CXDO — Crexendo, Inc.

Summary of Crexendo (CXDO) Q2 2026 Earnings Call

1. Key Financial Results and Metrics

• Revenue: $24.6 million, a 49% increase year-over-year.
• Net Income: GAAP net income of $1.1 million ($0.03 per diluted share); non-GAAP net income of $4.1 million ($0.12 per diluted share).
• Adjusted EBITDA: $4.1 million, representing a 17% margin, consistent with prior year performance.
• Cash Flow: Generated $4.8 million from operating activities in the first half of the year, an 89% increase year-over-year.
• Cash Position: Ended the quarter with $18.3 million in cash and cash equivalents after spending $26.2 million on the ESI acquisition.
• Service Revenue: Increased 78% to $14.9 million; gross margin improved to 67%.
• Software Solutions Revenue: Grew 5% to $7.3 million; gross margin at 70%.
• Product Revenue: Increased 104% to $2.5 million; gross margin improved to 44%.

2. Strategic Updates and Business Highlights

• Customer Growth: Secured 11 new platform customers in the first half of 2026, a significant increase from 2 in the same period last year.
• ESI Acquisition: Integration is progressing well, with ESI contributing $6.9 million in revenue for Q2, averaging $2.3 million per month.
• AI Initiatives: Launched CAIRO, an AI receptionist, which has shown early success with a revenue increase of $120 per account per month.
• Telecom Services: Strong performance with 15 six-figure sales opportunities in Q2, contributing to a remaining performance obligation of $139 million, up 97% year-over-year.
• Operational Improvements: Gross margins improved across all segments, attributed to cost savings from the migration to Oracle Cloud Infrastructure.

3. Forward Guidance and Outlook

• Revenue Target: On track for a $100 million revenue run rate by the end of 2026.
• AI Revenue Growth: Expecting meaningful contributions from AI initiatives starting in 2027.
• M&A Activity: Strong pipeline for potential acquisitions, with the possibility of pursuing additional opportunities in Q4 2026 or Q1 2027.

4. Bad News, Challenges, or Points of Concern

• Organic Revenue Growth: Consolidated organic revenue growth was lower than expected at 7% for the quarter, though year-to-date growth remains at 11%.
• Perpetual License Revenue: Down $700,000 compared to the prior year, impacting organic growth metrics.
• Sales and Marketing Expenses: Increased significantly due to the ESI acquisition, which may affect profitability in the short term.

5. Notable Q&A Insights

• Competitive Positioning: Management believes their "Sessions not Seats" model provides a compelling economic advantage, especially in uncertain economic times.
• Customer Migration: Many new customers are migrating from competitors, indicating a shift in market preference towards Crexendo’s offerings.
• Sales Cycle: Smaller initial deals are closing faster, with expectations for future upgrades as customers grow.
• CAIRO Adoption: Initial trials are showing promise, with expectations for increased revenue from AI offerings as adoption expands.
• TSD Performance: Strong growth in Telecom Services driven by improved relationships and customer satisfaction compared to competitors.

Overall, Crexendo reported a robust quarter with strong revenue growth and successful integration of the ESI acquisition, while also facing challenges in organic growth and increased expenses. The outlook remains positive with strategic initiatives in place to drive future growth.