Crexendo, Inc. — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023; filed March 5, 2024. Crexendo provides cloud telecommunications, unified communications software, collaboration, and managed IT services. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $53.199 | $37.554 |
| Operating loss | $(1.689) | $(37.392) |
| Net loss | $(0.362) | $(35.413) |
| Operating cash flow | $3.499 | $(0.411) |
| Cash and cash equivalents at year-end | $10.347 | $5.475 |
- Revenue grew 42%. Cloud telecommunications revenue was $35.152 million, up 57%; Software Solutions revenue was $18.047 million, up 19%.
- Management attributed $11.017 million of the revenue increase to Allegiant Networks, acquired November 1, 2022, and the additional ten months of its results in 2023 versus 2022.
- Approximate gross margin, calculated from reported revenue and direct cost-of-revenue lines, was 59.5%, versus 63.6% in 2022. Operating expenses totaled $54.888 million, down from $74.946 million, principally because 2022 included $32.678 million of goodwill and long-lived asset impairment.
- Cloud Telecommunications reported a $1.483 million operating loss and Software Solutions a $0.206 million operating loss. Both segments’ losses before tax improved substantially from 2022.
- Adjusted EBITDA, a non-GAAP measure, was $5.736 million versus $2.462 million. Non-GAAP net income was $6.657 million versus $4.129 million; these measures exclude specified items and should not be viewed as substitutes for GAAP results.
- Net loss per share was $0.01, compared with $1.54 in 2022. The 2022 loss included the impairment charge.
- Operating cash flow was positive despite the GAAP net loss. Investing cash flow was $3.700 million, largely from selling the Tempe headquarters; financing cash flow was $(2.306) million, mainly reflecting debt repayments.
- At year-end, current assets were $17.291 million and current liabilities were $10.261 million. Notes payable totaled $1.049 million, finance lease liabilities $0.098 million, and the $0.700 million credit line was undrawn. Management said existing liquidity and operations should cover requirements for at least 12 months.
Period changes and unusual items
- The company sold its Tempe headquarters in August 2023 for $4.0 million, reported $3.792 million of cash proceeds, and recognized a $1.459 million gain. Part of the proceeds repaid the $1.8 million Bank of America note; the company leased the property back for an initial 18 months.
- Revenue backlog rose 40% to $44.810 million in Cloud Telecommunications and 29% to $19.122 million in Software Solutions. The company expects to recognize these amounts over the stated contract periods, not all in the next year.
- Cash dividends were discontinued by the board in March 2023. The company paid $0.130 million in dividends during 2023, relating to the final declared payment.
- The company adopted the CECL credit-loss standard in 2023, recording a $0.159 million cumulative adjustment to opening equity; management said adoption had no material effect on the financial statements.
Outlook, commentary, and risks
- The filing provides no numerical revenue or earnings guidance. Management emphasizes continued investment in sales, research and development, and cloud products, as well as migrating customers to its VIP communications platform. Migration costs or service disruption could affect retention and expected savings.
- Management cited inflation-related energy, transportation, and labor cost pressures expected to continue into 2024. Other risks include economic weakness, pricing competition, customer churn, dependence on channel partners and third-party network providers, service outages, cybersecurity and privacy incidents, and regulatory requirements.
- In February 2024, Crexendo entered a non-cancellable five-year Oracle hosting contract with $5.0 million of minimum commitments, including $0.2 million due in 2024 and further scheduled payments through 2029.
- Potential acquisitions may require additional financing and could increase costs, debt, or shareholder dilution. Steven G. Mihaylo beneficially owned approximately 43.9% of shares at December 31, 2023, giving him substantial voting influence.
- The company disclosed historical and ordinary-course government inquiries and customer complaints, including matters related to discontinued seminar operations. It reported no recorded liability for estimated legal losses at year-end; outcomes remain uncertain.
- The independent auditor issued an unqualified opinion on the financial statements and identified revenue recognition as a critical audit matter, citing judgment in assessing bundled performance obligations, stand-alone selling prices, and revenue timing. Management reported effective disclosure controls and internal control over financial reporting; the auditor was not engaged to audit internal controls.
Important facts for investors to verify
- How much of reported growth reflects organic expansion versus Allegiant’s full-year contribution, and whether segment operating performance continues to improve.
- The quality and timing of backlog conversion, recurring subscription growth, customer retention, and the customer migration to the VIP platform.
- Cash generation and liquidity after considering working-capital movements, the Oracle hosting commitment, lease payments, and scheduled debt repayments.
- The sustainability of adjusted EBITDA and the reconciliation of non-GAAP results to GAAP net loss, including stock-based compensation and acquisition-related costs.
- The economic and operational consequences of the headquarters sale-leaseback, potential dilution from outstanding equity awards, and the effect of concentrated ownership.