Crexendo, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Crexendo provides cloud telecommunications and software solutions and reports two operating segments. Amounts below are in millions unless noted.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $14.286 | $12.491; up 14% |
| Operating income (loss) | $0.483 | $(1.574) |
| Net income (loss) | $0.434 | $(1.582) |
| Basic / diluted EPS | $0.02 / $0.01 | $(0.06) / $(0.06) |
| Operating cash flow | $(0.166) | $(1.554) |
| Cash and cash equivalents | $11.041 at March 31 | $10.347 at December 31, 2023 |
Revenue growth comprised software solutions revenue of $5.146 million, up 25%; service revenue of $7.845 million, up 10%; and product revenue of $1.295 million, up 6%. Gross profit, calculated as revenue less the three reported revenue-cost lines, was approximately $9.055 million, or 63.4% of revenue, compared with $7.423 million, or 59.4%, a year earlier. Operating margin was approximately 3.4%, versus negative 12.6%.
Current assets were $19.045 million and current liabilities $9.613 million, for a current ratio of approximately 2.0. Notes payable totaled $0.937 million, including $0.753 million owed to a related party; finance lease obligations were $0.080 million. No line-of-credit borrowings were outstanding, and $0.700 million remained available. Cash increased by $0.694 million during the quarter, supported by $1.049 million of proceeds from stock-option exercises; operating activities used cash.
Management’s supplemental non-GAAP measures were $1.922 million of non-GAAP net income and $2.056 million of Adjusted EBITDA, compared with $0.625 million and $0.749 million, respectively, in Q1 2023. These exclude specified items, including share-based compensation and intangible amortization, and should not be treated as substitutes for GAAP results.
Material changes and management commentary
- Both segments returned to operating profitability: cloud telecommunications reported $0.078 million of operating income versus a $1.179 million loss; software solutions reported $0.405 million versus a $0.395 million loss.
- Management attributed improved pretax results mainly to revenue growth and $0.262 million lower operating expenses. Lower share-based compensation contributed to the expense decrease; selling commissions and customer-migration labor costs increased.
- Cloud telecommunications backlog reached $48.081 million, up 43% year over year; software solutions backlog was $19.295 million, up 36%. The filing reports $67.376 million of remaining performance obligations expected to be recognized over time.
- Management stated that existing liquidity and operations are expected to meet cash requirements for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
Risks, commitments, and unusual items
- In February 2024, Crexendo entered a noncancellable five-year Oracle hosting contract with $5.0 million of stated commitments, including $0.2 million due in the remainder of 2024 and annual amounts through 2029.
- A $4.782 million valuation allowance remains against gross deferred tax assets. Management cited cumulative U.S. pretax losses over the three-year lookback period as significant negative evidence about realization.
- Operating cash use reflected working-capital demands, including higher receivables, contract costs and prepaid expenses, and lower accounts payable and accrued expenses.
- The company disclosed no recorded liability for estimated legal losses and said no pending or threatened matter was expected to have a material adverse impact. Disclosure controls were concluded effective, with no material change in internal control reported.
- Approximately $10.478 million of cash at March 31, 2024 was held at financial institutions in excess of federally insured limits. The filing also notes that a single customer represented at least 10% of trade receivables, though no customer represented 10% or more of quarterly revenue.
Important facts for investors to verify
- Whether revenue growth, backlog conversion, and the rise in recurring software subscriptions continue in subsequent quarters.
- How sustainable operating profitability is after considering stock-based compensation, amortization, and other exclusions in non-GAAP measures.
- Whether working-capital movements improve enough to support positive operating cash flow, and whether receivable and equipment-financing credit-loss reserves remain adequate.
- The timing and economics of the $5.0 million Oracle hosting commitment, the available credit line and its financial covenants, and the related-party note repayment schedule.
- The potential realization of deferred tax assets, given the full valuation allowance, and the effect of the outstanding and potentially dilutive equity awards on per-share results.