Crexendo Reports Financial Results for the Third Quarter of 2018
PHOENIX, AZ—(Marketwired – November 6, 2018)
Crexendo, Inc. (OTCQX: CXDO), a next-generation CLEC and an award-winning leader and provider of unified communications cloud telecom services, broadband internet services, and other cloud business services that are designed to provide enterprise-class cloud services to any size business at affordable monthly rates, today reported financial results for the third quarter of 2018.
Financial highlights:
For the three months ended September 30, 2018
Consolidated total revenue for the third quarter of 2018 increased 14% to $3.0 million compared to $2.6 million for the third quarter of 2017.
Consolidated service revenue for the third quarter of 2018 increased 20% to $2.7 million compared to $2.3 million for the third quarter of 2017.
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Cloud Telecommunications Segment UCaaS service revenue for the third quarter of 2018 increased 26% to $2.5 million compared to $2.0 million for the third quarter of 2017.
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Web Services Segment service revenue for the third quarter of 2018 decreased 22% to $203,000, compared to $260,000 for the third quarter of 2017.
Consolidated product revenue for the third quarter of 2018 decreased 18% to $314,000 compared to $385,000 for the third quarter of 2017.
Consolidated operating expenses for the third quarter of 2018 increased 19% to $3.2 million compared to $2.7 million for the third quarter of 2017.
On a GAAP basis, the Company reported net loss of $(199,000) for the third quarter of 2018, or $(0.01) loss per diluted common share, compared to a net loss of $(190,000) or $(0.01) loss per diluted common share for the third quarter of 2017.
Non-GAAP net loss was $(12,000) for the third quarter of 2018, or breakeven per diluted common share, compared to Non-GAAP net income of $55,000 or breakeven per diluted common share for the third quarter of 2017.
EBITDA for the third quarter of 2018 was a $(167,000) loss compared to a $(28,000) loss for the third quarter of 2017. Adjusted EBITDA for the third quarter of 2018 was $2,000 compared to $61,000 for the third quarter of 2017.
For the nine months ended September 30, 2018
Consolidated total revenue for the nine months ended September 30, 2018 increased 19% to $8.8 million compared to $7.4 million for the nine months ended September 30, 2017.
Consolidated service revenue for the nine months ended September 30, 2018 increased 20% to $7.7 million compared to $6.4 million for the nine months ended September 30, 2017.
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Cloud Telecommunications Segment UCaaS service revenue for the nine months ended September 30, 2018 increased 26% to $7.1 million compared to $5.6 million for the nine months ended September 30, 2017.
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Web Services Segment service revenue for the nine months ended September 30, 2018 decreased 21% to $636,000, compared to $806,000 for the nine months ended September 30, 2017.
Consolidated product revenue for the nine months ended September 30, 2018 increased 16% to $1.1 million compared to $967,000 for the nine months ended September 30, 2017.
Consolidated operating expenses for the nine months ended September 30, 2018 increased 11% to $9.0 million compared to $8.1 million for the nine months ended September 30, 2017.
On a GAAP basis, the Company reported a $(215,000) net loss for the nine months ended September 30, 2018, or $(0.02) loss per diluted common share, compared to a net loss of $(961,000) or $(0.07) loss per diluted common share for the nine months ended September 30, 2017.
Non-GAAP net income was $183,000 for the nine months ended September 30, 2018, or $0.01 per diluted common share, compared to a Non-GAAP net loss of $(171,000) or $(0.01) loss per diluted common share for the nine months ended September 30, 2017.
EBITDA for the nine months ended September 30, 2018 was a $(140,000) loss compared to a $(674,000) loss for nine months ended September 30, 2017. Adjusted EBITDA for the nine months ended September 30, 2018 was $204,000 compared to a $(155,000) loss for the nine months ended September 30, 2017.
Total cash, cash equivalents, and restricted cash at September 30, 2018 was $1.9 million compared to $1.4 million at December 31, 2017.
Operating activities provided $350,000 for the nine months ended September 30, 2018 compared to $177,000 provided for the nine months ended September 30, 2017. We used $(136,000) for investing activities for the nine months ended September 30, 2018 compared to $252,000 provided by investing activities for the nine months ended September 30, 2017. Financing activities provided $300,000 for the nine months ended September 30, 2018 compared to $159,000 provided for the nine months ended September 30, 2017.
Steven G. Mihaylo, Chief Executive Officer commented, “This was a positive quarter for us. We continue to have substantial year over year increases in our Cloud Telecommunications Segment (UCaaS) service revenue. UCaaS service revenue increased 26% for the third quarter of 2018 to $2.5 million compared to $2.0 million for the third quarter of 2017. This is a very positive metric and I think bodes well for future results. We also continue to have positive balance sheet momentum.”
“We did not reach GAAP profitability this quarter, however we believe this was due to one-time costs including certain changes we made to our sales team, which we believe will prove to be beneficial to our results in the future. In addition, we made a decision to expand channel sales and direct sales personnel, which we believe will be positive going forward.”
Mihaylo added, ”The actions we have taken has caused our costs to understandably increase as we invest in the business. We continue to do a good job of managing expenses. I believe we are on the right track as we continue to improve the business, the sales process and our marketing and services. I believe in Crexendo’s business and have high expectations for our future, particularly for 2019 and beyond.”
Conference Call
The Company is hosting a conference call today, November 6, 2018 at 5:30 PM EST. The dial-in number for domestic participants is 877-407-8031 and 201-689-8031 for international participants. Please dial in five to ten minutes prior to the beginning of the call at 5:30 PM EST and reference Crexendo. A replay of the call will be available until November 13, 2018 by dialing toll-free at 877-481-4010 or 919-882-2331 for international callers. The replay passcode is 38073.
About Crexendo
Crexendo, Inc. (CXDO) is a next-generation CLEC and an award-winning leader and provider of unified communications cloud telecom services, broadband internet services, and other cloud business services that are designed to provide enterprise-class cloud services to any size business at affordable monthly rates.
Safe Harbor Statement
This press release contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for such forward-looking statements. The words "believe," "expect," "anticipate," "estimate," "will" and other similar statements of expectation identify forward-looking statements. Specific forward-looking statements in this press release include information about Crexendo (i) having a positive quarter including a substantial year over year increases in UCaaS service revenue; (ii) the 26% UCaaS service revenue being a very positive metric and bodes well for future results; (iii) continuing to have positive balance sheet momentum; (iv) one-time costs including certain changes we made to our sales team affecting results, with those changes proving to be beneficial to results in the future; (iv) the decision to expand channel sales and direct sales personnel proving to be very positive going forward; (v) actions causing costs to increase while continuing to do an good job of managing expenses; (vi) continuing to be on the right track while continuing to improve the business, the sales process, and marketing and services and (vii) continuing to firmly believe in the business and having high expectations for our future, particularly for 2019 and beyond..
For a more detailed discussion of risk factors that may affect Crexendo’s operations and results, please refer to the company's Form 10-K for the year ended December 31, 2017, and quarterly Form 10-Qs as filed with the SEC. These forward-looking statements speak only as of the date on which such statements are made, and the company undertakes no obligation to update such forward-looking statements, except as required by law.
CREXENDO, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except par value and share data) |
| | | |
| | September 30, 2018 | | December 31, 2017 |
| Assets | | |
| Current assets: | | |
| Cash and cash equivalents | | $1,796 | | $1,282 |
| Restricted cash | | 100 | | 100 |
| Trade receivables, net of allowance for doubtful accounts of $7 | | | | |
| as of September 30, 2018 and $19 as of December 31, 2017 | | 363 | | 372 |
| Contract assets | | 9 | | 3 |
| Inventories | | 293 | | 131 |
| Equipment financing receivables | | 70 | | 116 |
| Contract costs | | 374 | | 379 |
| Prepaid expenses | | 253 | | 251 |
| Income tax receivable | | 2 | | - |
| Other current assets | | - | | 10 |
| Total current assets | | 3,260 | | 2,644 |
| | | | | |
| Long-term trade receivables, net of allowance for doubtful accounts | | | | |
| of $9 as of September 30, 2018 and $10 as of December 31, 2017 | | 29 | | 31 |
| Long-term equipment financing receivables, net | | 128 | | 58 |
| Property and equipment, net | | 132 | | 8 |
| Intangible assets, net | | 185 | | 239 |
| Goodwill | | 272 | | 272 |
| Contract costs, net of current portion | | 351 | | 364 |
| Other long-term assets | | 107 | | 121 |
| Total assets | | $4,464 | | $3,737 |
| | | | | |
| Liabilities and Stockholders' Equity | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $77 | | $79 |
| Accrued expenses | | 1,254 | | 961 |
| Capital lease obligations | | 27 | | - |
| Notes payable | | 74 | | 69 |
| Contract liabilities | | 585 | | 614 |
| Total current liabilities | | 2,017 | | 1,723 |
| | | | | |
| Contract liabilities, net of current portion | | 410 | | 374 |
| Capital lease obligations, net of current portion | | 123 | | - |
| Notes payable, net of current portion | | - | | 10 |
| Total liabilities | | 2,550 | | 2,107 |
| | | | | |
| Stockholders' equity: | | | | |
| Preferred stock, par value $0.001 per share - authorized 5,000,000 shares; none issued | | — | | — |
| Common stock, par value $0.001 per share - authorized 25,000,000 shares, 14,394,113 | | | | |
| shares issued and outstanding as of September 30, 2018 and 14,287,556 shares issued and | | | | |
| outstanding as of December 31, 2017 | | 14 | | 14 |
| Additional paid-in capital | | 61,059 | | 60,560 |
| Accumulated deficit | | ( 59,159 ) | | ( 58,944 ) |
| Total stockholders' equity | | 1,914 | | 1,630 |
| | | | | |
| Total Liabilities and Stockholders' Equity | | $4,464 | | $3,737 |
CREXENDO, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share and share data)
| | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | 2018 | | 2017 | | 2018 | | 2017 |
| Service revenue | $2,712 | | $2,259 | | $7,694 | | $6,407 |
| Product revenue | 314 | | 385 | | 1,117 | | 967 |
| Total revenue | 3,026 | | 2,644 | | 8,811 | | 7,374 |
| | | | | | | | |
| Operating expenses: | | | | | | | |
| Cost of service revenue | 833 | | 664 | | 2,293 | | 1,962 |
| Cost of product revenue | 161 | | 151 | | 549 | | 383 |
| Selling and marketing | 910 | | 735 | | 2,506 | | 2,081 |
| General and administrative | 1,101 | | 954 | | 3,080 | | 3,134 |
| Research and development | 214 | | 194 | | 589 | | 569 |
| Total operating expenses | 3,219 | | 2,698 | | 9,017 | | 8,129 |
| | | | | | | | |
| Loss from operations | ( 193 ) | | ( 54 ) | | ( 206 ) | | ( 755 ) |
| | | | | | | | |
| Other income/(expense): | | | | | | | |
| Interest income | 1 | | 3 | | 5 | | 8 |
| Interest expense | ( 5 ) | | (135) | | ( 8 ) | | (205) |
| Other income, net | 6 | | 4 | | 9 | | 7 |
| Total other income/(expense), net | 2 | | ( 128 ) | | 6 | | ( 190 ) |
| | | | | | | | |
| Loss before income tax | ( 191 ) | | ( 182 ) | | ( 200 ) | | ( 945 ) |
| | | | | | | | |
| Income tax provision | ( 8 ) | | ( 8 ) | | ( 15 ) | | ( 16 ) |
| | | | | | | | |
| Net loss | $(199) | | $(190) | | $(215) | | $(961) |
| | | | | | | | |
| Net loss per common share: | | | | | | | |
| Basic | $(0.01) | | $(0.01) | | $(0.02) | | $(0.07) |
| Diluted | $(0.01) | | $(0.01) | | $(0.02) | | $(0.07) |
| | | | | | | | |
| Weighted-average common shares outstanding: | | | | | | | |
| Basic | 14,346,092 | | 13,951,480 | | 14,311,190 | | 13,824,307 |
| Diluted | 14,346,092 | | 13,951,480 | | 14,311,190 | | 13,824,307 |
CREXENDO, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
| | Nine Months Ended September 30, |
| | 2018 | | 2017 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net loss | $(215) | | $(961) |
| Adjustments to reconcile net loss to net cash used for operating activities: | | | |
| Amortization of prepaid rent | - | | 54 |
| Depreciation and amortization | 66 | | 81 |
| Non-cash interest expense | - | | 198 |
| Share-based compensation | 344 | | 481 |
| Amortization of deferred gain | - | | (16) |
| Changes in assets and liabilities: | | | |
| Trade receivables | 11 | | (30) |
| Contract assets | (6) | | (1) |
| Equipment financing receivables | (24) | | 93 |
| Inventories | (162) | | 17 |
| Contract costs | 18 | | 1 |
| Prepaid expenses | (2) | | 191 |
| Income tax payable | (2) | | 4 |
| Other assets | 24 | | 14 |
| Accounts payable and accrued expenses | 291 | | (114) |
| Contract liabilities | 7 | | 165 |
| Net cash provided by operating activities | 350 | | 177 |
| | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
| Purchase of property and equipment | (136) | | - |
| Sale of long-term investment | - | | 252 |
| Net cash provided by/(used for) investing activities | (136) | | 252 |
| | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
| Proceeds from capital lease obligations | 154 | | - |
| Repayments made on capital lease obligations | ( 4 ) | | - |
| Proceeds from notes payable | 113 | | 111 |
| Repayments made on notes payable | ( 118 ) | | (1,092) |
| Proceeds from exercise of options | 155 | | 1,140 |
| Net cash provided by financing activities | 300 | | 159 |
| | | | |
| NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 514 | | 588 |
| | | | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT THE BEGINNING OF THE PERIOD | 1,382 | | 719 |
| | | | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT THE END OF THE PERIOD | $1,896 | | $1,307 |
| | | | |
| Supplemental disclosure of cash flow information: | | | |
| Cash used during the period for: | | | |
| Income taxes, net | $(17) | | $(12) |
| Supplemental disclosure of non-cash investing and financing information: | | | |
| Issuance of common stock for prepayment of interest on related-party note payable | - | | 109 |
| Prepaid assets financed through notes payable | 122 | | 111 |
| Property and equipment financed through capital lease obligations | 129 | | - |
CREXENDO, INC. AND SUBSIDIARIES
Supplemental Segment Financial Data
(In thousands)
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | | | As Adjusted | | | | As Adjusted |
| Revenue: | | | | | | | |
| Cloud telecommunications | $2,823 | | $2,384 | | $8,175 | | $6,568 |
| Web services | 203 | | 260 | | 636 | | 806 |
| Consolidated revenue | 3,026 | | 2,644 | | 8,811 | | 7,374 |
| | | | | | | | |
| Income/(loss) from operations: | | | | | | | |
| Cloud telecommunications | (284) | | (196) | | (528) | | (1,132) |
| Web services | 91 | | 142 | | 322 | | 377 |
| Total operating loss | (193) | | (54) | | (206) | | (755) |
| Other income/(expense), net: | | | | | | | |
| Cloud telecommunications | - | | (122) | | 7 | | (184) |
| Web services | 2 | | (6) | | (1) | | (6) |
| Total other income/(expense), net | 2 | | (128) | | 6 | | (190) |
| Income/(loss) before income tax provision: | | | | | | | |
| Cloud telecommunications | (284) | | (318) | | (521) | | (1,316) |
| Web services | 93 | | 136 | | 321 | | 371 |
| Loss before income tax provision | $(191) | | $(182) | | $(200) | | $(945) |
Use of Non-GAAP Financial Measures
To evaluate our business, we consider and use non-generally accepted accounting principles (Non-GAAP) net income (loss) and Adjusted EBITDA as a supplemental measure of operating performance. These measures include the same adjustments that management takes into account when it reviews and assesses operating performance on a period-to-period basis. We consider Non-GAAP net income (loss) to be an important indicator of overall business performance because it allows us to evaluate results without the effects of share-based compensation, rent expense paid with common stock, interest expense paid with common stock, and amortization of intangibles. We define EBITDA as U.S. GAAP net income (loss) before interest income, interest expense, other income and expense, provision for income taxes, and depreciation and amortization. We believe EBITDA provides a useful metric to investors to compare us with other companies within our industry and across industries. We define Adjusted EBITDA as EBITDA adjusted for share-based compensation, and rent expense paid with stock. We use Adjusted EBITDA as a supplemental measure to review and assess operating performance. We also believe use of Adjusted EBITDA facilitates investors’ use of operating performance comparisons from period to period, as well as across companies.
In our November 6, 2018 earnings press release, as furnished on Form 8-K, we included Non-GAAP net loss, EBITDA and Adjusted EBITDA. The terms Non-GAAP net loss, EBITDA, and Adjusted EBITDA are not defined under U.S. GAAP, and are not measures of operating income, operating performance or liquidity presented in analytical tools, and when assessing our operating performance, Non-GAAP net loss, EBITDA, and Adjusted EBITDA should not be considered in isolation, or as a substitute for net loss or other consolidated income statement data prepared in accordance with U.S. GAAP. Some of these limitations include, but are not limited to:
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EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
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they do not reflect changes in, or cash requirements for, our working capital needs;
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they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt that we may incur;
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they do not reflect income taxes or the cash requirements for any tax payments;
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although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will be replaced sometime in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
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while share-based compensation is a component of operating expense, the impact on our financial statements compared to other companies can vary significantly due to such factors as the assumed life of the options and the assumed volatility of our common stock; and
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other companies may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.
We compensate for these limitations by relying primarily on our U.S. GAAP results and using Non-GAAP net income (loss), EBITDA, and Adjusted EBITDA only as supplemental support for management’s analysis of business performance. Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are calculated as follows for the periods presented.
Reconciliation of Non-GAAP Financial Measures
In accordance with the requirements of Regulation G issued by the SEC, we are presenting the most directly comparable U.S. GAAP financial measures and reconciling the unaudited Non-GAAP financial metrics to the comparable U.S. GAAP measures.
| Reconciliation of U.S. GAAP Net Loss to Non-GAAP Net Income/(Loss) |
| (Unaudited) |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | | | As Adjusted | | | | As Adjusted |
| | (In thousands) | | (In thousands) |
| U.S. GAAP net loss | $(199) | | $(190) | | $(215) | | $(961) |
| Share-based compensation | 169 | | 89 | | 344 | | 481 |
| Amortization of rent expense paid in stock, net of deferred gain | - | | - | | - | | 38 |
| Amortization of intangible assets | 18 | | 24 | | 54 | | 73 |
| Non-cash interest expense | - | | 132 | | - | | 198 |
| Non-GAAP net income/(loss) | $(12) | | $55 | | $183 | | $(171) |
| | | | | | | | |
| Non-GAAP net income/(loss) per common share: | | | | | | | |
| Basic | $(0.00) | | $0.00 | | $0.01 | | $(0.01) |
| Diluted | $(0.00) | | $0.00 | | $0.01 | | $(0.01) |
| | | | | | | | |
| Weighted-average common shares outstanding: | | | | | | | |
| Basic | 14,346,092 | | 13,951,480 | | 14,311,190 | | 13,824,307 |
| Diluted | 14,346,092 | | 14,278,141 | | 15,130,602 | | 13,824,307 |
| Reconciliation of U.S. GAAP Net Loss to EBITDA to Adjusted EBITDA |
| (Unaudited) |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | | | As Adjusted | | | | As Adjusted |
| | (In thousands) | | (In thousands) |
| U.S. GAAP net loss | $(199) | | $(190) | | $(215) | | $(961) |
| Depreciation and amortization | 26 | | 26 | | 66 | | 81 |
| Interest expense | 5 | | 135 | | 8 | | 205 |
| Interest and other income | (7) | | (7) | | (14) | | (15) |
| Income tax provision | 8 | | 8 | | 15 | | 16 |
| EBITDA | (167) | | (28) | | (140) | | (674) |
| Share-based compensation | 169 | | 89 | | 344 | | 481 |
| Amortization of rent expense paid in stock, net of deferred gain | - | | - | | - | | 38 |
| Adjusted EBITDA | $2 | | $61 | | $204 | | $(155) |
