Crexendo, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Vision: Executing strategic vision, growing UCaaS at over twice the rate of public competitors and software solutions at nearly four times. Avoiding price wars, leveraging service and support.
• Market Position: Third largest new path platform provider; Microsoft's Metaswitch division sale creates opportunity.
• Competitive Advantages: Sessions-based pricing, price competitiveness, flexible deployment, flexible contract terms, open APIs and vendor programs.
• Financial Performance: GAAP profitability for 6th consecutive quarter, strong non-GAAP net income; EBITDA and adjusted EBITDA improved.
• Growth Initiatives: Software solutions growth, 39% organic international revenue increase, 24 new resellers added, backlog at $85.6M (+34% y/y).
• Product Enhancements: New software release with AI features, contact center AI, call recording with sentiment analysis, NetSapiens Video AI Studio.

Segment Performance

• Q4 2024: Total revenue increased 15% to $16.2 million. Service revenue was $8 million (+4% y/y) with 57% gross margin. Software solutions revenue was $7 million (+32% y/y) with 68% gross margin. Product revenue was $1.2 million (flat y/y) with 42% gross margin. Consolidated gross margin was 61% (+2% y/y).
• Full Year 2024: Total revenue increased 14% to $60.8 million. Service revenue was $31.8 million (+7% y/y) with 59% gross margin. Software solutions revenue was $23.4 million (+30% y/y) with 71% gross margin. Product revenue was $5.6 million (+2% y/y) with 43% gross margin. Consolidated gross margin was 62% (+3% y/y).

Guidance

• Expect continued double-digit growth over next year and beyond.
• Reinvesting in business while aiming to improve bottom line, including adjusted EBITDA margins.
• Leveraging market disruptions for continued growth in software solutions and UCaaS.

Risks

• Uncertainties around Microsoft Metaswitch acquisition impact on sales cycles and customer migration.
• Competition from Alianza affecting market share.
• Risks associated with forward-looking statements and potential differences between actual results and projections.

Question and Answer

Q: Jesse Sobelson asks about capital allocation priorities, acquisitions, R&D, share repurchases.

A: Jeff Korn says acquisitions, AI, share repurchases are on the table.

Q: Mike Latimore asks about Metaswitch sales cycles and onboarding.

A: Jeff and Doug say sales cycles vary, but disruption benefits Crexendo.

Q: Eric Martinuzzi asks about seven-figure software deals and EBITDA expectations.

A: Jon Brinton mentions some seven-figure deals, Ron Vincent says expect adjusted EBITDA improvement.

Q: Tim Horan asks about comparison to Alianza, legacy service provider migration, ARPU.

A: Ron Vincent talks about market focus, Doug Gaylor on legacy migration trends.

Q: Matthew Maus asks about software growth drivers and data center savings.

A: Jeff Korn and Ron Vincent discuss international growth and savings reinvestment.

Q: Mike Kaufman asks about accelerating migration of at-risk licenses.

A: Jeff Korn says monitoring and adjusting resources as needed.