Crexendo, Inc. (CXDO) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary and Q&A indicate positive financial performance with strong growth in software solutions, retail segments, and international expansion. The company is rolling out AI-driven tools and migrating to Oracle Cloud, indicating cost savings and efficiency improvements. Despite some uncertainties in management responses, the overall sentiment is optimistic, with double-digit growth expectations and strategic acquisitions. The market is likely to react positively, especially if the company is small-cap, given the strong growth metrics and strategic initiatives.

Key Financial Performance

Full Year Net Income $5.1 million, a significant increase from $1.7 million in the prior year. This improvement is attributed to disciplined cost management and double-digit organic growth.

Non-GAAP Income $11.4 million for the year, compared to $8.2 million in the prior year. This reflects a 39% increase, driven by strong operational performance and revenue growth.

Revenue $68.2 million for the year, representing a 12% year-over-year organic growth. This growth was driven by increased service and software solutions revenue.

Fourth Quarter Revenue $18.1 million, an 11% increase from $16.2 million in the prior year. Growth was driven by strong performance in software solutions and service revenue.

Service Revenue $33.8 million for the year, a 6% increase year-over-year. Growth was supported by higher-margin UCaaS sales.

Software Solutions Revenue $29.7 million for the year, a 27% increase year-over-year. Growth was driven by new customer wins and upgrades from existing licensees.

Product Revenue $4.7 million for the year, a 16% decrease year-over-year. The decline was due to a strategic reduction in lower-margin product sales.

Service Revenue Gross Margin 58% for the year, a 1% decrease year-over-year. This was impacted by investments in infrastructure and operational improvements.

Software Solutions Revenue Gross Margin 72% for the year, a 1% increase year-over-year. This reflects improved operational efficiencies and higher-margin sales.

Product Revenue Gross Margin 40% for the year, a 3% decrease year-over-year. This was due to a shift away from lower-margin product sales.

Consolidated Revenue Gross Margin 63% for the year, a 1% increase year-over-year. This was driven by improved margins in software solutions.

Operating Expenses $63.5 million for the year, an 8% increase year-over-year. This increase was due to investments in AI, security, and infrastructure.

EBITDA $8 million for the year, compared to $5.2 million in the prior year. This reflects a 54% increase, driven by revenue growth and cost management.

Adjusted EBITDA $11.2 million for the year, compared to $8.2 million in the prior year. This reflects a 37% increase, driven by operational efficiencies and revenue growth.

Cash and Cash Equivalents $31.4 million at the end of 2025, compared to $18.2 million at the end of the prior year. This increase was driven by strong cash flow from operations.

Cash Provided by Operating Activities $9.3 million for the year, compared to $6.3 million in the prior year. This reflects a 48% increase, driven by improved profitability and operational efficiency.

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Operating Highlights

AI receptionist (CAIRO): Released in January, CAIRO is an AI receptionist that answers calls, schedules appointments, accesses customer records, and connects to live agents. It targets SMBs to improve efficiency and profitability, potentially increasing Crexendo's average revenue per account by over 25%.

AI advancements: Crexendo's AI solutions include AI call recording with sentiment analysis and contact center AI powered by ChatGPT. These tools aim to enhance SMB productivity and profitability.

Ecosystem Vendor Partner Program (EVP): The EVP program now includes 41 partners, providing products and solutions that generate new revenue streams and improve customer efficiency.

Acquisition of Estech Systems (ESI): Acquired for $35 million, ESI is expected to increase Crexendo's revenue, earnings, and cash flow. The acquisition is strategic and complementary, with cost and revenue synergies anticipated.

Expansion of user base: Crexendo's platform grew from 4 million to over 7 million users in three years, marking a 75% growth.

New partnerships: Added AppDirect as a partner, generating a strong pipeline of opportunities and contributing to the strongest sales bookings quarter ever.

Migration to Oracle Cloud Infrastructure (OCI): Completed migration of legacy hosted infrastructure to OCI, expected to improve margins.

Operational efficiencies: Cost synergies from ESI acquisition include facilities consolidation, licensing optimization, and network expense improvements.

Revenue growth: Achieved 12% year-over-year organic growth in 2025, with $68.2 million in revenue.

Focus on AI and innovation: Investments in AI, security, and infrastructure aim to position Crexendo as a leader in the cloud communication market.

Disciplined M&A strategy: Adopted a strategy to pursue accretive acquisitions, with ESI acquisition as a key example.

Long-term investments: Invested in platform scalability, security, and engineering talent to ensure future growth and resilience.

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Risk or Challenges

Acquisition of Estech Systems (ESI): The acquisition involves a significant financial commitment of $35 million, including $27.3 million in cash. There is a risk of integration challenges, including facilities consolidation, licensing optimization, and employee coordination. Additionally, the unaudited financials of ESI could pose a risk if the audited results differ significantly.

Dependence on AI and Technology Investments: The company is heavily investing in AI, security, and infrastructure, which requires significant capital. There is a risk that these investments may not yield the expected returns or could face delays in implementation.

Supply Chain and Operational Efficiency: The migration to Oracle Cloud Infrastructure and decommissioning of legacy data centers is expected to improve margins, but there is a risk of operational disruptions during the transition.

Revenue and Margin Pressures: Product revenue decreased by 6% in Q4 and 16% for the year, which could indicate challenges in maintaining a balanced revenue mix. Additionally, software solutions revenue gross margin decreased by 500 basis points in Q4, signaling potential margin pressures.

Competitive Pressures: The company faces competition from established players like Metaswitch and BroadSoft. While Crexendo has been winning customers from these competitors, there is a risk of losing market share if competitors improve their offerings.

Economic and Market Conditions: The company’s growth and profitability are tied to market conditions, which could be impacted by economic uncertainties or changes in customer demand.

Regulatory and Compliance Risks: The company is subject to SEC regulations and must ensure compliance, particularly with the financial reporting of acquisitions like ESI. Non-compliance could lead to legal and financial repercussions.

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Guidance & Outlook

Revenue Growth: The company expects to reach $100 million in annual revenues by the end of 2026, driven by organic growth and the acquisition of Estech Systems (ESI).

Acquisition Impact: The acquisition of ESI is expected to increase Crexendo's revenue, earnings, and cash flow following the March 1, 2026, closing. The acquisition is anticipated to be accretive within two quarters.

Cost Synergies: The company anticipates meaningful cost synergies from the ESI acquisition through facilities consolidation, licensing optimization, cross-utilization of employees, operational efficiencies, network expense improvements, and Oracle Cloud infrastructure migration.

AI Product Revenue: The newly launched AI receptionist, CAIRO, is expected to increase average retail revenue per account by over 25%.

Gross Margin Improvements: Gross margins are expected to improve due to the completed migration to Oracle Cloud Infrastructure and the near completion of the legacy retail classic migration.

AI Strategy: Crexendo plans to continue advancing its AI strategy, focusing on solutions that enhance efficiency and profitability for small and midsized businesses. This includes AI call recording, contact center AI, and the AI receptionist.

Revenue Synergies: The ESI acquisition is expected to generate strong revenue synergies through cross-selling opportunities, expanded channel reach, and platform expansion.

Market Position: The company aims to maintain its leadership in the cloud communication market by investing in platform scalability, security, and innovation.

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Shareholder Return Plan

dividends: While these investments require discipline and capital today, we fully expect them to generate substantial dividends in the future through stronger growth, expanded margins and long-term shareholder value.

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Key Q&A

Q:How should we think about the impact of the ESI acquisition, the scale and subsequent customer acquisition cost for your retail business, and the benefit over the next few years of adding this scale?

A:Jeffrey Korn stated that they are not in a position to discuss EBITDA margins until the audit is completed under SEC guidelines. Ron Vincent added that the acquisition generates customer acquisition costs similar to or slightly lower than their organic costs. There is no material impact expected on customer acquisition costs, and marketing spend will continue as usual.

Q:As we think about the free cash flow for the year, is there any significant onetime items in 2026 that investors should be considering from the acquisition that would impact this ratio of conversion of EBITDA to free cash flow in 2026?

A:Ron Vincent stated that there are no anticipated large capital improvements that would impact free cash flow, and they should generate similar free cash flow from adjusted EBITDA.

Q:What are you hearing in terms of the demand environment for new licensees, and what key points are you hearing from them in terms of their consideration of converting from a legacy platform to NetSapiens in 2026?

A:Jon Brinton mentioned that there is strong partner interest and many opportunities from legacy platforms. Partners are attracted to their sessions-not-seats model, AI applications, and modernization roadmap, which helps them stay competitive.

Q:Was the strong services bookings in the quarter mainly driven by the master agents, or were there broader factors?

A:Doug Gaylor explained that there was a good contribution across the board, including direct sales and technology service distributors (TSDs). They had a record retail quarter with large opportunities, including deals upwards of 1,000 stations.

Q:Is the service gross margin increase sustainable?

A:Ron Vincent stated that the current rate of revenue growth makes the percentage sustainable, but he is not projecting further increases at this time.

Q:What percent of your customer base do you think would have interest in the AI receptionist?

A:Doug Gaylor believes the AI receptionist is applicable to almost all customers, though they need to evaluate its fit for their business. Early feedback has been positive, and they expect a high adoption rate. Jon Brinton added that it is also available for NetSapiens platform licensees, who have shown strong interest.

Q:Is the goal of double-digit organic growth in 2026 still achievable?

A:Jeffrey Korn confirmed that they are still aiming for double-digit organic growth, despite necessary investments. He emphasized strategic and careful investments to achieve this goal.

Q:What was the growth rate for ESI in 2025?

A:Doug Gaylor stated that ESI's growth rate from 2024 to 2025 was about 6% to 7%, which is better than the industry average.

Q:What operational improvements can be made after acquiring a licensee like ESI?

A:Jeffrey Korn outlined several improvements, including combining licensing for cost savings, moving ESI to Oracle Cloud for efficiencies, coordinating back-office functions, and cross-sell opportunities. He emphasized that ESI was already well-run, so staff reductions were not necessary.

Q:What happens when you acquire a large licensee like ESI to other licensees who may want to be acquired?

A:Jeffrey Korn expects that other licensees may express interest in being acquired, and they are looking at several opportunities for future acquisitions. Acquiring licensees offers efficiencies, such as avoiding customer migration and leveraging existing familiarity with the platform.

Q:Can you help us frame the timeline for the facilities consolidation and OCI migration of ESI workloads?

A:Jeffrey Korn stated that he has not discussed the timeline with the ESI team yet but hopes it will be completed sometime this year.

Q:What excites you most about the setup this year for the combined company?

A:Jeffrey Korn expressed enthusiasm about the excitement and commitment of ESI employees and the growth opportunities for the combined company. Doug Gaylor added that the long-standing relationships between the teams and the shared vision for growth are key factors.

Q:Where do you see the organic pace of growth going for software solutions?

A:Jeffrey Korn hopes the growth will remain at the same level but noted that macroeconomic conditions could impact the timing of deals. Doug Gaylor added that demand remains strong, and the Q4 growth percentage was slightly skewed by their annual user group meeting.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer to the question about the timeline for facilities consolidation and OCI migration of ESI workloads, as Jeffrey Korn stated he had not discussed it with the ESI team yet. Additionally, they did not provide specific sales projections for the AI receptionist, citing insufficient time to assess adoption rates.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

CXDO Transcript

Crexendo, Inc. (CXDO) Q4 2025 Earnings Call Transcript

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The earnings call summary indicates strong financial performance with increased income and EBITDA, substantial cash reserves, and expected double-digit revenue growth. The Q&A section highlights optimism about AI product adoption and OCI migration benefits. Although some guidance was unclear, the potential for increased revenue from AI and retail growth, alongside gross margin improvements, suggests a positive sentiment. The new AI initiatives and Oracle Cloud migration are expected to enhance efficiency and margins, reinforcing a positive outlook for the stock price.

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The earnings call reflects strong software revenue growth, margin expansion, and a solid future revenue stream. The Q&A section provided clarity on growth strategies, successful partnerships, and positive market positioning. Despite some uncertainties in hardware revenue and international data center savings, the overall sentiment is positive, supported by reiterated growth expectations and strategic acquisitions. The company's focus on high-margin software solutions and partnerships, such as with T-Mobile, further enhances the positive outlook.

Earnings call transcript: Crexendo Q1 2025 sees revenue growth, stock up

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The earnings call indicates strong financial performance with a 12% revenue increase, improved margins, and a 22% rise in backlog. The company shows resilience with strategic growth investments and profitability focus, despite some product revenue decline. The Q&A reveals confidence in sustainable margin improvements and growth potential in Europe. Although shareholder return plans are not explicit, the overall sentiment is positive, driven by strong fundamentals and strategic positioning. The lack of clear guidance on customer acquisition and market changes slightly tempers the outlook, but the overall sentiment remains positive.

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