SOURCE: Crexendo, Inc.

Crexendo, Inc.

November 03, 2014 15:00 ET

Crexendo Reports Third Quarter 2014 Financial Results

PHOENIX, AZ--(Marketwired - Nov 3, 2014) - Crexendo, Inc. (NYSE MKT: EXE), a hosted services company that provides hosted telecommunications services, hosted website services, website development software and broadband internet services for businesses and entrepreneurs, today reported financial results for the third quarter of 2014.

For the three months ended September 30, 2014:

Consolidated revenue for the three months ended September 30, 2014 decreased 29% or $703,000 to $1.7 million compared to $2.4 million for the same period of the prior year.

Consolidated operating expenses for the three months ended September 30, 2014 decreased 21% to $3.3 million compared to $4.2 million for the same period of the prior year.

Net loss for the three months ended September 30, 2014 of $(1.5) million or $(0.13) loss per diluted common share, compared to net loss of $(1.7) million or $(0.15) loss per diluted common share for the same period of the prior year.

For the nine months ended September 30, 2014:

Consolidated revenue for the nine months ended September 30, 2014 decreased 32% or $2.6 million to $5.6 million compared to $8.2 million for the same period of the prior year.

Consolidated operating expenses for the nine months ended September 30, 2014 decreased 13% to $10.4 million compared to $12.0 million for the same period of the prior year.

Net loss for the nine months ended September 30, 2014 of $(4.6) million or $(0.42) loss per diluted common share, compared to net loss of $(3.1) million or $(0.29) loss per diluted common share for the same period of the prior year.

Balance Sheet and Cash Flow

As of September 30, 2014, cash and cash equivalents, including restricted cash, totaled $2.3 million compared to $3.6 million at December 31, 2013.

For the three months ended September 30, 2014:

Cash used for operations of $804,000 for the three months ended September 30, 2014 compared to $1.5 million for same period of the prior year. Cash used for investing activities for the three months ended September 30, 2014 of $1,000 compared to cash provided by investing activities of $5,000 for the same period of the prior year. Cash used for financing activities for the three months ended September 30, 2014 of $11,000 compared to cash provided by financing activities of $85,000 for the same period of the prior year.

For the nine months ended September 30, 2014:

Cash used for operations of $3.0 million for the nine months ended September 30, 2014 compared to $4.0 million for same period of the prior year. Cash provided by investing activities for the nine months ended September 30, 2014 of $1.8 million compared to cash used for investing activities of $105,000 for the same period of the prior year. Cash used for financing activities for the nine months ended September 30, 2014 of $6,000 compared to cash provided by financing activities of $88,000 for the same period of the prior year.

Segment Results
The Company has two operating segments, which consist of Hosted Telecommunications Services and Web Services. Effective April 1, 2014, the Company changed its reporting segments to report the StoresOnline and Crexendo Web Services business units as one reportable segment. The Company revised its segment reporting to reflect changes in how the Chief Operating Decision Maker (CODM) internally measures performance and allocates resources. Segment operating results for the prior year has been revised to conform to current year segment operating results presentation and disclosures.

Hosted Telecommunications Services 

Revenue for the third quarter of 2014 increased 49% to $1,035,000 compared to $696,000 for the third quarter of the prior year. The backlog, which is anticipated to be recognized within the next thirty-six to sixty months, increased to $8.8 million at September 30, 2014 compared to a backlog of $5.2 million at September 30, 2013.

Hosted Telecommunications Services segment operating expenses for the third quarter of 2014 increased 13% to $2.3 million compared to $2.1 million for the third quarter of the prior year.

Hosted Telecommunications Services segment loss before income taxes for the third quarter of 2014 decreased 7% to $(1.3) million compared to $(1.4) million for the third quarter of the prior year.

Web Services

Revenue for the third quarter of 2014 decreased 60% to $690,000, compared to $1.7 million for the third quarter of the prior year. We anticipate revenue from our web service segment will continue to decline due to our strategic decision to limit our provision of web services to our enterprise-sized customers. As a result of this shift in focus, our backlog has decreased to $66,000 at September 30, 2014 compared to $760,000 at September 30, 2013.

Web Services segment operating expenses for the third quarter of 2014 decreased 55% to $944,000 compared to $2.1 million for the third quarter of the prior year.

Web Services segment loss before income taxes for the third quarter of 2014 decreased 19% to $(217,000) compared to loss before income taxes of $(267,000) for the third quarter of the prior year.

Steven G. Mihaylo, Chief Executive Officer, commented, "I am pleased with our progress, while I would have liked to have seen higher sales growth this quarter it is still very encouraging that our sales trend is steadily increasing. I remain confident that our sales will continue to increase and at an even faster rate. It is also encouraging that we continue to grow our backlog quarter over quarter. I fully expect that the backlog will continue to grow. Another good trend is our network sales hit a high water mark last quarter. This trend should also continue; network sales are a very important component of our business. I am particularly pleased that we again hit a high water mark in dealer sales in Q3. I fully expect that trend to continue to improve. We continue to add highly qualified dealers every quarter; this will be a very important part of Crexendo's sales in the future. We are also expecting to start monetizing sales of our newly redesigned website builder starting early in Q1 2015 through sales to businesses and entrepreneurs."

Mihaylo added, "We continue to work on reducing all costs. We are particularly working diligently on reducing product cost, by a substantial margin, and doing so without sacrificing our award winning technology, products and services. We expect most of the reduction in IP phones cost to take effect by the end of Q1 2015. I know we are on the right track; the excitement we see from our customers who have installed our products and services are very encouraging. We also see a high level of excitement and commitment from our dealer network. This excitement and encouragement is part of the reason I believe there will be continued growth in sales. I think our future is bright, and to protect that future our board has established a special committee to review our funding options, and to negotiate a mechanism where there can be a loan or direct investment in the Company. As you are aware I have committed in our public filings to fund the Company if necessary. I fully expect funding to be completed before the end of this year. I continue to believe in our Company and we will continue to grow the business through our sales force and our dealer network which will lead to profitability and long term growth."

Conference Call

The Company is hosting a conference call today, November 3, 2014 at 3:30 PM EST. The telephone dial-in number is 888-417-8465 for domestic participants and 719-325-2376 for international participants. The conference ID to join the call is 7762968. Please dial in five minutes prior to the beginning of the call at 3:30 PM EST.

About Crexendo

Crexendo is a hosted services company that provides hosted telecommunications services, hosted website services, website development software and broadband internet services for businesses and entrepreneurs. Our services are designed to make enterprise-class hosting services available to small, medium-sized and enterprise-sized businesses 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) being pleased with progress; (ii) finding very encouraging that sales trend is steadily increasing;(iii) remaining confident that sales will continue to increase and at an even faster rate; (iv) finding it encouraging that backlog grows quarter over quarter and the expectation that the backlog will continue to grow; (v) network sales being a good trend which should continue; (vi) expecting that dealer sales will continue to improve; (vii) adding and continuing to add highly qualified dealers every quarter which should be a very important part of sales in the future; (viii) to start monetizing sales of its newly redesigned website builder starting early in Q1 2015 through sales to businesses and entrepreneurs; (ix) continuing to work on reducing all costs while particularly working diligently on reducing product cost, by a substantial margin and doing so without sacrificing award winning technology, products and services; (x) the reduction in IP phones cost to take effect by the end of Q1 2015; (xi) seeing excitement and encouragement from its customers and dealers; (xii) I believe there will be continued growth in sales; (xiii) I think our future is bright, (xiv) a special committee negotiating a mechanism where there can be a loan or direct investment in the Company; (xv) expecting funding to be completed before the end of this year and (xvi) believing the Company will continue to grow the business through its sales force and our dealer network which will lead to profitability and long term growth. 

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, 2013 and Form 10-Q for the period ended March 31, 2014 and June 30, 2014. 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  
Consolidated Balance Sheets  
(In thousands, except par value and share data)  
   
    September 30,     December 31,  
    2014     2013  
Assets                
                 
Current Assets:                
  Cash and cash equivalents   $ 1,861     $ 3,076  
  Restricted cash     480       487  
  Trade receivables, net     653       1,090  
  Inventories     54       217  
  Equipment financing receivables     163       94  
  Income taxes receivable     24       55  
  Prepaid expenses and other     986       620  
    Total Current Assets     4,221       5,639  
                 
Certificate of deposit     251       250  
Long-term trade receivables, net     86       116  
Long-term equipment financing receivables     478       398  
Property and equipment, net     105       2,195  
Deferred income tax assets, net     244       244  
Intangible assets     747       571  
Goodwill     272       75  
Long-term prepaid rent     456       -  
Other long-term assets     80       119  
    Total Assets   $ 6,940     $ 9,607  
                 
Liabilities and Stockholders' Equity                
                 
Current Liabilities:                
  Accounts payable   $ 174     $ 201  
  Accrued expenses and other     1,286       1,095  
  Deferred income tax liability     244       244  
  Deferred revenue, current portion     880       1,199  
  Contingent consideration     211       51  
    Total Current Liabilities     2,795       2,790  
                 
Deferred revenue, net of current portion     86       116  
Other long-term liabilities     226       -  
    Total Liabilities     3,107       2,906  
                 
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; 11,223,485 shares outstanding as of September 30, 2014 and 10,801,315 shares outstanding as of December 31, 2013     11       11  
  Additional paid-in capital     52,956       50,998  
  Contingent consideration     -       198  
  Accumulated deficit     (49,134 )     (44,506 )
    Total Stockholders' Equity     3,833       6,701  
    Total Liabilities and Stockholders' Equity   $ 6,940     $ 9,607  
         
                 
   
CREXENDO, INC. AND SUBSIDIARIES  
Consolidated Statements of Operations  
(In thousands, except per share and share data)  
   
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2014     2013     2014     2013  
                                 
Revenue   $ 1,725     $ 2,428     $ 5,605     $ 8,187  
                                 
Operating expenses:                                
  Cost of revenue     790       1,044       2,604       3,056  
  Selling and marketing     546       712       1,703       2,337  
  General and administrative     1,549       1,745       4,847       5,035  
  Research and development     394       396       1,243       1,291  
  Goodwill impairment     -       265       -       265  
    Total operating expenses     3,279       4,162       10,397       11,984  
                                 
Loss from operations     (1,554 )     (1,734 )     (4,792 )     (3,797 )
                                 
Other income (expense):                                
  Interest income     37       78       122       443  
  Other income (expense), net     24       20       98       (13 )
    Total other income, net     61       98       220       430  
                                 
Loss before income tax benefit (provision)     (1,493 )     (1,636 )     (4,572 )     (3,367 )
                                 
Income tax benefit (provision)     (9 )     (23 )     (56 )     240  
Net loss   $ (1,502 )   $ (1,659 )   $ (4,628 )   $ (3,127 )
                                 
Net loss per common share:                                
  Basic   $ (0.13 )   $ (0.15 )   $ (0.42 )   $ (0.29 )
  Diluted   $ (0.13 )   $ (0.15 )   $ (0.42 )   $ (0.29 )
                                 
Weighted average common shares outstanding:                                
  Basic     11,220,674       10,713,961       11,103,386       10,688,786  
  Diluted     11,220,674       10,713,961       11,103,386       10,688,786  
                                   
                                   
   
CREXENDO, INC. AND SUBSIDIARIES  
Consildated Statements of Cash Flows  
(In thousands)  
   
    Nine Months Ended
September 30,
 
    2014     2013  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (4,628 )   $ (3,127 )
Adjustments to reconcile net loss to net cash used for operating activities:                
  Goodwill impairment     -       265  
  Lease abandonment     -       (606 )
  Depreciation and amortization     554       873  
  Expense for stock options issued to employees     612       622  
  Change in uncertain tax positions     -       11  
  Loss on disposal of property and equipment     (1 )     (253 )
  Amortization of deferred gain     (55 )     -  
  Change in fair value of contingent consideration     3       -  
Changes in assets and liabilities:                
  Trade receivables     467       2,204  
  Equipment financing receivables     (149 )     (221 )
  Inventories     163       21  
  Income taxes receivable     31       384  
  Prepaid expenses and other     (44 )     (232 )
  Amortization of prepaid rent     188       -  
  Other long-term assets     39       (17 )
  Accounts payable, accrued expenses and other     153       (1,592 )
  Deferred revenue     (349 )     (2,249 )
    Net cash used for operating activities     (3,016 )     (3,917 )
CASH FLOWS FROM INVESTING ACTIVITIES                
  Redemption of certificate of deposit     -       250  
  Release of restricted cash     7       -  
  Acquisition of property and equipment     (7 )     (62 )
  Sale of property and equipment     2,002       7  
  Acquisition of PBX Central     -       (300 )
  Acquisition of One Stop Voice     (194 )     -  
  Purchase of long-term investment     (1 )     -  
    Net cash provided by (used for) investing activities     1,807       (105 )
CASH FLOWS FROM FINANCING ACTIVITIES                
  Proceeds from exercise of stock options     48       88  
  Payments made on contingent consideration     (54 )     -  
    Net cash provided by (used for) financing activities     (6 )     88  
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS     (1,215 )     (3,934 )
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     3,076       7,440  
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 1,861     $ 3,506  
                 
Supplemental disclosure of cash flow information:                
Cash received during the period:                
  Income taxes   $ 1     $ 371  
Supplemental disclosure of non-cash investing and financing information:                
  Business acquisition with stock (Note 9)   $ 134     $ 107  
  Contingent consideration related to acquisition (Note 9)   $ 211     $ 363  
  Exchange of property and equipment for services rendered   $ -     $ 4  
  Prepayment of rent with common stock   $ 966     $ -  
                   
                 
   
CREXENDO, INC. AND SUBSIDIARIES  
Supplemental Segment Financial Data  
(In thousands)  
             
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2014     2013     2014     2013  
Revenue:                                
  Hosted Telecommunications Services   $ 1,035     $ 696     $ 2,953     $ 1,572  
  Web Services     690       1,732       2,652       6,615  
Consolidated revenue     1,725       2,428       5,605       8,187  
                                 
Loss from Operations:                                
  Hosted Telecommunications Services     (1,300 )     (1,371 )     (4,187 )     (3,854 )
  Web Services     (254 )     (365 )     (605 )     57  
    Total operating loss     (1,554 )     (1,736 )     (4,792 )     (3,797 )
Other Income, net:                                
  Hosted Telecommunications Services     24       -       65       3  
  Web Services     37       98       155       427  
    Total other income     61       98       220       430  
Loss before income tax provision                                
  Hosted Telecommunications Services     (1,276 )     (1,369 )     (4,122 )     (3,851 )
  Web Services     (217 )     (267 )     (450 )     484  
Loss before income tax provision   $ (1,493 )   $ (1,636 )   $ (4,572 )   $ (3,367 )
                                 
                                 

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