Crexendo, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. Crexendo provides cloud telecommunications services and software solutions. Financial amounts below are in U.S. dollars, millions, unless otherwise noted.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $12.491 | $8.158 |
| Gross profit and margin | $7.423; 59.4% | $4.744; 58.2% |
| Operating loss | $(1.574) | $(1.393) |
| Net loss | $(1.582) | $(1.220) |
| Loss per share, basic and diluted | $(0.06) | $(0.05) |
| Operating cash flow | $(1.554) | $(1.738) |
| Adjusted EBITDA (non-GAAP) | $0.749 | $0.302 |
Revenue comprised service revenue of $7.158 million, software solutions revenue of $4.108 million, and product revenue of $1.225 million. Cloud telecommunications generated $8.383 million, while Software Solutions generated $4.108 million; both segments reported operating losses of $1.179 million and $0.395 million, respectively.
At March 31, cash and cash equivalents were $3.688 million, down from $5.475 million at year-end. Current assets were $13.159 million and current liabilities $9.180 million. Notes payable totaled $3.151 million and finance lease obligations $0.163 million; the $0.700 million line of credit was undrawn. Net cash decreased $1.787 million during the quarter. Capital spending was $0.009 million.
Changes versus prior comparable period
- Revenue increased 53% ($4.333 million). Management attributed $3.102 million of the increase to Allegiant Networks, acquired November 1, 2022. Service revenue rose 63%, software solutions revenue 26%, and product revenue 149%.
- Operating expenses increased $4.514 million, exceeding revenue growth; management cited acquisition-related operating costs, higher salaries and benefits, and share-based compensation. Net loss widened by $0.362 million.
- Operating cash use improved by $0.184 million year over year, although cash declined by $1.787 million in the quarter.
- Backlog at March 31 was $33.679 million for Cloud Telecommunications, up 12% year over year, and $14.185 million for Software Solutions, up 9%.
- Weighted-average basic shares rose to 25.7 million from 22.2 million, reflecting, among other factors, the shares issued in the Allegiant acquisition.
Outlook, commentary, risks and unusual items
- Management said existing liquidity and operations are expected to meet cash requirements for at least the next 12 months. The filing provides no numerical revenue or earnings guidance.
- In March 2023, the company classified its Tempe headquarters land and building, carried at $2.333 million, as held for sale. It intended to sell the property and enter into an 18-to-24-month leaseback within three to six months; no impairment indicator was identified at quarter-end.
- The company adopted the CECL expected-credit-loss standard on January 1, 2023. The $0.159 million cumulative adoption adjustment reduced opening equity; new or increased allowances were reported for trade receivables, equipment financing receivables, and contract assets.
- Q1 results include substantial noncash share-based compensation of $1.414 million and intangible amortization of $0.792 million. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP results or cash flow.
- Goodwill was $9.454 million at quarter-end. The company recorded a $32.6 million goodwill impairment in 2022 following a sustained stock-price decline; it reported no Q1 goodwill impairment.
- Management identified estimation risks around credit losses, future taxable income and deferred tax assets, and goodwill and intangible-asset valuations. The company maintained a $3.179 million valuation allowance against gross deferred tax assets. It reported no recorded legal-loss liability and no pending or threatened matter expected to have a material adverse impact.
Important facts for investors to verify
- How much of subsequent revenue growth and backlog conversion is recurring, and how much reflects the Allegiant acquisition, device sales, or timing of installations?
- Whether operating losses and cash burn improve as acquisition costs, staffing, and customer migration to the VIP platform develop.
- Customer collections and credit quality, including the rise in the trade-receivable allowance to 4.7% of gross receivables and the new equipment-financing and contract-asset allowances.
- Execution, timing, proceeds, and leaseback terms for the planned headquarters sale, and the effect on liquidity and future occupancy costs.
- Debt-service capacity and compliance with financial covenants on the notes and credit line, alongside the company’s 12-month liquidity assessment.
- How share-based compensation, acquisition-related dilution, and the prior goodwill impairment affect per-share performance and carrying-value risk.