Crexendo, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Crexendo provides cloud telecommunications and website services. Amounts below are in millions, except per-share data and percentages.
Financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $4.507 | $3.867 |
| Operating income (loss) | $(0.822) | $0.181 |
| Net income (loss) | $(0.715) | $0.140 |
| Diluted earnings (loss) per share | $(0.04) | $0.01 |
| Cash used in operating activities | $0.248 | $0.288 |
| Cash and cash equivalents at period end | $16.204 | $3.435 |
- Revenue rose 17%, led by service revenue, up 19% to $4.139 million. Cloud telecommunications revenue was $4.391 million, up from $3.711 million; Web Services revenue fell 26% to $0.116 million.
- Product revenue declined 3% to $0.368 million. Approximate gross margin, calculated as revenue less service and product costs, was 67.1%, versus 69.2%. Operating margin was approximately (18.2)%, versus 4.7%.
- The $0.822 million operating loss reflected expenses rising faster than revenue. General and administrative expense increased $1.066 million, including $0.684 million of acquisition-related expense; higher staffing, share-based compensation and other costs also contributed.
- Non-GAAP net income was $0.308 million versus $0.275 million. Adjusted EBITDA was $0.245 million versus $0.389 million. These company-defined non-GAAP measures exclude specified costs and are not substitutes for GAAP results.
- Operating cash outflow improved to $0.248 million. Investing activities used $2.192 million, including $2.163 million cash paid for Centric Telecom. Financing activities provided $0.965 million, mainly from option exercises. Cash, cash equivalents and restricted cash declined $1.475 million during the quarter.
- At March 31, current assets were $18.688 million and current liabilities $4.127 million. Notes payable totaled $1.926 million; finance lease obligations were $0.093 million. Cash was $16.204 million, and total liabilities were $6.458 million.
Material changes and transactions
- On January 14, Crexendo acquired Centric Telecom for stated consideration of $3.255 million: $2.163 million cash, $0.346 million in stock and $0.746 million estimated contingent consideration. Purchase accounting was preliminary; valuation and working-capital adjustments remained subject to finalization. Centric’s historical results were not significant to the reported quarter.
- The company entered into a merger agreement to acquire NetSapiens for approximately $50 million, subject to closing conditions and adjustments. The stated consideration comprises $10 million cash and approximately $40 million in stock or options. The filing’s anticipated share and option issuance could materially increase potential dilution.
- Cloud telecommunications backlog was $27.766 million at March 31, up 4% from $26.583 million a year earlier. The company expects to recognize this backlog over the next 36–60 months; backlog is not a guarantee of revenue.
- Common shares outstanding rose from 17.983 million at year-end 2020 to 18.425 million at quarter-end. The balance sheet includes $6.054 million of net deferred tax assets after a valuation-allowance release in 2020.
Outlook, risks and other disclosures
- Management stated that existing liquidity and operations should meet cash requirements for at least the next 12 months. No specific revenue or earnings guidance is provided in the filing.
- Management cited continued investment in sales headcount, product development, infrastructure and disaster-recovery capabilities. Cloud telecommunications growth was partly offset by declining Web Services revenue.
- Risks include execution and integration of acquisitions, completion and financing of the NetSapiens transaction, possible dilution, uncertain contingent consideration, and the company’s ability to sustain growth and manage costs. Management noted that Level 3 contingent-consideration valuations rely on assumptions that could change.
- 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 effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- NetSapiens transaction status, final terms, funding, required approvals and expected share/option dilution.
- Centric Telecom’s final purchase-price allocation, earn-out outcome and contribution to revenue and profitability.
- Whether recurring cloud telecommunications growth can offset Web Services declines and support improved GAAP operating results.
- Cash conversion, working-capital movements and liquidity needs after acquisition spending.
- Assumptions underlying deferred tax asset realizability and contingent-consideration valuation.