Crexendo, Inc. Q3 FY2024 earnings call

• Crexendo delivered strong financial results for Q3 2024 with 13% YOY consolidated revenue growth, driven by 25% growth in the software division.
• Maintained GAAP profitability for the fifth consecutive quarter and non-GAAP net income for the 24th consecutive quarter.
• G2 ranks Crexendo number one in 18 customer satisfaction categories for the fifth consecutive quarter.
• Invested in Oracle Cloud Infrastructure (OCI) for competitive advantage, especially in Europe, and in an advanced accounting system for financial streamlining.
• Hosted successful User Group Meeting with applications leveraging AI, opening revenue sharing opportunities.
• Migrating Crexendo Classic customers to VIP system and hosted customers to OCI to achieve cost savings and redeploy employees.
• Benefiting from instability among main competitors like Cisco and Microsoft, attracting their customers.

Consolidated revenue for the third quarter of 2024 was $15.6 million, up 13% year-over-year. Service revenue was $8 million, up 6% year-over-year. Software Solutions revenue was $5.9 million, up 25% year-over-year. Product revenue was $1.8 million, up 9% year-over-year. Consolidated gross margins were 61%, Software Solutions gross margins were 71%, Telecom Services gross margins were 55%, service revenue margins were 58%, and product margins decreased to 40% from 45% in the prior year.

• Expect double-digit organic growth through the end of 2024 and into 2025.
• Continue to reinvest in the business, including in OCI, accounting system, and headcount.
• Plan to look at substantial acquisitions next year, with sufficient cash to pursue such opportunities.

• Potential impact of acquisitions on GAAP profitability due to intangible costs.
• Need to maintain higher margins and ongoing efforts to increase sales and operational efficiencies.

Q: How many new logos and expansions were there in the quarter?

A: Eight new logos and five expansions from existing licensees in the software solutions segment.

Q: Status on tools to help MSPs migrate off Microsoft and BroadSoft?

A: Added a partner to automate migrations, with a pipeline of more partners facilitating the transition.

Q: Macro environment impact on services revenue?

A: Churn from one national account impacted services revenue sequentially, but services revenue is expected to have sequential growth or similar to current quarter.

Q: Headcount investments and operating expenses?

A: Operating expenses include investments in OCI, accounting system, and headcount, with efforts to defer hiring by moving employees to open positions.

Q: User group meeting key takeaways?

A: Largest UGM ever, with over 30% first-time attendees, new faces, and enthusiastic response from both new and returning attendees Q: Migration costs and software solutions traction?

A: Migration to VIP platform powered by NetSapiens expected to save about 1-1.5% of costs, with near-term traction in Metaswitch partner community and international growth.

Q: Competitive landscape and Metaswitch webinar feedback?

A: Webinar had 180 attendees, with Metaswitch partners sharing positive experiences, and ongoing work to convert them to Crexendo's platform Q: Balancing direct sales vs reseller channel?

A: Balanced approach, with heavy investment in software solutions due to high margin profile, leveraging partnerships and community of vendors