Crexendo, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also reports fourth-quarter results. Unless otherwise noted, amounts below are in millions of dollars.
Business context
Crexendo provides cloud telecommunications and UCaaS/CCaaS software solutions. Its two reportable segments are Cloud Telecommunications Services and Software Solutions. Software Solutions results include NetSapiens from its June 1, 2021 acquisition date; Centric Telecom was acquired in January 2021.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $28.092 | $16.387 |
| Operating income (loss) | $(2.810) | $0.991 |
| Income (loss) before tax | $(2.910) | $1.899 |
| Net income (loss) | $(2.445) | $7.940 |
| Basic diluted EPS | $(0.12) | $0.50 / $0.46 |
| Operating cash flow | $(1.006) | $0.647 |
| Cash and cash equivalents at year-end | $7.468 | $17.579 |
Revenue rose 71%, reflecting $8.666 million from acquired Software Solutions, 18% growth in cloud service revenue to $17.102 million, and 26% growth in product revenue to $2.324 million. The company reported a consolidated operating loss despite higher revenue, as operating expenses increased $15.506 million, including higher compensation, stock-based compensation and acquisition costs. FY2021 included $1.037 million of one-time acquisition-related expense. The 2020 profit included a $7.487 million valuation-allowance release on deferred tax assets and $1.007 million of PPP debt forgiveness; these make the year-over-year earnings comparison less representative of underlying operations.
Fourth-quarter 2021 revenue was $8.996 million and net loss was $0.602 million, compared with revenue of $4.323 million and net income of $7.161 million in Q4 2020. Q4 2020 earnings included a $6.050 million income-tax benefit.
Reported gross profit, calculated as revenue less the listed cost-of-revenue lines, was $17.432 million, or about 62% of revenue. Adjusted EBITDA was $1.607 million for FY2021 versus $1.872 million for FY2020; this non-GAAP measure excludes specified items and should not be treated as GAAP earnings or cash flow.
Balance sheet, liquidity and debt
At December 31, 2021, current assets were $11.560 million and current liabilities were $10.572 million. Total assets were $77.152 million, total liabilities $11.219 million, and stockholders’ equity $65.933 million. Cash fell by $10.111 million year over year. Operating cash use and $9.867 million of investing cash use—primarily acquisitions—were partly offset by $0.650 million of financing cash inflow.
Notes payable totaled $1.873 million and were classified as current because the company was in default of its fixed-charge coverage ratio covenant at year-end. Finance lease liabilities were $0.303 million. Management said existing liquidity and operations were expected to meet cash requirements for at least the next 12 months.
Material changes, outlook and risks
- The NetSapiens transaction was valued at approximately $49.1 million, comprising $10 million cash and approximately $39 million in stock and options. It added $8.666 million of reported FY2021 revenue from the acquisition date and significantly increased goodwill and intangible assets.
- Management was integrating the acquired businesses and migrating certain Crexendo customers to the NetSapiens platform. The filing warns that migration problems could lead to service issues, cancellations, added costs and failure to realize expected efficiencies.
- Telecommunications backlog was $30.189 million at year-end, expected to be recognized over 36–60 months; Software Solutions backlog was $11.528 million, expected within 36 months. These are contract-value measures, not guaranteed future revenue.
- No formal numerical financial guidance is provided. Management’s stated liquidity expectation is subject to operating performance and other risks.
- Risks highlighted include intense competition and pricing pressure, customer churn, acquisition integration and dilution, device supply-chain dependence, service outages and cybersecurity, third-party provider dependence, and changing telecommunications, privacy and tax regulation. The company also disclosed past AWS disaster-recovery failover failures that it was addressing.
- Crexendo reported no dividends in FY2021 or FY2020; after year-end it declared a $0.005-per-share quarterly dividend. Future dividends are discretionary.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded internal control over financial reporting was effective; the auditor did not provide an opinion on internal-control effectiveness.
Investor verification priorities
- Confirm the status and consequences of the fixed-charge coverage covenant default, including any waiver, cure or refinancing.
- Track cash use, working-capital trends and the ability to fund operations and acquisition integration while cash balances have declined.
- Assess whether NetSapiens integration, customer migration and expected cost synergies are progressing, and compare acquired-segment performance with reported backlog.
- Review the quality and sustainability of earnings, including acquisition charges, stock compensation, amortization, tax valuation allowances and non-GAAP adjustments.
- Verify the recoverability of acquired goodwill and intangible assets, and the usability of tax-loss carryforwards subject to ownership-change limits.
- Check that the filing’s financial statements are the basis for analysis: its cash-flow discussion cites a 2021 net loss of $2.664 million, while the audited statements report $2.445 million.