Executive Summary / Key Takeaways

• Profitable Growth Engine: Crexendo (NASDAQ:CXDO) is demonstrating consistent, profitable growth, with Q3 2025 revenue up 12% year-over-year to $17.5 million and GAAP net income of $1.5 million, driven by its scalable software solutions and disciplined operational management.
• Software Solutions Leadership: The Software Solutions segment is a primary growth driver, achieving 28% year-over-year revenue growth in Q3 2025 and 31% year-to-date, fueled by market disruption from legacy competitors and Crexendo's differentiated session-based pricing and open API platform.
• Technological Edge with AI: Crexendo is making significant investments in AI, launching solutions like Voice AI Studio, AI call recording with sentiment analysis, and the new AI receptionist "Kairo," which is expected to substantially increase average revenue per account for SMBs.
• Strategic Operational Efficiencies: Ongoing migrations to Oracle Cloud Infrastructure (OCI) and the sunsetting of its classic platform are poised to deliver significant cost savings and margin expansion starting in early 2026, further enhancing profitability.
• Compelling Outlook & M&A Potential: Management anticipates continued double-digit revenue growth and improving Adjusted EBITDA margins, actively pursuing strategic, accretive M&A opportunities to further scale the business.

The Dawn of a New Era in Cloud Communications

Crexendo, Inc. stands as an award-winning software technology company, a premier provider of cloud communication platform software and unified communications as a service (UCaaS) offerings, including voice, video, contact center, and managed IT services tailored to businesses of all sizes. The company's journey in telecom began approximately 15 years ago with a homegrown switch and a deep commitment to customer support. A pivotal moment arrived about four years ago with the strategic acquisition of NetSapiens, LLC. This integration married Crexendo's marketing and retail prowess with NetSapiens' superior software and engineering excellence, forging a company adept at both platform development and understanding end-user needs.

This synergy has propelled Crexendo to become a formidable player in the cloud communications landscape. The company has strategically capitalized on significant market disruptions, particularly from legacy vendors like Microsoft (MSFT)'s Metaswitch and Cisco (CSCO)'s BroadSoft. These larger competitors have faced challenges, including divestitures, price increases, and reduced support, creating a fertile ground for Crexendo to attract new licensees. Crexendo's differentiated model, featuring session-based pricing, open APIs, and flexible deployment options (cloud, facilities, or hybrid), has proven highly effective in winning over transitioning customers. The company's cloud communications software solutions now support over seven million end users globally through an extensive network of over 235 cloud communication platform software subscribers and its direct retail offering.

Technological Prowess: The Engine of Differentiation

At the heart of Crexendo's competitive advantage lies its robust and innovative technology stack, primarily built around the NetSapiens platform. This IP-based platform provides a comprehensive suite of UC services, including hosted Private Branch Exchange (PBX), auto-attendant, call center, conferencing, and mobility. The platform's design emphasizes flexibility and scalability, making it competitive with leading market players.

A key technological differentiator is Crexendo's session-based billing model, which contrasts sharply with the outdated per-seat model still prevalent among many competitors. This allows service providers to oversubscribe their networks, significantly driving down the cost per seat as volume increases, as partners only pay for what they use. This model offers customers the flexibility to migrate at their own pace without committing to rigid licensing structures, providing a compelling cost-effective and scalable transition strategy, particularly for those looking to move away from Microsoft Metaswitch and Cisco BroadSoft.

Furthermore, the NetSapiens platform is designed with open API integrations, empowering licensees to build customized applications and expand their offerings with both in-house and third-party developed solutions. This open architecture is a cornerstone of Crexendo's Ecosystem Vendor Partner (EVP) program, which now boasts 41 official partners. This program is expanding applications and integrations, creating new revenue streams and greater value for customers and licensees alike.

Crexendo is also at the forefront of AI-driven innovation, recognizing artificial intelligence as the "biggest game changer in our industry since the onset of the Internet." The company's AI solutions are strategically focused on helping businesses "make more money as opposed to saving money," targeting small and midsized businesses to be "more successful and more profitable." Current AI offerings include Voice AI Studio, AI call recording with sentiment analysis, and Contact Center AI powered by ChatGPT. A significant recent development is the introduction of "Kairo," Crexendo's AI receptionist orchestrator, which will be available in November 2025. Kairo is designed to answer incoming calls, frequently asked questions, schedule appointments, and access customer records. Management anticipates this technology will enable SMBs to be "more effective, more productive for a minimal cost," potentially increasing the average revenue per account by 40% to 50%.

The company continues to enhance its platform, having recently released version 45 and pre-announced "exciting enhancements planned for our version 46 release in 2026." Version 46, code-named Project Horizon, represents a "rethinking of the interface," aiming to provide the "best look and feel in the industry masked with the best engineering in the industry." This focus on user experience, combined with a "bulletproof" platform, positions Crexendo for a complete competitive advantage.

Financial Performance: A Trajectory of Profitable Expansion

Crexendo's financial results underscore its effective execution of a profitable growth strategy. In the third quarter of 2025, total revenue increased 12% year-over-year to $17.5 million. This growth was primarily fueled by a robust 28% increase in software solutions revenue, reaching $7.521 million, and an 8% increase in service revenue, totaling $8.607 million. For the nine months ended September 30, 2025, total revenue grew 12% to $50.106 million, with software solutions revenue surging 31% to $21.364 million and service revenue rising 5.4% to $25.163 million. While product revenue saw a 25% decrease in Q3 2025 to $1.369 million, management noted this was still "slightly higher than our historical average" of $1.3 million, and the prior year's comparable quarter was "unusually high." The company has proactively reduced lower-margin product opportunities to maintain overall profitability.

Profitability metrics reflect the scalability and operating leverage of Crexendo's business model. Consolidated gross margins increased by 200 basis points year-over-year to 63% in Q3 2025. The Software Solutions segment, in particular, demonstrated strong performance, with gross margins increasing 300 basis points year-over-year to 74% in Q3 2025 and reaching 76% for the nine months ended September 30, 2025. This highlights the inherent efficiency of the software business. The company targets full-year software gross margins in the 73-75% range. Crexendo achieved GAAP net income of $1.5 million in Q3 2025 and $3.853 million for the nine months, marking its ninth consecutive quarter of GAAP profitability. Non-GAAP net income was $3 million for the quarter and $8.567 million for the nine months. Adjusted EBITDA for Q3 2025 stood at $2.943 million, representing 17% of total revenue, and $8.446 million for the nine months.

Operating expenses increased 5% in Q3 2025 and 7% for the nine months, driven by investments in contract labor, outsourced engineering services, commissions, salaries, benefits, and headcount. However, strategic resource allocation led to a 15% decrease in general and administrative expenses for the Cloud Telecommunications segment in Q3 2025 and a 44% decrease in its research and development expenses, as engineering resources were reallocated to the Software Solutions segment to finalize the VIP platform migration.

Crexendo's liquidity remains robust, with cash and cash equivalents totaling $28.6 million as of September 30, 2025, up from $18.2 million at December 31, 2024. Cash provided by operating activities for the nine months ended September 30, 2025, was $7 million, demonstrating strong cash generation. The company's remaining performance obligations (RPO) further underscore its future revenue visibility, standing at $87.9 million, a 14% increase year-over-year. A significant portion of this RPO is expected to be recognized in the near term, with $23 million in 2025, $27 million in 2026, and $18 million in 2027.

Strategic Initiatives and Outlook

Crexendo is actively pursuing several strategic initiatives to sustain its growth trajectory and enhance operational efficiency. The company is in the final stages of migrating its classic platform customers to the state-of-the-art VIP system, with completion expected in Q1 2026. This transition is anticipated to reduce operational drag, free up internal resources, and contribute to cost savings. Concurrently, Crexendo is aggressively migrating its data centers to Oracle (ORCL) Cloud Infrastructure (OCI). The international data center migration to OCI was successfully completed in Q2 2025, and the U.S. data center migrations are nearing completion, with significant cost savings expected to materialize starting in early 2026. The OCI partnership also "continues to open global opportunities," enabling new instances to be deployed "in days rather than months" and supporting rapid international expansion, particularly in EMEA where strong demand is observed. While international revenue currently represents less than 10% of total revenue, it is growing rapidly.

Management remains highly optimistic about the future, projecting at least double-digit revenue growth through next year and beyond. This guidance is supported by the strong organic growth in the Software Solutions segment, which is expected to continue in the "30% plus range," and an anticipated acceleration in the 8% service revenue growth. The company also expects continued improvement in Adjusted EBITDA margins, balancing reinvestment in the business with bottom-line growth.

Crexendo is also actively evaluating strategic acquisition opportunities. Management notes a more rational environment for business valuations among private companies, making M&A more appealing. The company is "optimistic we will close one by early next year," focusing on targets that can be accretive within two to three quarters. This disciplined approach ensures that acquisitions align with Crexendo's vision for strategic and profitable growth. The company's strong and growing cash position provides the financial flexibility to support these initiatives, including potential share repurchases if market conditions warrant, as management believes the company is "undervalued at current."

Competitive Landscape and Strategic Positioning

Crexendo operates in a dynamic and highly competitive cloud communications market, positioning itself as the third-largest new path platform provider behind Cisco's BroadSoft and Microsoft's Metaswitch. The company's strategy is not to engage in price wars that erode profitability but to leverage its superior service, support, and product differentiation. G2, an independent review company, ranks Crexendo #1 in 18 different customer satisfaction categories, a testament to its "white glove service" culture, particularly vital for SMBs.

The ongoing disruption from larger, legacy competitors presents a significant opportunity for Crexendo. Microsoft's announcement of selling off its Metaswitch division has created "fear and concern with Metaswitch licensees," while Cisco's BroadSoft platform has seen increased pricing, decreased support, and slowed future development. These actions have directly benefited Crexendo, with seven Microsoft Metaswitch licensees and three Cisco BroadSoft licensees migrating to its platform in 2024. The average software solutions licensee brings in approximately $475,000 in total contract value, and these customers tend to be "very sticky," with negligible churn on the software solutions side.

While direct quantitative comparisons with all private competitors are challenging to ascertain, Crexendo's qualitative advantages are clear. Its session-based pricing model offers a distinct advantage over per-seat models, particularly for customers seeking cost-effective and scalable transitions. The open API architecture allows partners to fully customize solutions, a flexibility often lacking in more rigid competitor platforms. Crexendo's ability to offer both facilities-based and cloud-based deployment options further differentiates it, especially as Metaswitch customers face cloud migration decisions.

Compared to direct competitors like RingCentral (RNG), Zoom Video Communications (ZM), 8x8 (EGHT), and Twilio (TWLO), Crexendo's specialization for small to mid-sized businesses and its emphasis on customizable, integrated voice-centric solutions provide a unique market niche. While RingCentral targets a broader enterprise market with a comprehensive ecosystem, and Zoom excels in video collaboration, Crexendo's operational agility and customer-focused approach allow it to innovate rapidly for specific needs. Against 8x8's AI-driven analytics focus and Twilio's developer-oriented APIs, Crexendo's end-user service focus and bundled hardware-software offerings appeal to businesses seeking straightforward, integrated solutions. The company's ongoing investments in AI, such as Kairo, aim to close any technological gaps and enhance its competitive standing in advanced features.

Indirect competitors include traditional telecommunications providers like AT&T (T) and Verizon (VZ), and emerging AI-powered chatbots. However, the trend of Avaya abandoning the SME market and Mitel's ongoing challenges create "tremendous opportunity" for Crexendo to capture legacy customers migrating to the cloud. The acquisition of UScellular (USM) by T-Mobile (TMUS) also presents a "tremendous opportunity" for Crexendo to expand its reseller partnership.

Conclusion

Crexendo, Inc. is executing a compelling investment thesis centered on profitable growth, technological leadership, and strategic market capture amidst industry disruption. The company's strong financial performance in Q3 2025, highlighted by double-digit revenue growth and expanding margins, particularly in its Software Solutions segment, underscores the scalability and effectiveness of its business model. Its differentiated NetSapiens platform, with session-based pricing, open APIs, and a robust suite of AI-driven innovations like Kairo, provides a significant competitive moat against legacy and even some next-generation rivals.

With strategic operational efficiencies from OCI and VIP platform migrations poised to unlock further cost savings and a disciplined approach to M&A, Crexendo is well-positioned for sustained growth. The company's commitment to superior customer service and its ability to capitalize on the uncertainties faced by competitors like Cisco BroadSoft and Microsoft Metaswitch are critical drivers for expanding market share. Investors should recognize Crexendo's clear vision, strong execution, and technological roadmap as key indicators of its potential for continued value creation in the evolving cloud communications landscape.