Executive Summary / Key Takeaways

• Disruptive Software Model Driving Growth: Crexendo's NetSapiens platform, with its unique session-based pricing and open APIs, is capitalizing on market disruption from legacy providers like Cisco BroadSoft and Microsoft (MSFT) Metaswitch, driving robust double-digit revenue growth in its high-margin Software Solutions segment.
• Consistent Profitability and Strong Cash Flow: The company has achieved eight consecutive quarters of GAAP profitability and 27 consecutive quarters of non-GAAP net income, coupled with a significant turnaround from cash burn to substantial cash flow generation, demonstrating a disciplined approach to financial management.
• Strategic Infrastructure and AI Investments: Ongoing migration to Oracle (ORCL) Cloud Infrastructure (OCI) and the sunsetting of its classic platform are expected to yield significant cost savings and free up resources, while continuous investment in AI capabilities (e.g., AI call bots, Contact Center AI) enhances product differentiation and customer value.
• Differentiated Competitive Stance: Crexendo prioritizes profitable growth and superior customer service (ranked #1 by G2.com) over unprofitable price wars, positioning itself as a reliable and value-driven alternative in a highly competitive UCaaS market.
• Clear Growth Outlook and M&A Potential: Management anticipates sustained double-digit organic revenue growth, supported by a growing Remaining Performance Obligation (RPO) and a strategic focus on accretive acquisitions, leveraging a strengthening cash position and a more rational M&A valuation environment.

The Foundation of Cloud Communications: Crexendo's Strategic Evolution

Crexendo, Inc. (NASDAQ:CXDO) stands as a premier provider of cloud communication platform software and unified communications as a service (UCaaS), offering voice, video, contact center, and managed IT services to businesses globally. Incorporated in 1995 as iMergent, Inc., the company's rebranding to Crexendo in 2011 marked an early strategic pivot towards its current focus. A pivotal transformation began around November 2022 with the acquisition of Allegiant Networks, coinciding with Jeff Korn's appointment as CEO. This period initiated a disciplined strategic shift, moving the company from a monthly cash burn to consistent GAAP profitability and substantial positive cash flow, alongside a significant increase in EBITDA.

The broader industry landscape is characterized by a rapid migration to cloud-based communication solutions. Estimates suggest that approximately 40% of U.S. businesses still rely on premise-based communication systems, a number rapidly shrinking towards single digits within the next two to three years. This secular trend, coupled with the accelerating demand for affordable technology enhancements, particularly those leveraging artificial intelligence, creates a fertile ground for companies like Crexendo. The traditional Plain Old Telephone System (POTS) copper lines are also vanishing, driving demand for modern replacements. Crexendo's overarching strategy is to capitalize on these market dynamics through profitable growth, disciplined investment, and a relentless focus on customer value and technological differentiation.

Technological Edge: The NetSapiens Platform and AI Innovation

At the heart of Crexendo's competitive strategy is its proprietary NetSapiens platform, a comprehensive, IP-based solution that underpins both its Software Solutions and Cloud Telecommunications Services segments. This platform offers a broad suite of UC services, including hosted Private Branch Exchange (PBX), auto-attendant, call center, conferencing, and mobility. A key differentiator is its session-based pricing model, which contrasts sharply with the per-seat/per-feature models prevalent among competitors like Cisco BroadSoft and Microsoft Metaswitch. This allows service providers to oversubscribe their networks, significantly driving down the cost per seat as volume increases, offering compelling unit economics to licensees.

The NetSapiens platform is also distinguished by its open APIs and flexible deployment options (cloud, facilities, or hybrid). This open architecture empowers licensees to build customized applications, akin to how an app store enhances a smartphone, fostering a vibrant ecosystem of third-party developers. This flexibility is particularly crucial for customers transitioning from legacy systems, allowing them to choose a deployment model that best fits their existing infrastructure and migration pace. The company's partnership with Oracle Cloud Infrastructure (OCI) further enhances this flexibility, providing the capability to launch instances in days, not months, and deploy servers in any country while ensuring compliance with local security protocols. This rapid deployment capability is a significant competitive advantage, especially in international markets.

Crexendo is actively investing in and expanding its AI capabilities. Current offerings available to end-users include Voice AI Studio, AI Call Recording with summary and sentiment analysis, and Contact Center AI powered by ChatGPT. Planned initiatives for the coming quarters include AI call bots and AI operator functions and messaging. These AI enhancements are designed to make small and mid-sized businesses more efficient and productive, enabling them to "do more with less." The strategic intent behind these technological advancements is to deepen the company's competitive moat, enhance product value, and drive long-term margin expansion through operational efficiencies and new revenue streams from advanced features.

Competitive Dynamics and Strategic Positioning

Crexendo operates in a highly competitive landscape, with key rivals including RingCentral (RNG), Zoom Video Communications (ZM), 8x8 (EGHT), and Cisco Systems (CSCO). While these larger players often command greater market share and brand recognition, Crexendo strategically differentiates itself through its unique value proposition and disciplined approach.

Against Cisco BroadSoft and Microsoft Metaswitch, Crexendo is directly capitalizing on significant market disruption. Microsoft's divestiture of Metaswitch and Cisco's changes to BroadSoft (including increased pricing, decreased support, and slowed development) have created substantial uncertainty among their licensees. Crexendo's session-based pricing and flexible deployment options offer a compelling, cost-effective, and scalable transition strategy for these concerned customers. In 2024, Crexendo successfully migrated seven Microsoft Metaswitch and three Cisco BroadSoft licensees to its platform, with a strong pipeline of additional opportunities. The company's ability to support Mitel (MITL) 6900 Series IP phones further broadens its appeal to legacy users.

Compared to pure-play UCaaS providers like RingCentral and 8x8, Crexendo emphasizes a balanced approach of cloud telecommunications and software solutions, including hardware resale. While RingCentral and 8x8 may lead in specialized AI features or broader collaboration suites, Crexendo's "industry best customer service," as independently verified by G2.com (ranking #1 in 18 satisfaction categories), and its "award-winning VIP platform bundle" are key differentiators. Crexendo explicitly avoids "unsustainable practices" like aggressive, unprofitable pricing, choosing instead to win business based on superior service and product value. This disciplined approach ensures profitable growth, contrasting with competitors who may acquire customers at a loss, leading to financial instability.

Against larger, diversified players like Cisco, Crexendo maintains a laser focus on telecom solutions, excelling in its niche. While Cisco offers a broader enterprise suite, Crexendo's agility and cost-effectiveness, particularly for small to mid-sized businesses and service providers, provide a distinct edge. The Ecosystem Vendor Partner (EVP) program, leveraging open APIs, further differentiates Crexendo by enabling a wide array of customized, third-party applications, creating additional revenue-sharing opportunities and enhancing platform stickiness.

Crexendo's competitive positioning is further strengthened by its strategic partnerships, such as with UScellular (USM), a key reseller on the services side. The recent acquisition of UScellular by T-Mobile (TMUS) presents potential incremental opportunities for Crexendo to expand its reach within a larger mobile ecosystem.

Financial Performance and Operational Momentum

Crexendo's financial performance reflects its strategic execution and operational discipline. For the second quarter ended June 30, 2025, total revenue increased 13% year-over-year to $16.6 million. This growth was primarily driven by a remarkable 31% year-over-year organic growth in software solutions revenue, reaching $7.0 million. Service revenue also saw a healthy 3.8% increase to $8.4 million, while product revenue decreased by 7.0% to $1.2 million, a strategic reduction in lower-margin opportunities to maintain overall profitability. For the six months ended June 30, 2025, total revenue grew 13% to $32.6 million, with Software Solutions revenue up 32.2% to $13.8 million and Service revenue up 4.0% to $16.6 million.

The company's commitment to profitability is evident in its consistent GAAP net income, marking its eighth consecutive quarter of GAAP profitability and 27th consecutive quarter of non-GAAP net income. In Q2 2025, GAAP net income was $1.2 million ($0.04 per basic and diluted share), and adjusted EBITDA reached $2.8 million. For the first half of 2025, GAAP net income was $2.4 million ($0.08 per basic and diluted share), and adjusted EBITDA was $5.5 million.

Gross margins remain strong, particularly in the Software Solutions segment, which achieved a 74% gross margin in Q2 2025 and 76% for the first half of 2025, highlighting the scalability and operating leverage of the platform. Consolidated gross margin for Q2 2025 was 63%. While the Cloud Telecommunications Services segment's gross margin was 56%, affected by lower-margin MSP offerings and a strategic reduction in product revenue, management anticipates future improvements from ongoing data center consolidations.

Operational achievements underpin these financial results. The software platform surpassed 6 million users and is "marching towards 7 million users." The company was included in the Russell 2000 Index, a testament to its growth and market recognition. Significant progress has been made in infrastructure modernization, with the successful completion of international data center migrations to OCI and the closure of international data centers by Q2 2025. U.S. data center migrations are ongoing, expected to yield "additional meaningful cost savings over the next 12 months" and drive "long-term efficiencies in 2026." The Remaining Performance Obligation (RPO), a strong indicator of future revenue, increased 17% year-over-year to $83.5 million as of June 30, 2025, with $23.2 million expected to be recognized in the remainder of 2025, and $27.2 million in 2026.

Liquidity is robust, with cash and cash equivalents standing at $23.5 million as of June 30, 2025, up from $18.2 million at December 31, 2024. Cash provided by operating activities for the first six months of 2025 was $2.5 million, demonstrating healthy organic cash generation. This strong cash position provides the financial flexibility to support continued innovation, strategic M&A, and enhanced shareholder value.

Outlook and Growth Catalysts

Crexendo's management maintains a confident outlook, reiterating expectations for at least double-digit organic revenue growth over the next year and beyond. This guidance is underpinned by several key assumptions and strategic initiatives:

• Continued Market Disruption: The ongoing uncertainties and strategic shifts by larger competitors like Cisco and Microsoft are expected to continue driving licensees to Crexendo's platform. The company's differentiated model and superior customer service position it to capture a substantial share of this transitioning market.
• Operational Efficiencies from OCI Migration: The full migration to Oracle Cloud Infrastructure by the end of 2025, particularly the closure of U.S. data centers, is anticipated to generate substantial cost savings, estimated at 1% to 1.5% of revenue, primarily impacting margins in 2026. These savings will also free up internal resources for redeployment, reducing the need for new hires and further enhancing operational leverage.
• AI-Driven Product Innovation: The planned rollout of new AI capabilities, such as AI call bots and AI operator functions, will enhance the value proposition of the NetSapiens platform, creating upsell opportunities with existing customers and attracting new ones seeking advanced, efficient communication tools.
• Ecosystem Vendor Partner (EVP) Program: The EVP program, leveraging Crexendo's open API architecture, is gaining momentum and is expected to become a significant revenue driver in the years ahead by fostering third-party developed applications and integrations.
• Disciplined M&A Strategy: With a strong cash position and a more rational market for private company valuations, Crexendo is actively reviewing potential acquisitions. The focus remains on targets that can be accretive to EBITDA within one to three quarters, even if GAAP profitability might be temporarily impacted by intangible costs. This inorganic growth strategy is expected to accelerate market share gains and expand product offerings.
• Growing Recurring Revenue Base: The increasing Remaining Performance Obligation (RPO) and the high retention rate in the software solutions segment provide strong visibility into future revenue streams.

Analysts are also optimistic, with the Zacks Consensus Estimate for 2025 EPS at $0.29, an 11.5% increase year-over-year, and cash flow growth expected to be 25.9%, significantly higher than the industry average. Management also anticipates continued improvement in adjusted EBITDA margins.

Risks and Challenges

Despite the strong momentum, Crexendo faces several risks and challenges. The UCaaS market remains intensely competitive, with some rivals engaging in "unsustainable practices" like aggressive, unprofitable pricing to gain market share. While Crexendo's disciplined approach mitigates this risk to its profitability, it could impact the pace of customer acquisition in certain segments.

Acquisition-related risks also exist. While management aims for accretive acquisitions, the intangible costs associated with new deals could temporarily impact GAAP profitability, even if EBITDA benefits. Furthermore, the long sales cycles for large licensees, particularly those migrating from competitor platforms, mean that the realization of pipeline opportunities can be protracted. Product revenue, which is influenced by sales bookings and installation timing, can also fluctuate from quarter to quarter, potentially introducing some variability in overall revenue.

Conclusion

Crexendo, Inc. has successfully transformed into a consistently profitable, high-growth software and cloud communications leader. Underpinned by its differentiated NetSapiens platform, unique session-based pricing, and open API architecture, the company is strategically positioned to capitalize on the ongoing disruption within the telecom sector, particularly from legacy providers like Cisco and Microsoft. Its unwavering commitment to superior customer service and disciplined, profitable growth sets it apart in a competitive market.

The company's robust financial performance, marked by consistent GAAP profitability, strong cash flow generation, and a growing RPO, provides a solid foundation for future expansion. Strategic investments in AI capabilities and the migration to Oracle Cloud Infrastructure are expected to further enhance its technological edge and drive significant operational efficiencies and margin expansion in the coming years. With a clear outlook for sustained double-digit organic revenue growth and a disciplined approach to accretive M&A, Crexendo appears poised to continue its ascent, offering a compelling investment thesis for those seeking exposure to a resilient and innovative player in the evolving cloud communications landscape.