Earnings call transcript: Crexendo Q4 2024 beats expectations, stock surges

Crexendo Inc. (NASDAQ:CXDO) reported its fourth-quarter 2024 earnings, exceeding analysts’ expectations with an earnings per share (EPS) of $0.06, surpassing the forecast of $0.05. The company also reported revenue of $16.2 million, beating the anticipated $15.64 million. Following the announcement, Crexendo’s stock climbed 7.45% in after-hours trading, reaching $6.20. According to InvestingPro analysis, the company currently trades slightly below its Fair Value, with a strong financial health score of 3.04 out of 5, rated as "GREAT." This positive market reaction underscores investor confidence in the company’s financial performance and strategic direction.

Key Takeaways

• Crexendo’s Q4 2024 EPS of $0.06 beat the forecast by 20%.
• Revenue increased 15% year-over-year to $16.2 million.
• Stock surged 7.45% in aftermarket trading.
• Gross margins improved from 59% to 62%.
• The company launched new AI-powered software features.

Company Performance

Crexendo saw significant growth in its financial performance in the fourth quarter of 2024, marked by a 15% increase in revenue to $16.2 million. The company has maintained a consistent trajectory of profitability, with this quarter marking the sixth consecutive period of GAAP profitability. The robust performance is attributed to strategic investments in AI and cloud-based communication solutions, which have positioned Crexendo as a leader in the Unified Communications as a Service (UCaaS) market.

Financial Highlights

• Revenue: $16.2 million, up 15% year-over-year.
• Earnings per share: $0.06, compared to $0.05 forecasted.
• Net income for the year: $1.7 million.
• Non-GAAP net income: $7.7 million ($0.29 per share).
• Cash and cash equivalents nearly doubled to $18.2 million.

Earnings vs. Forecast

Crexendo exceeded expectations with an EPS of $0.06, 20% higher than the forecasted $0.05. Revenue also surpassed projections, reaching $16.2 million against an expected $15.64 million. This marks a significant earnings surprise, reflecting the company’s strong operational execution and market demand for its innovative solutions.

Market Reaction

Following the earnings announcement, Crexendo’s stock rose 7.45% in after-hours trading, closing at $6.20. This positive movement contrasts with a 2.37% decline during the regular trading session. InvestingPro data reveals the stock has gained an impressive 28.2% over the past six months, despite a recent 9.7% pullback last week. Discover 12 additional exclusive ProTips and comprehensive valuation metrics with an InvestingPro subscription. The stock’s performance indicates robust investor confidence, driven by better-than-expected earnings and a promising outlook for future growth.

Outlook & Guidance

Looking ahead, Crexendo anticipates double-digit growth in 2025, driven by continued investments in software solutions and potential acquisitions in the AI sector. Analyst consensus is strongly bullish, with price targets ranging from $6.75 to $8.00, suggesting potential upside from current levels. The company’s five-year revenue CAGR of 35% demonstrates its consistent growth trajectory. The company plans to capitalize on the growing demand for cloud communications, particularly in international markets like Europe, and is exploring share repurchase opportunities if market conditions worsen.

Executive Commentary

Doug Gaylor, President and COO, emphasized, "We are positioned perfectly with the combination of strong demand for our product offerings." CEO Jeff Korn added, "Disruption in the industry plays to our advantage," highlighting the company’s strategic positioning amid industry changes.

Risks and Challenges

• Market competition from larger UCaaS providers.
• Potential delays in cloud adoption by businesses.
• Economic uncertainties affecting enterprise spending.
• Risks associated with international market expansion.
• Integration challenges with potential acquisitions.

Q&A

During the earnings call, analysts inquired about the company’s migration of Microsoft (NASDAQ:MSFT) Metaswitch and Cisco (NASDAQ:CSCO) BroadSoft licensees, with Crexendo reporting the successful migration of 10 licensees in 2024. The company identified approximately 2,000 potential licensees from these platforms, indicating substantial growth opportunities.

Full transcript - Crexendo (CXDO) Q4 2024:

Conference Operator: Please note this conference is being recorded.

I will now turn the conference over to your host, Jeff Korn. Please proceed.

Jeff Korn, Chairman and CEO, Crexendo: Thank you, John, and good afternoon, everyone. Welcome to the Crexendo Q4 twenty twenty Board and Year End Conference Call. I’m Jeff Korn, Chairman of the Board and CEO. On the call with me today are Doug Gaylor, our President and COO and Ron Vincent, our CFO. In the room with us are John Britton, our COO and Anand Busch, our CSO.

In a moment, John will read our Safe Harbor statement. After that, I

John Britton, COO, Crexendo: will give some brief comments on

Jeff Korn, Chairman and CEO, Crexendo: our performance for Q4 and the year. Ron will then provide more detail on the numbers before handing the call over to Doug to provide a business and sales update. After that, we’ll open the call for questions. John, would you please read the safe harbor?

John Britton, COO, Crexendo: Thank you, Jeff. I want to take this opportunity to remind listeners that this call will contain forward looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward looking statements. All statements made in this conference call other than statements of historical fact are forward looking statements. Forward looking statements include, but are not limited to, words like believe, expect, anticipate, estimate, will and other similar statements of expectation identifying forward looking statements. Investors should be aware that any forward looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today.

These risk factors are explained in detail in the company’s filings with the Securities and Exchange Commission, including the Form 10 ks for fiscal year ended 12/31/2024, and the Forms 10 Q, S5. Crexendo does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. I’d now like to turn the call back to Jeff. Jeff?

Jeff Korn, Chairman and CEO, Crexendo: Thank you, John. I’m incredibly pleased with our results and could not be more excited about the direction Crescendo is heading. We continue to execute our strategic vision, delivering strong performance while making meaningful investments into the business. Our ability to grow or remain profitable is a testament to the strength of our team, our competitive advantages and the immense opportunities ahead. While the UCaaS market is highly competitive, we continue to grow at more than twice the rate of our publicly held competitors.

And in the case of our software segment, the software solution segment, at nearly four times the rate of our competitors. We remain committed to expanding our market share in a disciplined and profitable manner. We do not engage with price wars that are owed profitability simply to gain short term market share. Instead, we leverage our superior service and support as key differentiators. Our aggressive experts are yielding results and we fully expect continued growth in our Ncast business.

I am particularly pleased with the continued strong growth in our software solutions business And I fully expect that growth to continue. Crexendo is currently the third largest new path platform provider behind Cisco’s BroadSoft and Microsoft’s Metaswitch. In December, Microsoft announced that they are selling off the Metaswitch division, creating a lot of favorite concern with Metaswitch licensees and creating substantial opportunity for Crexendo to take advantage of this disruption in the market. I am absolutely convinced that with the disruption across all platforms play to our strengths and our advantages. I am convinced we will win a substantial share

Ron Vincent, CFO, Crexendo: of the market because we offer substantial competitive advantages that position us for long term success. Our model, our people and our products drive our success. We retain significant advantages over our competitors, including our sessions versus seat advantage. Our sessions based pricing model offers customers

Jeff Korn, Chairman and CEO, Crexendo: the flexibility to migrate at their home base without committing to rigid seat based licensing structures. This is a clear advantage of our Microsoft Metaswitch and Cisco BroadSoft customers looking for a cost effective and scalable transition strategy. The savings we provide and compelling are compelling and our product is second to none. We also have Our pricing remains highly competitive, yet we provide superior value through our service, support and product differentiation. And we are focused on attracting customers who appreciate value.

We give choice in our deployment, our ability to offer both facilities based and cloud based solutions, give customers the flexibility to choose what best fits their needs. This becomes even more important as MetaSwitch customers face a cloud migration decision. We are uniquely positioned to serve them with a solution tailored to their requirements. We have flexible contract terms. We offer both perpetual and monthly MRC contracts, providing an edge of negotiations.

While we are shifting toward an MRC heavy model, the flexibility we provide continues to be a key selling point. Additionally, our MRC supports requirements for perpetual contracts strengthens our recurring revenue base. We have open API and vendor programs. Our open APIs give our licensees the abilities to build customized application, similar to how the Apple (NASDAQ:AAPL) App Store enhances the iPhone experience. To fully capitalize on this advantage, we are committed to making further investments in software development, UX enhancement and business development efforts.

Our recently soft launched ecosystem vendor partner program or EVP for short, has gained traction and we are very excited about the potential growth. Our community of licensees and software developers design and develop strategic applications, which are sometimes broad based and other times targeted to specific market segments. By adding these third party developed solutions to our EDP program, We gain revenue from a revenue share and our customers get a wide variety of options to make the platform thereof. I am convinced this will become a substantial revenue driver for us and a continued competitive advantage. Sheet.

Our results are particularly compelling because we are achieving growth, while simultaneously investing in our business. We continue to enhance our product offerings and implement cost saving initiatives that drive long term profitability. One major milestone was a recent move out of our old building and the transition to the servers that were located there, which are now hosted in a colocation facility. Additionally, we are progressing well on migrating or amending our remaining Glucendo Class of customers to the state of our art NetSAPI and VIP customers with completed expectation by Q3, which will allow us to close the colo. We are in the process of closing data centers and migrating to the Oracle (NYSE:ORCL) Cloud Infrastructure, OCI, a transition we expect to complete by year end.

These actions will generate substantial cost savings, free up resources and allow us to reinvest in our business for continued profitable growth. I am proud to report that we maintained our streak of GAAP profitability for now the sixth consecutive quarter and non GAAP net income for the twenty fifth consecutive quarter. We continue to be ranked number one in customer satisfaction categories in Q2 reports, continuing our streak of leading in multiple satisfaction categories. This is a significant competitive advantage and our superior customer support remains a key driver for growth. We remain focused on delivering profitable growth and creating value for our shareholders.

Our results were excellent, highlighted by our net income for the year of $1,700,000 and non GAAP net income of $7,700,000 Our revenue increase of 14% for the year to $60,800,000 and our fourth quarter revenue increase of 15% to $16,200,000 give me great optimism for the future growth of Crechetgen. Looking ahead, we continue to reinvest to drive future growth and efficiency. Our increased investment in engineering service and support along with our strong partnership with OCI gives us significant competitive edge, particularly in Europe, where we are experiencing strong demand. We also make, we are also making strategic investments in automation and financial systems to improve operational efficiencies, ensuring we can continue to make data driven decisions quickly and effectively. I have never been more confident or proud of our team.

Over the past two years since I became CEO, our entire team has transformed Percinda into a profitable, high growth company. As the telecom software sector continues to evolve, we are positioned better than ever to capitalize on industry shifts and customer needs. We will remain laser focused on our core strengths, continue to execute our strategic vision and drive substantial growth in the years ahead. I am incredibly excited about what the future holds, and I want to thank our entire team for their dedication and hard work. I am confident in our continued growth and expect to continue to see at least double digit growth over the next year and beyond.

With that, I’ll turn the call over to Ron to provide additional details and commentary on numbers. Ron?

Ron Vincent, CFO, Crexendo: Thank you, Jeff. Good afternoon, everyone. We had a great fourth quarter and year ended 12/31/2024, and I’m happy to share the results with you here today. Our financial results for the fourth quarter are as follows. We reported total revenue for the quarter increased 15% to $16,200,000 compared to $14,200,000 for the fourth quarter of the prior year.

Our service revenue for the quarter increased 4% to $8,000,000 compared to $7,700,000 for the fourth quarter of the prior year. Our software solutions revenue for the quarter increased 32% to $7,000,000 compared to $5,300,000 for the fourth quarter of the prior year. Product revenue for the quarter increased 4% to 1,200,000 compared to $1,200,000 for the fourth quarter of the prior year. Our gross margins for the fourth quarter compared to the fourth quarter of the prior year are as follows. Service revenue gross margin was 57% consistent with the fourth quarter of the prior year.

Our software solutions revenue gross margin increased by 2% to 68%. Our product revenue gross margin increased by 1% to 42% and our consolidated revenue gross margin increased by 2% to 61%

Anand Busch, CSO, Crexendo: overall.

Ron Vincent, CFO, Crexendo: Net income of $507,000 for the quarter, that’s $0.02 per basic and diluted common share compared to net income of $61,000 or $0 per basic and diluted common share for the fourth quarter of the prior year. Non GAAP net income of $2,000,000 for the quarter, that’s $0.07 per basic common share and $0.06 per diluted common share compared to non GAAP net income of $1,600,000 or $0.06 per basic and diluted common share for the fourth quarter of the prior year. EBITDA for the quarter was $1,500,000 compared to $916,000 for the prior quarter. Adjusted EBITDA for the quarter came in at $2,200,000 compared to $1,700,000 for the fourth quarter of the prior year. Now, I’ll highlight the highlights for the full year ended December 31.

We reported total revenue for the year, which increased 14% to $60,800,000 compared to $53,200,000 for the prior year. Service revenue for the year increased 7% to $31,800,000 compared to $29,700,000 Software (ETR:SOWGn) solutions revenue for the year increased 30% to $23,400,000 compared to $18,000,000 reported for the prior year. Product revenue for the year increased 2% to $5,600,000 Our gross margins for the full year are as follows. Service revenue gross margin increased by 1% to 59%. Software solutions revenue gross margin increased by 2% to 71%.

Product revenue gross margin increased by 4% to 43% and our consolidated revenue gross margin increased by 3% to 62%. Net income for the year was $1,700,000 that’s $0.06 per basic and diluted common share compared to a net loss of $362,000 or $0.01 loss per basic and diluted common share reported for the prior year. Excluding the $1,500,000 gain on the sale of our building recognized in the prior year, net income increased approximately $3,500,000 from the prior year. Non GAAP net income of $7,700,000 for the year, that’s $0.29 per basic common share and $0.26 per diluted common share compared to non GAAP net income of $6,700,000 or $0.26 per basic and $0.24 per diluted common share reported for the prior year. EBITDA for the year was $5,200,000 as compared to $1,900,000 for the prior year.

Adjusted EBITDA for the year was $8,200,000 compared to $5,700,000 reported for the prior year. Our cash and cash equivalents at 12/31/2024 was $18,200,000 compared to $10,300,000 reported at 12/31/2023. Cash provided by operating activities for the year was $6,300,000 Cash used for investing activities for the year was $27,000 dollars and cash provided by financing activities for the year was $1,600,000 With that, I will turn it over to Doug Gaylord, our President and COO for additional comments on sales and operations.

John Britton, COO, Crexendo: Offerings. Thanks, Ron. I’m extremely pleased with our record Q4 and year end numbers and very excited about our strong momentum as we start 2025. Our 15% year over year increase in Q4 revenue along with our 14% year over year increase in annual revenue were the direct result of our focus on growing organically and profitably. Our top line growth combined with our dedication to managing costs allowed us to achieve GAAP profitability for our sixth consecutive quarter, as Jeff mentioned, and exceeded both our internal and our external targets for the year.

We had GAAP net income of $507,000 for the quarter and GAAP net income of $1,700,000 for the year, and we had very strong non GAAP net income of $2,000,000 for the quarter and $7,700,000 or $0.29 for the year. Our results for the quarter and for the year continue to highlight our success in managing the fundamentals of the business and making a strong effort to maximize and recognize synergies within the business. Our entire team is continually working to improve business processes and make our company more efficient. We believe we will continue to see more efficiencies and cost synergies as we continue our growth. We are very honored that we have been recognized by leading firms like Frost and Sullivan and Deloitte in recognizing our success.

The tremendous demand in the UCaaS industry has propelled Crexendo’s growth past 5,000,000 end users. Our efforts have earned Crexendo, Frost and Sullivan’s twenty twenty four North American Strategy Leadership Award, which highlighted Crexendo as the fastest growing UCaaS platform provider in the country. In addition, Deloitte recently pronounced Crexendo as one of the fastest growing companies in North America in their highly acclaimed 2024 Deloitte Technology FAST 500 report that was released in November. We saw tremendous organic growth of 30% from our Software Solutions segment. Fueled by uncertainties created by our two largest software solutions competitors, Cisco and Microsoft, we continue to see very strong demand for our UCaaS platform offering.

Cisco has increased pricing, decreased support, slowed future development on their BroadSoft platform, while Microsoft announced end of life of their Metaswitch MaxUC offering before deciding to completely divest that division of their business as they announced in December a planned sale of the MetaSwitch division. These disruptive actions helped convince seven Microsoft Metaswitch licensees and three Cisco BroadSoft licensees to make the move to Crescendo in 2024. And the pipeline of additional Microsoft and Cisco licensees is very strong. Our unique pricing and support model for our software solutions platform combined with our robust feature set allows us to differentiate ourselves from the rest of our competition. We had great success in the year in adding 17 total new licensees in 2024 and expect strong new logo acquisitions in the year ahead.

The Software Solutions segment of the business also continued to see strong traction in our international efforts as well where we saw a 39 organic increase in our international revenues, mainly concentrated in the European Union, Australia and our first new licensee in Africa. Our telecom services retail segment grew at 7% organically. We saw strong growth demand for our offerings from our channel partners and saw an 18% growth in our sales for the year from our master agent technology services distributors. General partner resellers sell our services to their prospects and customers on a revenue share basis, and we saw exciting growth from our existing general partners. In addition, we successfully added 24 new resellers to the program over the course of the year.

These general partner resellers and agents have great confidence representing our Crexendo VIP offering because of our 100% uptime guarantee combined with our best in class customer service and customer satisfaction results, which Crexendo consistently ranks number one. We continue to add new and larger agent partners to the program and are excited about the opportunities in the funnel that these new agent partners are bringing to the table. Our remaining performance obligation, also referred to as backlog, continues to grow and at the end of the year is now at $85,600,000 and that’s an increase of 34% from the end of twenty twenty three. Our remaining performance obligation or backlog is the sum of the remaining contract values of our telecom services and software solutions customers that we recognize on a sliding scale over the next sixty months, and it’s a very strong indicator of our future revenue stream. Of that $85,000,000 that’s still in our remaining performance obligation, $38,500,000 is currently slated to be recognized in 2025.

We continue to focus on improving our gross margins, as Ron mentioned, which is beginning to show success as we saw increases across the board. Those consolidated gross margins increasing from 59% to 62% is a great increase for us. Our Software Solutions segment margins improved from 69% to 71% for the year and our Telecom (BCBA:TECO2m) Service segment gross margins improved to 59%, which continue to be affected by lower margins from our acquired MSP offerings. We’re confident that we will continue to see gross margin improvements in the year ahead. Percindo’s amazing engineering team continues to add to and improve our award winning technology.

We were ranked by g2.com, which is the premier business software and services review site as the number one easiest to use solution in the hosted telecom sector for the winter of twenty twenty five category. Bracenda was also honored in 2024 with the Unified Communications Excellence Award, the Generative AI Expo Product of the Year Award and Internet Telephony’s Product of the Year Award, further highlighting the strength of our platform and of our products. In addition, we recently released our version 44.2 software to great reviews. Our new software offering introduces a suite of groundbreaking AI features at its core, enabling users to create, engage and analyze business communications effectively, efficiently and affordably using artificial intelligence. We currently have a variety of AI solutions available for end users, including our contact center AI that’s powered by chat GPT that enables the system to interact and answer commonly posed questions using AI without the need for a live body.

We also have AI powered call recording solutions with summary analysis and sentiment analysis that not only records conversations, but can provide summary and sentiment analysis immediately with any and all calls. And our new NetSapiens VideoAI Studio that offers service providers an advanced AI driven video conferencing solution with call summation and analytics. As we start 2025, I couldn’t be more excited about the future direction and opportunity for Crexendo. Over the past three years, we have more than doubled our revenue while improving our bottom line significantly and have now posted six consecutive quarters of GAAP profitability. We are positioned perfectly with the combination of strong demand for our product offerings along with great solutions and a very disruptive pricing model and the best and most talented workforce in the industry to continue our strong growth and our success.

We are committed to delivering the best UCaaS, CCaaS and CCaaS offerings in the sector to our customers and our partners and the best returns to our shareholders. As the fastest growing platform solution in the country, supporting over 5,000,000 end users, we are focused on enhancing our solutions, improving our efficiencies and continuing to return strong results. With that, I’ll now turn it back over to Jeff for any further comments.

Jeff Korn, Chairman and CEO, Crexendo: Thank you, Doug. I actually don’t have any further comments at this time. So John, we’ll open the call

Conference Operator: up The first question comes from Jesse Solverson with D. Borrow Capital. Please proceed.

Jeff Korn, Chairman and CEO, Crexendo: Hi, Jesse. How are you doing today?

Tim Horan, Analyst, Oppenheimer: Hey, guys. I’m good.

Jesse Solverson, Analyst, D. Borrow Capital: But I think you guys might be doing better. Great quarter. Good to see the success here. Yes. I wanted to point out and highlight, I see cash reserves here.

They’ve almost doubled versus last year at $18,000,000 or so. What are the priorities for capital allocation right now? Is Crescendo evaluating acquisitions to bolster its AI capabilities? Or are you still just focused on expanding your telecom services footprint? And alternatively, I’m just curious, will capital be more directed towards R and D or potentially, you can give that back to shareholders through maybe share repurchases?

Thanks. And, Jesse,

Jeff Korn, Chairman and CEO, Crexendo: all of those things are on the table, to be perfectly honest. We look at acquisitions regularly, primarily in our space. Over the last year to year and a half, there has been a very wide delta between what sellers and buyers believe UCaaS companies are worth on the smaller companies. On the larger ones, it makes some sense. The delta seems to be moderating and is getting closer to the value that we believe it is compared to the value that we get on Wall Street.

So that is on the table. An AI company, if the right one came along, it was small enough to be on the table. We would not invest we probably would not buy a huge AI company. Share repurchase if the market begins to deteriorate would be something we’re interested in because we know the value of this company. We think it’s undervalued at current.

And if the market were to continue to be under pressure, that would be something we would look at strongly. But all of those uses are on the table, Jesse.

Jesse Solverson, Analyst, D. Borrow Capital: Great. And then great to hear it. And just switching gears slightly and then I’ll hop back in the queue.

John Britton, COO, Crexendo: But one big one for

Jesse Solverson, Analyst, D. Borrow Capital: me is just you highlighted Cisco, Microsoft’s reduced focus on certain cloud communication segments for further strategies. Could you potentially quantify the number of clients that migrated from these competitors in the quarter or at least elaborate on what the onboarding process has been like? And yes, that’s it for me.

Tim Horan, Analyst, Oppenheimer: Joe, do

Jeff Korn, Chairman and CEO, Crexendo: you want to take that?

John Britton, COO, Crexendo: Sure. As I mentioned, for the year, we brought over seven Microsoft Metaswitch licensees and three Cisco BroadSoft licensees. The evaluation timeframe for these licensees to switch platforms Sometimes it can be a matter of months, sometimes it can be a matter of years. It just depends on where they’re at in their evaluation cycle. But we see a very, very full pipeline of opportunities.

And as I mentioned, it’s mainly because the two largest performers in that area, Cisco that bought BroadSoft six years ago and Microsoft that bought Metaswitch four years ago, have been pretty disruptive in not being able to fulfill the needs of their licensees out there. And so those licensees and we estimate that between Cisco and Microsoft, there’s probably close to about 2,000 licensees out there using neither platform. And so we estimate that over time, if those licensees are looking for another alternative, Crexendo is the best alternative for them. So we’re extremely excited about the disruption that they’re creating and that’s creating a tremendous opportunity for us. In terms of what those licensees are worth to us, I think for the year, the average software solutions licensee came in close to $500,000 about $475,000 per licensee in what the total contract value capability they’ve got with us.

But some of these are smaller and some of these are larger. So as we look at the opportunities out there, I don’t have the exact number for each Microsoft Metaswitch licensee or Cisco licensee, but these are very large opportunities for us. And when we see them coming over, they’re very sticky customers. Our churn on the software solution side is negligible. So when we look at these licensees, when they come over to us, they’re typically with us wherever it is.

Conference Operator: The next question comes from Mike Latimore with Northland Capital. Please proceed.

Jeff Korn, Chairman and CEO, Crexendo: Hi, Mike. How are you doing this afternoon?

Mike Latimore, Analyst, Northland Capital: Hey, great. Great. How are you?

Jeff Korn, Chairman and CEO, Crexendo: Great. Thank you.

Mike Latimore, Analyst, Northland Capital: Congrats on the strong quarter and year here. That’s good. I guess, just sticking with the Metaswitch topic, that announced acquisition occurred. Did you see any change in sales cycles because of that as it relates to Microsoft MetaSwitch customers? Do they maybe accelerate discussions with you?

Do they extend a little bit because they’re just trying to figure things out here? Or like how is that sales cycle looking for Microsoft partners?

Jeff Korn, Chairman and CEO, Crexendo: Mike, it’s all over the place. Some people are looking a little more quickly because they’re concerned. Some people are taking a little more time to see what’s going to happen. But as both Doug and I mentioned in our prepared remarks, disruption in the industry plays to our advantage and this is a huge disruption. So we think even the people who are sitting and waiting to see what will happen will still take a good hard look at us and we are convinced that we will win our good and substantial share of these customers.

John Britton, COO, Crexendo: Yes, I think the reality is that the platform hasn’t been improved or worked on much. Microsoft had laid off almost half of the Metaswitch staff over the course of last year and a half. And so, yes, the fact that it was announced as end of life, they’ve reeled that back when they announced the sale of the division. But when you stop developing a product and you end of life a product and you bring it back to life and then you sell it off, that creates a lot of fear and certainty and doubt in the licensees lines out there. And as Jeff said, that just creates opportunity for us.

So as Jeff said, it is all across the board, but we’re anticipating a lot of traffic and a lot of opportunity created from that acquisition.

Mike Latimore, Analyst, Northland Capital: Great, great. And in terms of migrating customers, one, off Metaswitch and off BroadSoft to Crexendo, I know you’ve added some tools to improve that. Can you talk a little bit about just kind of that onboarding process? And did you quantify how that’s changed over the past year? That would be interesting too.

Jeff Korn, Chairman and CEO, Crexendo: Our scripts continue to improve, Mike, and we have scripts to move various type of customers. I mean, every customer is a little bit different, and we have a really great engineering team that can work on it. And as we discussed earlier, our model of sessions not seats really allows us an advantage because it’s a great way to cap and grow and move on to our platform as you wish to progress at your own speed. So all of that plays to our advantage.

Mike Latimore, Analyst, Northland Capital: Yes, yes, that’s good. Okay. Great. Thanks a lot. Looks good.

John Britton, COO, Crexendo: Thanks, sir.

Conference Operator: The next question comes from Eric Martinuzzi with Lake Street. Please proceed.

Jeff Korn, Chairman and CEO, Crexendo: Good afternoon, Eric.

Mike Latimore, Analyst, Northland Capital: Yes. The software solutions business there being up 30% just really on fire this year. I was curious to know if there were any 7 figure transactions in the year for software solutions? I know you said the average deal was around $475,000 I don’t believe so, but I’ll defer to Ron on that.

John Britton, COO, Crexendo: This is John. And we did have some when you look at the total contract value over the life of the licensee that were 7 figure transactions. So that is a little bit more of an outlier, but there were

Anand Busch, CSO, Crexendo: a couple of those in

John Britton, COO, Crexendo: the year. And that generally is true every year, so that’s not materially different to the past.

Mike Latimore, Analyst, Northland Capital: Got you.

Jeff Korn, Chairman and CEO, Crexendo: All

Mike Latimore, Analyst, Northland Capital: right. And then as I look out to my own model, the expectations for this year, you guys had talked about a double digit growth trajectory for 2025. That’s kind of where the Street is right now. What do you expect as far as what you do with that 10% growth? Are we talking about relatively flat on the adjusted EBITDA versus the $8,000,000 or so that you did in 2024?

Or would you look to increase the profits?

Jeff Korn, Chairman and CEO, Crexendo: Do you want to take that?

Ron Vincent, CFO, Crexendo: Yes. We’ve always talked about reinvesting, but we also like to grow the bottom line at the same time. And so we expect some improvement to continue on the adjusted EBITDA margins as well.

Mike Latimore, Analyst, Northland Capital: Okay. Right. And then the I did see the Metaswitch acquisition actually closed today. Alianza, as far as them as a competitor, it looks like they’re talking about offering a modernized service to the 1,000 service providers that they now have access to in that MetaSwitch installed base. Have you heard any chatter about whether that means kind of a forced migration?

Or is it they’re going to support the legacy as well as the more modern?

Jeff Korn, Chairman and CEO, Crexendo: Okay. Eric, we’ve heard some rumors that there’s going to be a forced migration that you know as much as we do.

Mike Latimore, Analyst, Northland Capital: Got it. Okay. Well, congrats on the year.

Ron Vincent, CFO, Crexendo: Thanks, Eric.

Conference Operator: The next question comes from Tim Horan with Oppenheimer. Please proceed. Yes.

Tim Horan, Analyst, Oppenheimer: Hi, guys. Alianzo,

Jeff Korn, Chairman and CEO, Crexendo: how does your product kind

Tim Horan, Analyst, Oppenheimer: of compare to theirs, the full suite of offerings or any kind of color on that would be great?

Jeff Korn, Chairman and CEO, Crexendo: I’m going to let Anand answer that. I’m going to tell you the others is better, but I know you’re going to expect me to say that, but all I want to get is more detail.

Anand Busch, CSO, Crexendo: Thanks, Jeff. Yes, so let me touch on it a couple of different ways. Allianz (ETR:ALVG)’s focus historically has been on the residential markets and kind of next generation UCaaS. As Jeff has said before too, certainly not one to kind of bash on the competition if you will. But I think that’s an area that they have focused on historically because we saw them head to head in some of these markets where for next generation business applications, even over the last ten, fifteen years, that’s actually where the big disparity comes, right?

So we don’t see an overlap in that respect. And then like Doug and Jeff spoke about, I think the Metaswitch acquisition for them, because it was done when it was done, I think there’s a lot of catch up to be done. So I think we don’t know, as Jeff pointed out, we know as much as you guys know about that. But in terms of the markets we plan, we’re very much more focused on the business and the enterprise market relative to that.

Jeff Korn, Chairman and CEO, Crexendo: And Tim, I will add that I can tell you from personal experience, it is very expensive and difficult to maintain multiple platforms. And at some point, you probably have to figure that.

Tim Horan, Analyst, Oppenheimer: And maybe just the relative side of where you’re at now versus the Alianza on a legacy basis. Do you have a sense of that?

Jeff Korn, Chairman and CEO, Crexendo: We honestly don’t have a point of comparison. As you understand, Alianza is private, so it doesn’t have to release results. Metaswitch was not material to Microsoft. So we don’t have any actual numbers. We have some estimates, which I’ll let Doug talk to if he knows.

If not, we’ll just go on.

John Britton, COO, Crexendo: Yes. I’m not comfortable hiding those numbers.

Jeff Korn, Chairman and CEO, Crexendo: Again, as we described, we just don’t know if the Allianz is private and Metaswitch was not material Microsoft. So we’d just be guessing. And can you maybe just at

Tim Horan, Analyst, Oppenheimer: a high level, what percentage of legacy service provider lines do you think have kind of moved over to offerings like yourself and cloud? Where do you think we’re in the process? And related to that, do you have a sense what’s going on with ARPU both at the end user level and at the wholesale level? I know you said Cisco is raising prices. Any trends on both of those would be great.

John Britton, COO, Crexendo: Yes. So on the legacy, was that a question on the retail side or is that more on the wholesale side?

Tim Horan, Analyst, Oppenheimer: On both. On

John Britton, COO, Crexendo: the retail side, the estimate still show that probably around 40% of the businesses out there are not on the cloud for their communications today. And that number is fast shrinking. And so if you look at Gartner (NYSE:IT)’s reports and other reports out there, it shows that within the next two to three years, that number will be down probably close to the single digits. So we still see great adoption. My comment is always that if you’re not on the cloud today, it’s not a matter of if you move, it’s when you move.

And so those businesses are still migrating over. Avaya just announced that they’re going to basically abandon the SME market and really concentrate on the enterprise market. So that’s going to give more emphasis for these small and mid sized folks that are hanging on to their legacy systems to move over. Mitel continues to have challenges out there. So those are the two largest legacy platform or premise based providers out there.

And so we still see that there’s tremendous opportunity on the retail side for these legacy customers to move to the cloud. And we’re going to be the ones that take advantage of that. And when we talk about the

Tim Horan, Analyst, Oppenheimer: Yes, on the pricing and the ARPU side both at wholesale and at the end user level?

John Britton, COO, Crexendo: Yes. So on the retail side, on revenue per user, our revenue per user has been pretty consistent around that $20 range. I don’t know if Ron’s got the exact updated number, but it’s been pretty consistent around $20 per user. And it’s because we continue to add more features and enhancements and capabilities into that price point. So instead of lowering the price and then charging extra for feature enhancements, we just continue to add those features into our standard offering license.

So for example, AI Studio is one of the applications that we’ve done today. We offer that as a standard offering for end users.

Tim Horan, Analyst, Oppenheimer: At the wholesale level?

John Britton, COO, Crexendo: On wholesale level, our average we do that on more of a average revenue per session as opposed to an average revenue per user. But our average licensee today is paying us almost $6,000 a month on a consistent basis. And so when we look at that, that’s our average revenue per account on the licensee side. On the user side, it’s more of a average price per session as opposed to an average price per user because our licensees aggregate that. They buy it from us on a session basis and then they may charge the end user on a seat basis.

But our pricing to the licensees is based on concurrent calls or sessions, not on actual seats. And so it’s hard for us to get an actual average revenue per user on the wholesale side, but we can give you the average revenue per user for the licensees and that’s upwards of about 57,000 to 6,000 and 6,200 per licensee.

Tim Horan, Analyst, Oppenheimer: With Cisco raising prices, I mean, can you raise prices also?

Mike Latimore, Analyst, Northland Capital: Yes. So we’ve when

John Britton, COO, Crexendo: we see Cisco and Microsoft raising their prices out there, that puts those licensees in a bind. We have had price increases, but we’ve got a very tight community of licensees out there. They have contracts, and those contracts, we can’t raise those contracts when they’re under a set fee. But we have had some additional cost increases over the last year or two. And so that is something that’s fairly consistent.

So I think we’re keeping track of that. And we know that as we need to reinvest back in the platform and put more money into research and development, our licensees understand that that’s going to come at a cost. And so when we do have a cost increase, it’s always being put back into the platform.

Mike Latimore, Analyst, Northland Capital: Thank you.

Anand Busch, CSO, Crexendo: Yes. And actually, to add to Doug, Tim, this is on. And I think one of the key points here that was mentioned as well, and I think Doug brought this up is the business model that we go to our wholesale providers is actually a big differentiator. And I think Jeff has pointed this out as well. That’s actually what drives the underlying growth.

The extensibility of the platform so that providers can actually build products in their own image and differentiate in the space, that’s a clear advantage against the likes of Alianza and Microsoft in the past and Cisco, for example, who are really trying to drive towards their own brand. So in the market to what Jeff is saying in terms of expanding market share, those are the biggest differentiating drivers as well as an extensible platform that folks can actually build in their own image that also can be deployed based on their choice, whether it’s in their facility, whether it’s in the cloud.

Tim Horan, Analyst, Oppenheimer: Well, and it sounds like you’re really well positioned to gain market share. So it sounds like the time to do that. And thank you.

Jeff Korn, Chairman and CEO, Crexendo: Thank you,

Conference Operator: guys. The next question comes from Matthew Maas from B. Riley Securities. Please proceed.

Jeff Korn, Chairman and CEO, Crexendo: Hi, Matthew. How are you doing this afternoon?

Matthew Maas, Analyst, B. Riley Securities: Hi. Hi. I’m great. I’m filling in for Josh Nichols. So in terms of my yes, in terms of my first question, I was just wondering, given the strong software growth, I was wondering how much of that you credit to the sunsetting of MENA switch versus international growth and how you see that momentum playing out for this year and beyond?

Jeff Korn, Chairman and CEO, Crexendo: International growth has been strong, Matthew. It’s still just barely material to us. I think it’s just about 5% run. I see the growth internationally continuing to grow because there’s frankly less competition and there’s a there was a distrust of Microsoft quite a bit in Europe. How that will play with AliAnza, I don’t know, but I think it will continue to play to our advantage.

So I expect continued substantial growth in Europe, while we will be fighting for every single service provider in The United States.

Matthew Maas, Analyst, B. Riley Securities: Got it. Thank you. And then you mentioned that for the legacy for the data center closing, I think you mentioned that being for the year end. And I’m pretty sure previously you mentioned you were expecting about 100 to 150 basis points of savings on that. So I’m wondering, do you think most of that will offset some of the new hires you’ve been deferring?

Or what do you expect that net effect to be going into the end of twenty twenty five and 2026?

Jeff Korn, Chairman and CEO, Crexendo: Well, it’s bifurcated, Matthew. I mean, some of that will be reinvested in the business as we regularly reinvest I mean, we’ve regularly reinvested over the last six quarters while remaining profitable. Many of those savings will go to the bottom line, and we’ll have the advantage of having engineers and other support people who are working on those things, but we can then move to other departments where we won’t have to do additional hires. So I expect to see some substantial improvement from the savings showing into 2026.

Matthew Maas, Analyst, B. Riley Securities: Awesome. Great. And then just last one from me. I think you guys mentioned the $85,000,000 backlog. I’m wondering how that how the mix of that has evolved, if at all, since last year?

John Britton, COO, Crexendo: Yes, that backlog number, as I said, was up 34%. So I mean, that’s pretty significant and that backlog number just continues to grow. So as we sell new contracts, we take the revenue as we offer the service. And so that backlog number has continued to grow because of bookings numbers. Yes.

So

Ron Vincent, CFO, Crexendo: there’s a 0.4% increase in telecom services backlog of 10,600,000 and $11,100,000 of the increase over the prior year or 58% was from our software solutions division.

Matthew Maas, Analyst, B. Riley Securities: Got it. Yes. Thank you. That’s what I was looking for since the Q and A. Yes.

That was all for me. Thank you.

Jeff Korn, Chairman and CEO, Crexendo: Thank you, Matthew.

Conference Operator: Okay. Up next, we have Mike Kaufman with MK Investments. Please proceed.

Mike Latimore, Analyst, Northland Capital: Hi, Mike. Hi, Mike. Hi, Mike. Hi, Mike.

Mike Kaufman, Investor, MK Investments: Hi, Mike. Hi, Mike.

Jesse Solverson, Analyst, D. Borrow Capital: Hi, Mike.

Mike Kaufman, Investor, MK Investments: Licenses eventually up for grabs, is there anything we could do in terms of our resources or spiffs or engineering talent to accelerate the movement of those people at risk to our platform?

Jeff Korn, Chairman and CEO, Crexendo: Mike, we look at all those on a regular basis. We pay very competitive into both our salespeople and agents for bringing people in. We always look at potentially hiring new salespeople or bringing in new agents. And if this will help, we’ll look at this. Right now, it’s the uncertainty of the market that’s driving people to look.

And that is working, but we will continue to monitor the situation and adjust as we need to.

Mike Kaufman, Investor, MK Investments: Okay. I think you guys are doing a great job. Keep it up. And I particularly like the fact that you kind of did a podcast explaining where we’re going to the outside world, which might help bring investors towards this best kept secret kind of a jewel in the diamond in the rough.

Jeff Korn, Chairman and CEO, Crexendo: I may have to send you out on the road, Mike, for us.

Mike Kaufman, Investor, MK Investments: Excuse me?

Jeff Korn, Chairman and CEO, Crexendo: I said I may have to send you out on the road for us, Mike. You’re one of our best evangelists.

Mike Kaufman, Investor, MK Investments: Well, I’ve been in with the company for a long time, so I’m very satisfied. So keep up with

Jeff Korn, Chairman and CEO, Crexendo: the work. We

Conference Operator: have no further questions in queue. I’d like to turn the floor back to management for any closing remarks.

Jeff Korn, Chairman and CEO, Crexendo: I just want to thank everybody for their time and attention. We’re very pleased to bring you these results and we’ll be back with you in May when we bring Q1 results.

Matthew Maas, Analyst, B. Riley Securities: So until then, have

Jeff Korn, Chairman and CEO, Crexendo: a great afternoon and we look forward to speaking to you again.

Conference Operator: This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.

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