America term loan at both December 31, 2021 and March 31, 2022. The $1.854 million balance is classified as current. The filing text does not clearly state whether a waiver or cure was obtained.
- Acquisition and non-GAAP measures: NetSapiens contributed materially to year-over-year revenue and expenses. Management’s non-GAAP net income of $0.405 million excludes share-based compensation, acquisition-related expenses and intangible amortization; it should not be confused with the GAAP net loss.
- Commitments and contingencies: The company reported no recorded liability for estimated legal losses and no pending or threatened matter expected to have a material adverse impact. It reported no off-balance-sheet arrangements.
- Other risks: Management characterized foreign-currency and inflation effects as not material to date, while noting that higher costs could be difficult to offset. The filing refers investors to the risk factors in the 2021 Form 10-K. Cash held above federally insured limits was $4.979 million at quarter-end.
Important facts for investors to verify
- Whether the bank waived or the company cured the fixed-charge coverage covenant default, and whether the loan remains callable or subject to other remedies.
- Cash runway and the drivers of operating cash use, including receivables, contract costs, prepaid expenses and reductions in accrued expenses and contract liabilities.
- How much future growth is organic versus attributable to NetSapiens, and the acquired segment’s path from its $0.339 million quarterly operating loss to profitability.
- The sustainability and cash implications of adjusted EBITDA, given the substantial share-based compensation and acquisition-related adjustments.
- Share dilution, future dividend decisions, and potential effects of excluded anti-dilutive awards.