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.

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