Crexendo, Inc. Q3 FY2025 earnings call

• Crexendo delivered 12% YoY revenue growth, $1.5 million GAAP net income, and $3 million non-GAAP net income. Software solutions grew 28%, service revenue up 8%.
• Most successful UGM in history with record attendance, surpassed 7 million end users. Investments in AI, Oracle Cloud, and next-gen solutions.
• NetSapiens platform is fastest-growing in NA, session-based billing differentiator. New marketplace introduced at UGM.
• Partnership with Oracle Cloud enables global expansion, including first customer in Africa. Active on M&A, reviewing strategic acquisitions.

Consolidated revenue for the quarter increased 12% to $17.5 million. Service revenue was $8.6 million, up 8% YoY, contributing ~49.1% of total revenue. Software solutions revenue was $7.5 million, up 28% YoY, contributing ~42.8% of total revenue. Product revenue was $1.4 million, down 25% YoY but slightly above historical average. Service revenue gross margins decreased 100 basis points to 57% YoY, software solutions revenue gross margins increased 300 basis points to 74% YoY, consolidated revenue gross margins increased 200 basis points to 63% YoY. Remaining performance obligations were $87.9 million. Operating expenses increased 5% to $16.2 million, operating margin was 7% vs 1% YoY. GAAP net income was $1.5 million ($0.05 per basic and diluted common share), non-GAAP net income was $3 million ($0.10 per basic and diluted common share). EBITDA was $2.1 million, adjusted EBITDA was $2.9 million (17% of total revenue). Cash, cash equivalents at September 30, 2025, was $28.6 million.

• Expect double-digit growth through next year. Anticipate cost savings from data center migrations to OCI and classic to VIP migration. AI initiatives like Kairo expected to drive demand and revenue. Remaining performance obligation at $88 million indicates future revenue.

• Market uncertainties affecting competitors could create opportunities but also competitive pressures. International expansion subject to world issues. M&A integration risks if acquisitions not successfully integrated.

Q: How should we be thinking about the pipeline for new licensees and Q4 setup?

A: Can look at growth from 6 to 7 million users as a rule of thumb. Hard to give number now as sandboxes are out.

Q: How to measure success of AI products like Kairo?

A: Will monitor take rate from customers. Aggressive program for existing and new customers, anticipate strong uptake.

Q: Progress on migrating customers to OCI infrastructure?

A: Expect migration of U.S. data centers to OCI to be completed by early 2026.

Q: What drove services growth to 8% and expectation to continue?

A: Continued positive acceptance in market, execution on retail teams, solid bookings growth.

Q: Characterization of software pipeline?

A: Larger deals take longer, but many sandboxes out, expect growth to continue. Tremendous pipeline of opportunities.

Q: Opportunity with AI receptionist?

A: High take rate expected from majority of small and midsized customers, could increase average revenue per account by 40-50%.

Q: Timeline for version 46 release?

A: Thinking Q1 2026 for previews, actual GA date later.

Q: Thoughts on M&A of competitor acquiring FluentStream?

A: Preference to acquire own technology on platform, but will look at compelling opportunities at right price.

Q: International revenue mix inflection and gating factors?

A: International growth faster than domestic, but still small. World issues impact ability to give specific numbers.

Q: AI stack layering and product gross margin drivers?

A: Open API platform allows easy integration of third-party solutions. Product gross margin dip due to lower margin sales, expected to improve back to low 40s range.