Crexendo, Inc.

This conference is being recorded. I will now turn the conference over to your host, Jeff Korn, Chairman of the Board. You may begin.

Thank you, John. And good afternoon, everyone. Welcome to the Crescendo Q1 2025 Year-end Conference Call. I'm Jeff Korn, CEO and Chairman of the Board. On the call with me today are Doug Gaylor, our President and COO, Ron Vincent, our CFO, and in the room with us is John Britton, our CRO, and Anand Bhush, our CFO. In a moment, John will read our Safe Harbor Statement. After that, I will give some brief comments on our performance for Q1. Ron will then provide more details on the numbers before handing over the call to Doug to provide a business and sales update. After that, we will open the call up to questions. John, would you please read the Safe Harbor Statement? 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 Exchange Commission, including the Form 10-K for fiscal year ending December 31, 2024, and the Forms 10-Q as filed. Crescendo 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? Thank you, John. I am incredibly pleased with our first quarter results and remain more excited than ever about the direction Crescendo is heading. We continue to execute our strategic vision, delivering strong performance while making meaningful and disciplined investments in our business. Our ability to grow while remaining profitable is a testament to the strength of our team, our differential model, and the significant opportunities ahead. Let me highlight a few key points from the quarter. Our first quarter results once again validate our strategy and business model. We grew total revenue by 12% year over year to $16.1 million, fueled by a 33% increase in Software Solutions revenue, while delivering strong gap profitability and generating substantial cash flow. Our ability to invest meaningfully in innovation, infrastructure, and talent while maintaining strong profitability underscores the strength of our disciplined approach. Our Software Solutions platform surpassed 6 million users during the quarter, a major milestone that reflects the growing demand for our award-winning offerings. The 33% growth in Software Revenue was accomplished by significant margin expansion, with gross margins in the segment increasing 500 basis points to 78% compared to Q1 2024, and 1,000 basis points higher than Q4 2024. These results clearly demonstrate the scalability and operating leverage of our platform. I am particularly excited by the continued momentum in our Software Solutions division. This reinforces not only the power of our platform, but also the strength of our licensees and partner ecosystem. We believe the disruption in the market, particularly with MetaSwitch and Cisco Broadcast, continues to work to our advantage, and we have been and continue to meticulously target new logos as a result. We have won more than our fair share of logos, and I am convinced we will continue to win more. Our differentiated software model, with session-based pricing instead of seat-based, our open APIs, and our flexible deployment options, whether cloud, facilities, or hybrid, are critical factors in why companies are choosing Crescendo. We are building a platform for the future, giving customers flexibility and the control they both demand and need. You may have noticed we have become more strategic about publicizing customer acquisitions. We believe it is not in our best interest to put out our battle plans in plain view from our competitors. We are focused on execution and winning our share of the market, quietly and effectively. We will announce customer wins when it is strategically appropriate, but we will not issue press releases for every conversion. On the telecom side, with the UCAS market remaining highly competitive, I want to be clear we are committed to growing our telecom division, but we will do so profitably. UCAS sales across the industry are extremely competitive, with some competitors engaging in unsustainable practices, including aggressive shifts and incentives that are making sales unprofitable. That is not something I am willing to do. Acquiring customers at a loss is a zero-sum game, a strategy that has driven many of our competitors into debt and significant financial instability. We believe in a better way, prioritizing sustainable growth, profitability, and delivering real value to our customers. Our secret sauce in UCAS is our industry-best customer service, as independently verified by G2, and our award-winning VIT platform bundle, which remains unmatched in the market. We lead with differentiated service and superior products, not just at pricing, and we will continue to grow the telecom division profitably. We record strong net income on a gap and non-gap basis of $1.2 million and $2.6 million, respectively, for the quarter, and adjusted due to the $2.6 million, driven by our discipline-focused approach to growth and how we manage the business. While many CEOs are pulling back guidance due to macroeconomic uncertainty, we have not seen a measurable weakening in demand for our offerings. I remain confident that we will continue to deliver double-digit revenue growth moving forward. We will continue to invest in innovation, expanding our engineering, service, and support teams, and making strategic investments in automation, financial systems, and product development to drive even greater operating leverage in the future. This is important to maintain and grow our position in the industry. Our Ecosystem Vendor Partner Program, EDT as we call it, is gaining real traction and momentum. By investing in our open API architecture and empowering our developer and licensee communities, we are setting the stage for EDT to become a significant revenue driver in the years ahead. We are very excited about the improvements and benefits we expect to see from two major current initiatives. First, the end of our classic migration to our VIT system is close to completion and will free up internal resources, improve overall margins, and reduce operational draft. Second, our goal to close our current hosted data centers and fully migrate to Oracle Cloud Infrastructure, OCI, by the end of 2025, will drive substantial cost savings and allow us to focus resources on innovation and customer success rather than infrastructure management. We expect these actions to contribute significantly to margin expansion and growth. We are also evaluating strategic acquisition opportunities. We believe the market has become more rational regarding business valuations from non-public companies, and we are currently engaged in discussions. If we identify acquisition targets where we can be confident of making the acquisition accretive within two quarters, we will selectively pursue those opportunities. I have never been more confident in our path forward. Over the past few years, we have transformed Crescendo into a profitable, high-growth software leader. As the telecom and software sector continues to evolve, Crescendo is better positioned than ever to capitalize on industry disruption, customer needs, and emerging opportunities. Our mission remains the same, to provide the best software solutions, the best customer service, and the most flexible and customer-centric platform in the market. We will continue to focus on customer acquisition, customer retention, sustainable growth, market expansion, and strategic innovation. With that, I'll turn the call over to Ron to walk you through the financial results for the quarter. Ron? Thank you, Jeff, and good afternoon, everyone. We had a strong first quarter, as Jeff highlighted, and I am happy to share the results with you today. Consolidated revenue for the quarter increased 12% to $16.1 million, as compared to $14.3 million for the first quarter of the prior year. Our service revenue increased 4% to $8.2 million, compared to $7.8 million for the first quarter of the prior year. Our software solutions revenue for the quarter increased 33%. To $6.9 million, compared to $5.1 million for the first quarter of the prior year. Product revenue for the quarter declined 22% to $1.1 million, compared to $1.3 million for the first quarter of the prior year. Gross margin for the first quarter, compared to the first quarter of the prior year. Service revenue growth margin decreased 3%. Quarter over quarter, so 57%. And no change from the fourth quarter of 2024. Software solutions revenue growth margin increased by 5%. Quarter over quarter to 78%. And up 10% from the fourth quarter of 2024. Product revenue growth margin decreased by 3%. Quarter over quarter to 41%. And down 1% from the fourth quarter of 2024. Consolidated revenue growth margin increased by 2%. Quarter over quarter to 65%. And up 4% from the fourth quarter of 2024. Operating expenses for the quarter increased 8% to $14.9 million, compared to $13.8 million for the first quarter of the prior year. The operating margin for the quarter was 7.2%, compared to .4% for the same period of the prior year. That's a 112% increase. Net income of $1.2 million for the quarter. That's 4 cents for basic and diluted common share, compared to net income of $400,000, or 2 cents per basic and 1 cent per diluted common share reported for the first quarter of the prior year. Non-GAAP net income was $2.6 million for the quarter. That's 9 cents per basic and 8 cents per diluted common share. Compared to non-GAAP net income of $1.9 million, or 7 cents per basic and 6 cents per diluted common share reported for the first quarter of the prior year. EBITDA for the quarter was $1.9 million, that's compared to $1.3 million for the first quarter of the prior year. Intergressed EBITDA for the quarter was $2.6 million, compared to $2.1 million for the first quarter of the prior year. Our cash and cash equivalent at March 31, 2025, was $21.2 million, compared to $18.2 million at December 31, 2024. Cash provided by operating activities for the three months period was $1.2 million, that's compared to $200,000 used for operating activities in the first quarter of the prior year. Cash provided by financing activities for the three month period was $1.8 million, that's compared to $900,000 provided for the first quarter of the prior year. I will now turn it over to Joe Gaylord, our president and COO, for additional comments on sales and operations. Thanks Ron, I'm extremely pleased with our strong Q1 results to start 2025. Our 12% -over-year increase in Q1 revenue, along with our 300% -over-year increase in gap profitability, were the direct results of our focus on growing organically and profitably. Our top-line growth combined with our dedication to managing costs allowed us to achieve gap profitability for our seventh consecutive quarter and achieve both our internal and external targets for the quarter. Our gap net income of $1.2 million for the quarter and non-gap net income of $2.6 million for the quarter were a direct result of 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 and we believe we will continue to see more efficiencies and cost energies as we continue our growth and continue our data center migrations that will show additional meaningful cost savings over the next 12 months. We saw tremendous organic growth of 33% from our software solution segment of the business during the quarter and that was fueled by uncertainties created by our two largest software solutions competitors Cisco and Metaflitch and we continue to see very strong demand for our UCAS platform offering. Cisco has increased pricing, decreased support and slowed future developments on their Broadsoft platform while Microsoft recently sold their Metaflitch to a company that already has their own proprietary platform creating a lot of uncertainty amongst their licensees. These disruptive actions continue to help build our pipeline of prospects for our software platform. 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. Our telecom services retail segment grew at 1% organically as we have proactively substantially reduced selling some lower margin opportunities to maintain margins. We continue to see strong demand for our offerings from our channel partners and our master agent technology service distributors and expect that growth number to redone. Our channel partner resellers sell our services to their prospects and customers on a revenue share basis and these channel partner and reseller agents have great confidence representing our Crescendo VIP offering because of our 100% uptime guarantee combined with our best in class customer service and customer satisfaction which consistently ranks number one. As Jeff previously mentioned we are focused on profitably growing this segment and we are not pursuing low margin or unprofitable retail opportunities. Our remaining performance obligation also referred to backlog is now 82 million an increase of 22% from Q1 of 2024. Our remaining performance obligation number is the sum of the remaining contract values for our telecom services and our software solutions customers that will be recognized on a sliding scale over the next 60 months and is a strong indicator of our future revenue stream. Of the 82 million and remaining performance obligation over 30 million is currently slated to be recognized over the remainder of 2025. We continue to focus on improving our growth margins and saw strong increase in overall gross margins in the quarter. Consolidated gross margin increased 61% at the end of 2024 to 65% in Q1. The increase in consolidated gross margin was primarily due to the significant improvement in our software solution segment gross margins which improved from 72% at the end of last year to 78% in Q1 highlighting the scalability and operating leverage we have on the software segments of the business. Our telecom services gross margins for services remain at 70 at 57% consistent with Q4. We are confident that we will continue to see gross margin improvements in both segments of the business in the future. Percent of the tremendous engineering team continues to enhance and improve our award-winning technology. During Q1 we were rated by b2.com which is the premier business software and services review site as the number one cloud communications provider in 18 separate satisfaction metrics including easiest to use, quality of support, and ease of doing business with just to name a few. Crescendo was also honored during the quarter as the 2025 product of the year as well as receiving the hosted voice excellence award from internet telephony magazine highlighting the strength of our platform and our products. Both awards highlighted our groundbreaking AI features that enable users to create, engage, and analyze business communications effectively, efficiently, and affordably using artificial intelligence. We currently have a studio, our voice AI studio, AI call recording, and our contact center AI powered by ChatGVT. After starting 2025 with a strong Q1 I couldn't be more excited about the future direction and opportunity for Crescendo. Over the past three years we have more than doubled our revenue while improving our bottom line significantly and have now posted seven consecutive quarters of gap income. We are positioned perfectly with a combination of strong demand for our product offerings along with great solutions with a disruptive pricing model and the best and most talented workforce in the industry to continue our strong growth and our strong success. We are committed delivering the best UCAS, CCAS, and C-PAS offerings in the sector to our customers and our partners and the best return for our shareholders. As the fastest growing platform solution in the country now supporting over six million end users we are focused on enhancing our solutions, improving our efficiencies, and continuing to return strong results. With that I will now turn it over to Jeff for any further comments. I don't have any further comments at this time so John let's open the call to questions.

Certainly at this time we'll be conducting a question and answer session. If you would like to ask a question please press star one on your phone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Once again please press star one if you have a question or a comment.

The first

question comes from Eric Martinuzzi with Lake Street Capital. Please proceed. Yes congratulations on the perfect start to the year. I had a question regarding

your comment about the double digit growth Jeff you talked about. Yes the double digit growth is sustainable but I know that you in some cases there's flips and takes in a given quarter so I assume that comment was relevant to 2025 or was it perhaps specifically for Q2? Did we see that double digit is that anticipated for the current quarter? Eric the guidance that I've given has been year over year because as you're right there can be totally variances which depend upon upgrades or new logos which we are confident will come in over the year but it's hard to gauge quarter to quarter and I see nothing in our future which makes me want to change our guidance and 10 percent year over year a minimum double digit growth year over year.

Got it and then you talked about unnatural behaviors by competitors regarding you know flips

and master distributor relationships. I'm just wondering if there is any change there with the you know the turning of the calendar year or would you describe it as similar to 2024? Thus far it seems to be similar to 2024 as I mentioned in my comments I believe it's unsustainable and if you look at some of our competitors with the deep debt they have and the other organic problems they have I think it makes it clear it's unsustainable so we will continue to pursue and grow at a profitable basis which is what we've always done as I said in my comments we differentiate ourselves not by buying customers at a loss but by delivering better service and better customer service.

Got it thanks for taking my questions.

My pleasure thank you

sir. The next question comes from Mike Lattimore with the Franklin Capital Market please proceed. Good afternoon great great good afternoon good afternoon great results awesome

to see. On the stock square gross margin you know really impressive improvement there can you just give a little bit more detail on what that drove what drove that improvement and also that's sustainable you know I think you said maybe even some driven from there but just a little bit taller on where we might go from here. Hey Mike you know obviously the increase in the margin is driven by the higher increase in and quarter over quarter top line revenue in the software solutions division and so it's you know evident as we continue to grow at a rapid pace our margins will improve you know we fail for the year are still in that viewpoint of you know mid mid 70 to 73 to 75 is our target for the full year we had a great quarter so we had significant improvement in the quarter but I'm not going to guide to 78 percent and higher from this point forward but yeah I would say that that's 73 to 75 percent range is where we like to target. Yeah okay and then I guess it's been a few months now since the MetaSwitch acquisition by Alianz. Can you provide a little bit more color in what you're seeing there in terms of are you getting more or less aggressive in the market? You clearly are winning a lot of business here but any kind of change in what you're seeing out of MetaSwitch acquisition? We haven't seen a lot of change yet people are still asking for sandboxes and are looking at our platform. It wouldn't shock us if decisions took a little bit longer as people were looking at what Alianz was doing but we are highly confident due to our differentiated model due to the level of service we provide due to the fact that you can you can create your own systems using our open APIs that you can choose hybrid systems you can use a cloud system or you can use a facility-based system that we will continue to win more than our fair share of of all of these licensees. We believe we provide a better product better service and better pricing with more flexibility and we believe that's what will drive the market. Great, great. I just want to ask Dan your I think it's called EDP but basically the HAP resource system here how many are sort of fully integrated now and you know of the of the group you have are there a couple that are you know getting the best amount of interest? I'm going to let Anna answer that because like he he deals with that far more than the rest of us. Sure, thanks Jeff. Yeah I mean I think I think Jeff went out we continue to see growth there we you know are constantly looking at kind of inflow of partners that want to add into the ecosystem we're you know on a regular click kind of on board 10 to 12 and there's other specific ones that are in their varies depending on what the customer needs are at that given time so there's a kind of constant inflow of ecosystem partners so there's no one specific area if you will but obviously more recently a big uptick in folks that want to leverage AI type applications and also customer service type applications that's that's where most of the interest lies. And quite a few potential sales over the last quarter so yeah absolutely I kind of actually that's a question that we should we that's one of the ones that we actually on board is probably within the last year or so but we've seen that actually take a big uplift more recently as customers get their hands on this stuff and it's on board and put out to the field. Yeah

great great okay

thanks

a lot congratulations thank you Mike. Up next is George Sutton with Craig Hallam please quickly. Hi George. Thank you great I'm doing great great results.

So you have mentioned the term meticulous fleet projects licensees I'm curious if you can just give us a sense of how exactly you are targeting what seems to be a very big open-ended market and there was no voice discussion on the call I'm curious if you can give us any more details there that would quite a great win. Well I'm not going to give you our marketing plan publicly George because I'm sure Alianza and Cisco would love that so but I am going to show you that we obviously know who most of the customers are in the field we reach out to them we have our salespeople reach out to them we target them with marketing and blogs and we have found it quite effective thus far. John do you want to give a little color on the voice lead opportunity? Yeah just if you look at the Douglas the Voicely opportunity which we run recently they have 25,000 customers that they currently have that they're looking to potentially move over to us with some of the other partners you know our value proposition is well defined for them Jeff talked about some of those points the the sessions not teeth model the flexibility of deployment that they can deploy it in their cloud or in our cloud you know just several of the differentiators we talked about the API's and what we've been able to do with AI applications and some of the other items we still support perpetual license or subscription based pricing so no matter who we're competing against that value proposition appeals to a lot of partners and we're reaching out to them we're working with them and when they come in then they're going through an evaluation with our platform versus the competitors some of those things are just the the key indicators of whether they're going to move forward and and much of the competition is walking away from several components of that or they just don't support it anymore so we do give a differentiated value that's easy for us to communicate in the in a kind of a defined confined market of companies that are the prospects we're going after. Great and one other thing Jeff you meant you certainly founded more up in this thing about M&A and we've seen you have prior in prior quarters I think you found it somewhat frustrating about expectations on behalf of the sellers and now you're sounding a little bit more optimistic can you just give us a little bit better sense there? Yes George it's obviously I don't want to give numbers out over the phone but multiple a lot of private companies were looking with an eye toward even COVID and believe multiples still belong there obviously COVID multiples made no sense as you look at current multiples and public company multiples don't necessarily make sense for private companies that message is beginning to be realized and the people we've spoken with are getting to a more rational and realistic value proposition there's still a still a difference between what they think they may be worth and we think they may be worth but that's a bridge we can now cross. That's just one other question to give in to John you know let's call on with Michael announcing or filing for bankruptcy can you just talk about what you see as essential opportunities from that? Yeah I would just say George with some of the legacy providers you know we've seen an ongoing interest from their channel that you know you know they had a hosted offer at one point in time that partnership was very essential and over the last three years there's been a trend of both Michael and Avaya and I would say other legacy soft switch providers partners looking to for alternatives in the market so we continue to sell and onboard partners that have built a business with them at one point in time and they currently frankly today don't think that's the best place for their customers to live for the next five years or 10 years and so the the positive benefit to that is they continue to look at the next stage platform and value the history that we have of being very friendly with our partners and our our channel and really having a channel focus go to market and many of them have chosen to play our platform as an alternative to those legacy platforms. Perfect thank you. Thank you George.

Once again if you have a question or a comment please indicate so by pressing star one on your touchtone phone. Up next is Matthew Ross with B Riley. Please proceed Matthew.

Hi this is Matthew on for Josh Nichols thanks for taking my questions. Thank you Matthew. Good afternoon. Yeah good afternoon I guess to start off I was wondering what drove the large sequential drop in software cogs was it mainly because there was about a million dollars of lower margin event revenue in Q4 or what is sort of explanation for that? Yeah so you know primarily driven by the higher growth and sales and revenue and and uh uh six hundred and sixty seven thousand reduction in dollars. All right thank you and I guess on the telecom side I'm wondering what do you see as a driver of growth for telecom and what's the trajectory on that given the uh the current environment where the competitors are probably seeing differences? Well again as we discussed we believe that uh customer service is a differentiation our bundle of services included in uh UCAS is a differentiation and as I said the the current purchasing of customers at a loss is probably not sustainable which should put everybody on a more equal footing but we will continue to work hard to increase uh UCAS sales uh but only do so possibly. And Matthew as John highlighted on that previous question you know the two largest premise providers out there and the estimates are that there's still probably 40 percent of the businesses in the U.S. that are still on premise based equipment. The two largest premise providers in the country are Avaya and Mikesell. Avaya just came out of bankruptcy for the second time in five years really concentrated and announced their concentration on just their largest enterprise level customers so that leaves a lot of small and mid-sized business of IA customers out there looking for an alternative. And the same as John highlighted with Mikesell. Mikesell's got a significant amount of small and mid-sized customers out there using the Mikesell platform and if they're uncertain about the future of that product direction and support they're going to be looking for alternatives so when the telecom services on the retail side of the house we still see a tremendous amount of opportunity there for growth. Just as with the platform disruption in the industry is to our advantage because we have better service, better products and top of the line questions. Got it that was really helpful. I guess I just have one last question and that was just in terms of international growth. I know last call you mentioned Europe being a big growth opportunity you're fighting for so is there any update on the progress on that front and international growth in general? We continue to see strong demand in Europe. Obviously some of tariff and trade wars and European indifference to Americans may start to have an impact. We have not seen that yet but the demand seems to be strong. Got it that was it for me. Thank you so much.

Thank you.

Next question is from Jesse Sobelsen with Veeboral Capital. Please proceed.

Hi everyone. Sobel here. I was just looking at the numbers here. A bit of a modeling question but so I think growth backlog was 89 million which was up from 86 last quarter and then of the next 12 months revenue from those contracts this quarter I think you guys mentioned 30 million plus which I think was down some from the 39 million. Can you just explain the dichotomy here and if this is a sign of the shift in contract times or if there's some seasonality here that we should consider? Thank you. Well we have a little bit of seasonality. We typically have lower sales bookings in the first quarter of the year. Most companies have run out their capital expenditures at the end of the year and so Q1 is typically a slower year for us, slower period for us. And so that's it's a recognition of our revenue of our existing customers and then offset by the deals we book in the quarter until obviously Q1 if you look back over the last couple years Q1 is usually the lower of the four quarters in the year for the last couple years. Okay great. Good to understand there. And then just I was curious if you guys might be able to just give a little bit more color on how you would drive it for a user. Someone last quarter asked if there was any 7-figure contract signs. I'm curious on that myself and then what underlying revenues would come back today. Thank you. Yeah revenue per user I think is pretty stable. I think revenue per user on the retail side was right at $20 in Q4. We've been updating them for Q1 so 64.5. 64.25. 64.25 was for the software solution customer. No on the retail side. The revenue per user on the retail side. Oh retail. So retail was $351. $351 per account. So that's our aggregate customer value. You can see from the little steps are almost $20 per per user. What was the second part of that question Jesse? Just on the larger trends you know I think that the customers come over from Metaswitch which are considerably larger than the average user and there's some dynamics there. I think someone asked last quarter if there were any 7-figure contracts sign. I was kind of curious about that myself. Yeah so I think that we always have 7-figure or 6-figure type contracts on the software solution side. I don't know if we have any huge ones in Q1 that would probably be. We do not have a 7-figure contract. No. Okay cool. Well thanks for the details and good luck with the rest of your.

Thank you sir. If there are any remaining questions please indicate so now by pressing star 1. Okay we have no further questions in the queue. I'd like to turn the floor back over to Jeff for any closing remarks.

Thank you John and thank all of you for your attention and calling in and we look forward to sharing with you our Q2 results in August. So until then thank you and have a great day.

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.