iMergent, Inc. (Crexendo operations) — Q1 2011 Form 10-Q
Business context and period. The filing is for the three months ended March 31, 2011. The registrant named on the filing is iMergent, Inc.; it describes Crexendo Web Services and Crexendo Network Services as business segments. The company provides e-commerce, web services, training, and broadband voice and messaging offerings. Financial figures below are in millions of dollars unless noted.
Financial performance and position
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Revenue | $14.568 | $17.094; down 15% |
| Gross profit / gross margin | $8.263 / 56.7% | $11.997 / 70.2% |
| Operating loss / margin | $(4.131) / (28.4%) | $(0.881) / (5.2%) |
| Net income (loss) | $(1.851); $(0.17) per diluted share | $0.123; $0.01 per diluted share |
| Operating cash flow | $(3.307) | $(0.493) |
| Cash and cash equivalents at period end | $10.512 | $14.207 at Dec. 31, 2010 |
| Working capital | $8.532 | $11.388 at Dec. 31, 2010 |
| Net trade receivables | $23.289 | $21.564 at Dec. 31, 2010 |
| Total liabilities / stockholders’ equity | $32.590 / $18.166 | $31.524 / $20.120 at Dec. 31, 2010 |
Operating expenses were $18.699 million, up 4%. Cost of revenue rose to $6.305 million, while selling and marketing was $8.763 million, general and administrative expense was $2.759 million, and research and development was $0.872 million. The company reported $1.158 million of net other income, primarily interest income; interest expense was $1,000. The balance sheet reports no material borrowings, but the filing does not provide a debt summary.
Material changes and management commentary
- StoresOnline revenue fell 16% to $14.089 million. Management attributed the decline to lower EPTA collections, fewer third-party commissions, and a smaller share of workshop customers paying cash. Cash-paying workshop buyers were 29%, versus 39% a year earlier.
- Crexendo Web Services revenue increased to $0.479 million from $0.242 million, but the segment recorded a $0.670 million operating loss. Its reported backlog expected to be recognized within 12 months was $0.972 million at March 31, 2011.
- Crexendo Network Services began a phase-one launch and offered free trials; it reported no revenue and a $0.486 million operating loss. Management expected first billings in the quarter ending June 30, 2011.
- StoresOnline events had transitioned to a SaaS model: all events in Q1 2011 were offered under SaaS, following an approximately 80% transition in Q4 2010. EPTA contracts generally run two to three years, and revenue is recognized as cash is collected.
- Adoption of new multiple-deliverable revenue guidance reduced Q1 2011 revenue and increased net loss by $0.572 million, with a corresponding increase in current deferred revenue.
Liquidity, outlook, risks, and unusual items
Cash declined by $3.695 million during the quarter. Investing cash outflow was $0.110 million and financing cash outflow was $0.278 million, including dividends and share repurchases. Management stated it believed liquidity and capital resources were sufficient for at least the next 12 months. There was no formal earnings or revenue guidance.
Management cited reliance on workshop sales and collections, customer financing and receivable collections, seasonality, economic and credit conditions, and the execution of new web and network-service offerings as important uncertainties. Net receivables were $23.289 million against an allowance for doubtful accounts of $18.625 million; long-term net receivables were $10.742 million. Deferred revenue increased, partly reflecting new sales and the revenue-recognition change. The company declared a $0.02-per-share dividend and repurchased 19,793 shares for $0.089 million. It disclosed ongoing customer and governmental inquiries and ordinary-course litigation, with no material change from its prior annual filing and no additional legal-proceeding liabilities recorded in the quarter. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer and reporting entity: the filing is headed iMergent, Inc., although the request identifies Crexendo, Inc. and the filing describes Crexendo segments.
- Assess the effect of EPTA collections, receivable aging and the substantial doubtful-account allowance on future cash generation and recognized revenue.
- Monitor whether the SaaS transition and the $0.972 million Web Services backlog translate into recurring revenue, and whether Network Services begins billing as expected.
- Verify the sustainability of liquidity given quarterly operating cash use, declining cash and the company’s continued dividend payments.
- Review the complete risk-factor and legal disclosures in the referenced 2010 Form 10-K; this filing reports no material changes to those disclosures.