Crexendo, Inc.

Previous wording

Crexendo, Inc. is an award-winning software technology company that is a premier provider of cloud communication platform software and unified communications as a service (UCaaS) offering, including voice, video, contact center, and managed IT services tailored to businesses of all sizes. Our cloud communications software solutions currently support over six million end users globally, through an extensive network of over 235 cloud communication platform software subscribers and our direct retail offering. Our products and services can be categorized in the following offerings:

Current wording

Crexendo, Inc. is an award-winning software technology company that is a premier provider of cloud communication platform software and unified communications as a service (UCaaS) offering, including voice, video, contact center, premise systems, and managed IT services tailored to businesses of all sizes. Our cloud communications software solutions currently support over seven million end users globally, through an extensive network of over 240 cloud communication platform software subscribers and our direct retail offering. Our products and services can be categorized in the following offerings:

Previous wording

We believe that our Annualized Exit Monthly Recurring Subscriptions (“AERR”) is a leading indicator of our anticipated subscriptions revenues. We believe that trends in revenue are important to understanding the overall health of our business, and we use these trends to formulate financial projections and make strategic business decisions. Our AERR equals our Monthly Recurring Subscriptions multiplied by 12. Our Monthly Recurring Subscriptions equals the monthly value of all customer recurring charges at the end of a given month. For example, our Monthly Recurring Subscriptions at September 30, 2025 were $4,675. As such, our AERR at September 30, 2025 was $56,100 compared to $49,039 at September 30, 2024.

Current wording

We believe that our Annualized Exit Monthly Recurring Subscriptions (“AERR”) is a leading indicator of our anticipated subscriptions revenues. We believe that trends in revenue are important to understanding the overall health of our business, and we use these trends to formulate financial projections and make strategic business decisions. Our AERR equals our Monthly Recurring Subscriptions multiplied by 12. Our Monthly Recurring Subscriptions equals the monthly value of all customer recurring charges at the end of a given month. For example, our Monthly Recurring Subscriptions at March 31, 2026 were $4,854. As such, our AERR at March 31, 2026 was $58,249 compared to $57,529 at December 31, 2025.

Previous wording

Our key business metrics for the periods ended September 30, 2025 and September 30, 2024, were as follows (in thousands, except for percentages):

Current wording

Our key business metrics for the three months ended March 31, 2026 and March 31, 2025, were as follows (in thousands, except for percentages):

Previous wording

The increase in total revenue is due to an increase in software solutions revenue of $5,033 and an increase in service revenue of $1,260, offset by a decrease in product revenue of $785.

Current wording

The increase in total revenue is due to acquired revenue contributed by our acquisition of ESI on March 1, 2026 of $2,099, an increase in product revenue of $1,117, an increase in software solutions revenue of $855, and increase in service revenue of $582.

Previous wording

The increase in income/(loss) before income tax is primarily related to an increase in revenue of $5,508 and an increase in other income/(expense) of $358, offset by an increase in operating expenses of $3,148. The increase in revenue is related to organic growth from new and existing customers. The increase in operating expenses is primarily related to an increase salaries, benefits, bonuses, share-based compensation, and headcount of $1,077, an increase in commission expense of $893, an increase in contract labor and outsourced engineering services of $652, an increase in third-party telecommunication charges of $417, and an increase in other expenses of $109. The increase in other income/(expense) is primarily related to an increase in interest income of $282, an increase in other income of $63, and a decrease in interest expense of $13.

Current wording

The decrease in income before income taxes is primarily related to an increase in operating expense of $5,363 offset by an increase in revenue of $4,653 and an increase in other income of $102. The increase in revenue is related to organic growth from existing customers and new customers, and acquired revenue contributed by our acquisition of ESI on March 1, 2026. The increase in operating expenses is primarily related to additional expenses of $2,130 contributed by our March 1, 2026 acquisition of ESI, an increase in cost of product revenue of $1,074, an increase in acquisition related expenses of $839, an increase in third-party hosting services of $601, an increase in commission expenses of $204, an increase in salaries, benefits, bonuses, and share-based compensation of $150, and an increase in other operating expenses of $365. The increase in other income is primarily related to an increase in interest income of $75, an increase in other income of $23, and a decrease in interest expense of $9.

Previous wording

To evaluate our business, we consider and use non-generally accepted accounting principles (“Non-GAAP”) net income 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 to be an important indicator of overall business performance because it allows us to evaluate results without the effects of share-based compensation and related taxes, acquisition related expenses, changes in fair value of contingent consideration, amortization of intangibles, and goodwill and long-lived asset impairment. We define EBITDA as U.S. GAAP net income/(loss) before interest expense, interest income and other expense/(income), the gain/(loss) on the sale of property and equipment, goodwill and long-lived asset impairments, benefit/(provision) for income tax, 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 acquisition related expenses, changes in fair value of contingent consideration and share-based compensation and related taxes. 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.

Current wording

To evaluate our business, we consider and use non-generally accepted accounting principles (“Non-GAAP”) net income 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 to be an important indicator of overall business performance because it allows us to evaluate results without the effects of share-based compensation and related taxes, acquisition related expenses, changes in fair value of contingent consideration, amortization of intangibles, and goodwill and long-lived asset impairment. We define EBITDA as U.S. GAAP net income/(loss) before interest expense, interest income and other expense/(income), the gain/(loss) on the sale of property and equipment, goodwill and long-lived asset impairments, provision/(benefit) 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 acquisition related expenses, changes in fair value of contingent consideration and share-based compensation and related taxes. 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.

Previous wording

The increase in service revenue is due to an increase in telecommunications services fees of $1,198, an increase in fees, commissions, and other, recognized over time of $280, and an increase in sales-type lease interest of $130, offset by a decrease in one-time fees, commissions and other of $310.

Current wording

The increase in service revenue is due to an increase in telecommunications services fees of $479, an increase in fees, commissions, and other, recognized over time of $188, an increase in sales-type lease interest of $32, offset by a decrease in one-time fees, commission and other of $117. Additional service revenue of $1,797 contributed by our acquisition of ESI on March 1, 2026. A substantial portion of cloud telecommunications service revenue is generated through thirty-six to sixty month service contracts.

Previous wording

Product revenue fluctuates from one period to the next based on timing of installations. Our typical customer installation is complete within 30-60 days. However, larger enterprise customers can take multiple months, depending on size and the number of locations. Product revenue is recognized when products have been installed and services commence. Additionally, product revenue can fluctuate due to the allocation of discounts or sales promotions across the performance obligations.

Current wording

Product revenue fluctuates from one period to the next based on timing of installations. Our typical customer installation is complete within 30-60 days. However, larger enterprise customers can take multiple months, depending on size and the number of locations. Product revenue is recognized when products have been installed and services commence. Additionally, product revenue can fluctuate due to the allocation of discounts or sales promotions across the performance obligations. Our March 1, 2026 acquisition of ESI contributed $302 of additional product revenue.

Previous wording

Cost of service revenue consists primarily of fees we pay to third-party telecommunications carriers, broadband Internet providers, software providers, costs related to installations, contract labor costs, customer support salaries, benefits, bonuses, and share-based compensation. The following table reflects our cost of service revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

Current wording

Cost of service revenue consists primarily of fees we pay to third-party telecommunications carriers, broadband Internet providers, software providers, costs related to installations, contract labor costs, credit card processing fees, customer support salaries, benefits, bonuses, and share-based compensation. The following table reflects our cost of service revenue for the three months ended March 31, 2026, compared to the three months ended March 31, 2025:

Previous wording

The increase in cost of service revenue was primarily related to an increase in contract labor costs to assist with the migration of our customers to our new VIP platform of $258, an increase in third-party telecommunication charges of $163, an increase in data center hosting costs of $28, and an increase in other cost of service revenue of $45, offset by a decrease in salaries, benefits, bonuses, and share-based compensation of $166.

Current wording

The increase in cost of service revenue was primarily related to additional cost of service revenue of $492 contributed by our March 1, 2026 acquisition of ESI, an increase in third-party telecommunications charges of $58, an increase in data center hosting of $20, and an increase in other cost of service revenue of $7 offset by a decrease in salaries, benefits, bonuses, and share-based compensation of $157 and a decrease in contract labor costs of $23.

Previous wording

The increase in selling and marketing expense is primarily related to an increase in commission expense of $484 directly related to the increase in revenue, an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $178, and an increase in other sales and marketing expense of $31, offset by a decrease in bad debt related to a decrease in our credit loss reserve of $125.

Current wording

The increase in selling and marketing expense is primarily related to additional selling and marketing expense of $1,024 contributed by our March 1, 2026 acquisition of ESI, an increase in commission expense of $204 directly related to the increase in revenue, an increase in bad debt of $178 related to a large decrease in our provision for the three months ended March 31, 2025, an increase in marketing costs of $40, offset by a decrease in other sales and marketing expense of $14.

Previous wording

General and administrative expenses consist of salaries, benefits, bonuses and share-based compensation for executives, administrative personnel, legal, rent, equipment, accounting and other professional services, investor relations, rent expense, consulting fees, depreciation, amortization of intangible assets, and other administrative corporate expenses. The following table reflects our general and administrative expenses for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

Current wording

General and administrative expenses consist of salaries, benefits, bonuses and share-based compensation for executives, administrative personnel, legal, rent, equipment, accounting and other professional services, investor relations, depreciation, amortization of intangible assets, and other administrative corporate expenses. The following table reflects our general and administrative expenses for the three months ended March 31, 2026, compared to the three months ended March 31, 2025:

Previous wording

Operating Results of Software Solutions segment (in thousands):

Current wording

Operating Results of our Software Solutions segment (in thousands):

Previous wording

The increase in software solutions revenue is primarily related to an increase in recurring software license and maintenance and support subscriptions of $2,611 and an increase in perpetual software license revenue of $2,485, offset by a decrease in professional services and other revenue of $63.

Current wording

The increase in software solutions revenue is primarily related to an increase in recurring software license and maintenance and support subscriptions of $1,056, offset by a decrease in perpetual software license revenue of $117 and a decrease in professional services and other revenue of $84.

Previous wording

The increase in cost of software solutions revenue is primarily related to an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $461, an increase in software costs of $189, and an increase in outsourced services of $97, offset by a decrease in third-party hosting service costs of $41 and a decrease in other costs of software solutions revenue of $2.

Current wording

The increase in cost of software solutions revenue is primarily related to an increase in third-party hosting service costs of $581, an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $192, an increase of outsource services of $168, and an increase in other cost of software solutions revenue of $5.

Previous wording

General and administrative expenses consist of salaries and benefits for executives, administrative personnel, amortization of intangible assets, legal, rent, equipment, accounting and other professional services, and other administrative corporate expenses. The following table reflects our general and administrative expenses for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

Current wording

General and administrative expenses consist of salaries, benefits, bonuses and share-based compensation for executives and administrative personnel, amortization of trademark and trade name intangible assets, legal, rent, equipment, accounting and other professional services, consulting fees, bank and merchant fee, and other administrative corporate expenses. The following table reflects our general and administrative expenses for the three months ended March 31, 2026, compared to the three months ended March 31, 2025:

Previous wording

The increase in general and administrative expenses is primarily related to an increase in legal expenses of $204, an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $128, an increase in the amortization of the capitalized software development costs intangible asset of $33, an increase in professional service fees of $17, and an increase in other general and administrative expenses of $53.

Current wording

The increase in general and administrative expenses is primarily related to an increase in salaries, benefits, bonuses, share-based compensation, of $136, an increase in bank and merchant fees of $60, an increase in the amortization of intangible assets of $28, and an increase in other general and administrative expenses of $6.

Previous wording

Research and development expenses primarily consists of salaries, benefits, bonuses, share-based compensation, and outsourcing engineering services related to the development of our software solutions. The following table reflects our research and development expenses for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

Current wording

Research and development expenses primarily consist of salaries, benefits, bonuses, share-based compensation, and outsourcing engineering services related to the development of our software solutions. The following table reflects our research and development expense for the year end March 31, 2026, compared to the year ended March 31, 2025:

Previous wording

The decrease in research and development expenses is primarily related to a decrease in salaries, benefits, bonuses, share-based compensation, and headcount of $90, offset by an increase in outsourced engineering services expenses of $40 and an increase in other research and development expenses of $3.

Current wording

The decrease in research and development expenses is primarily related a decrease in outsourced engineering services expenses of $30 and a decrease in other research and development expenses of $5.

Previous wording

Other income/(expense) primarily relates to net foreign exchange gains or losses and other income and expenses. The following table reflects our other expense for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

Current wording

Other income/(expense) primarily relates to net foreign exchange gains or losses and other income and expenses. The following table reflects our other income/(expense) for the three months ended March 31, 2026, compared to the three months ended March 31, 2025:

Previous wording

The change in other income/(expense) is primarily related to a decrease in foreign exchange gains of $8 offset by an increase in other income of $7.

Current wording

The change in other income/(expense) is primarily related to an increase in other income of $34 and an increase in interest income of $10, offset by a decrease in foreign exchange gains/(losses) of $10.

Previous wording

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations. We finance our operations primarily through services, software solutions, and product sales to our customers. As of September 30, 2025 and December 31, 2024, we had cash and cash equivalents of $28,573 and $18,193, respectively. Changes in cash and cash equivalents are dependent upon changes in, among other things, working capital items such as contract liabilities, contract costs, accounts payable, accounts receivable, prepaid expenses, and various accrued expenses, as well as purchases of property and equipment, asset acquisitions, business combinations, and changes in our capital and financial structure due to debt repayments and issuances, stock option exercises, sales of equity investments and similar events. We believe that our operations along with existing liquidity sources will satisfy our cash requirements for at least the next 12 months.

Current wording

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations. We finance our operations primarily through services, software solutions, and product sales to our customers. As of March 31, 2026 and December 31, 2025, we had cash and cash equivalents of $7,249 and $31,378, respectively. Changes in cash and cash equivalents are dependent upon changes in, among other things, working capital items such as contract liabilities, contract costs, accounts payable, accounts receivable, prepaid expenses, and various accrued expenses, as well as purchases of property and equipment, asset acquisitions, business combinations, and changes in our capital and financial structure due to debt repayments and issuances, stock option exercises, sales of equity investments and similar events. We believe that our operations along with existing liquidity sources will satisfy our cash requirements for at least the next 12 months.

Previous wording

Cash provided by or used in operating activities is driven by our net income/(loss), adjustments to reconcile to net cash provided by or used in operating activities, the timing of customer collections, as well as the amount and timing of disbursements to our vendors, the amount of cash we invest in personnel, marketing, and infrastructure costs to support the anticipated growth of our business. The following table reflects our net cash provided by/(used in) operating activities for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

Current wording

Cash provided by or used in operating activities is driven by our net income/(loss), adjustments to reconcile to net cash provided by or used in operating activities, the timing of customer collections, as well as the amount and timing of disbursements to our vendors, the amount of cash we invest in personnel, marketing, and infrastructure costs to support the anticipated growth of our business. The following table reflects our net cash provided by/(used in) operating activities for the three months ended March 31, 2026, compared to the three months ended March 31, 2025:

Previous wording

The net cash provided by operating activities for the nine months ended September 30, 2024 was primarily driven by non-cash expenses for depreciation and amortization of $2,505, share-based compensation of $2,293, our net income for the nine months ended September 30, 2024 of $1,170, an increase in accounts payable and accrued expenses of $695, and an increase in contract liabilities of $335, offset by an increase in contract costs of $867, an increase in prepaid expense of $819, an increase in equipment financing receivables of $585, an increase in trade receivables of $277, and an increase in inventories of $169.

Current wording

The net cash provided by operations for the three months ended March 31, 2026 was primarily driven by our net income of $609, non-cash expenses for depreciation and amortization of $1,169, share-based compensation of $721, an increase in accounts payable and accrued expenses of $248, a decrease in other assets of $256, a decrease in equipment financing receivables of $225, offset by an increase in trade receivables of $1,195, an increase in contract costs of $319, an increase in prepaid expenses of $180.

Previous wording

The net cash provided by operating activities for the nine months ended September 30, 2025 was primarily driven by our net income of $3,853, non-cash expenses for depreciation and amortization of $2,466, share-based compensation of $2,254, an increase in contract liabilities of $1,026, and an increase in accounts payable and accrued expenses of $799, offset by an increase in equipment financing receivables of $932, an increase in prepaid expenses of $596, an increase in contract costs of $591, an increase in trade receivables of $394, and an increase in inventory of $247.

Current wording

The net cash provided by operations for the three months ended March 31, 2025 was primarily driven by our net income of $1,171, non-cash expenses for depreciation and amortization of $771, share-based compensation of $726, and a decrease in trade receivables of $292, offset by a decrease in accounts payable and accrued expenses of $695, a decrease in contract liabilities of $334, an increase in equipment financing receivables of $241, an increase in contract costs of $192, and an increase in inventory of $183.

Previous wording

Cash provided by or used in investing activities is driven by the purchase of property and equipment, business combinations, and asset acquisitions. The following table reflects our net cash provided by/(used in) investing activities for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

Current wording

Cash provided by or used in investing activities is driven by the purchase of property and equipment, business combinations, and asset acquisitions. The following table reflects our net cash provided by/(used in) investing activities for the three months ended March 31, 2026, compared to the three months ended March 31, 2025:

Previous wording

The net cash used in investing activities for the nine months ended September 30, 2025 was for the purchase of property and equipment.

Current wording

The net cash used in investing activities for the three months ended March 31, 2026 relates to the acquisition of ESI completed on March 1, 2026.

Previous wording

Cash provided by or used in financing activities is driven by the proceeds from the exercise of options, taxes paid on the net settlement of stock options and RSUs, payments of contingent consideration, proceeds from finance leases and notes payable, repayments made on finance leases and notes payable, proceeds and repayments on line of credit, and proceeds from the issuance of common stock in connection with an offering. The following table reflects our net cash provided by/(used in) financing activities for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

Current wording

Cash provided by or used in financing activities is driven by the proceeds from the exercise of options, taxes paid on the net settlement of stock options and RSUs, payments of contingent consideration, proceeds from finance leases and notes payable, repayments made on finance leases and notes payable, proceeds and repayments on line of credit, and proceeds from the issuance of common stock in connection with an offering. The following table reflects our net cash provided by financing activities for the three months ended March 31, 2026, compared to the three months ended March 31, 2025:

Previous wording

Net cash used in financing activities for the nine months ended September 30, 2024 primarily driven by cash received from the exercise of stock options of $1,573, offset by repayments made on notes payable of $340, the payments of employee tax withholdings from the net settlement of stock options and RSUs of $166, and repayments made on finance leases of $56.

Current wording

Net cash provided by financing activities for the three months ended March 31, 2026, primarily relates to cash received from the exercise of stock options of $307, offset by repayments made on notes payable of $114 and the payments of employee tax withholdings from the net settlement of stock options and RSUs of $132.

Previous wording

Net cash provided by financing activities for the nine months ended September 30, 2025 primarily driven by cash received from the exercise of stock options of $4,137, offset by repayments made on notes payable of $356, the payments of employee tax withholdings from the net settlement of stock options and RSUs of $340, and repayments made on finance leases of $20.

Current wording

Net cash provided by financing activities for the three months ended March 31, 2025, primarily relates to cash received from the exercise of stock options of $1,979, offset by repayments made on notes payable of $117, the payments of employee tax withholdings from the net settlement of stock options and RSUs of $80, and repayments made on finance leases of $19.

Previous wording

On November 1, 2022, the Company completed the acquisition of Allegiant Networks, LLC, a Kansas limited liability company (the “Allegiant Networks”) to acquire from Seller one hundred percent (100%) of the issued and outstanding shares of Allegiant Networks in exchange for (i) a cash payment at closing in the amount of $2.0 million, (ii) a three-year promissory note by the Company in favor of Seller in the amount of $1.1 million, and (iii) 2,461,538 shares of the Company’s common stock, par value $0.001 per share. In connection with this transaction, the seller Bryan Dancer, became a greater than five percent shareholder of the Company. Therefore, the three-year promissory note in the amount of $1.1 million, is considered a related party transaction. The loan agreement has a term of three (3) years with quarterly payments of Ninety-Eight Thousand Three Hundred Eighty-one Dollars ($98,381), including interest at 4.00%, beginning on April 1, 2024. As of September 30, 2025 and December 31, 2024, the outstanding balance of the related party note payable was $194 and $478, respectively. During the three months ended September 30, 2025 and 2024, the Company paid principal of $96 and $92, respectively, and interest of $4 and $6, respectively. During the nine months ended September 30, 2025 and 2024, the Company paid principal of $284 and $272, respectively, and interest of $10 and $22, respectively.

Current wording

On November 1, 2022, the Company completed the acquisition of Allegiant Networks, LLC, a Kansas limited liability company (the “Allegiant Networks”) to acquire from Seller one hundred percent (100%) of the issued and outstanding shares of Allegiant Networks in exchange for (i) a cash payment at closing in the amount of $2.0 million, (ii) a three-year promissory note by the Company in favor of Seller in the amount of $1.1 million, and (iii) 2,461,538 shares of the Company’s common stock, par value $0.001 per share. In connection with this transaction, the seller Bryan Dancer, became a greater than five percent shareholder of the Company. Therefore, the three-year promissory note in the amount of $1.1 million, is considered a related party transaction. The loan agreement has a term of three (3) years with quarterly payments of Ninety-Eight Thousand Three Hundred Eighty-one Dollars ($98,381), including interest at 4.00%, beginning on April 1, 2023. As of March 31, 2026 and December 31, 2025, the outstanding balance of the related party note payable was $0 and $98, respectively. During the three months ended March 31, 2026 and 2025, the Company paid principal of $98 and $94, respectively and interest of $0 and $4, respectively.

Previous wording

On February 1, 2025, the Company entered into a consulting agreement with Steven G. Mihaylo, Chairman Emeritus of the board of directors and a greater than five percent shareholder. In exchange for his consulting services, Mr. Mihaylo is to receive monthly consideration of $14 or $168 annually. During the three months ended September 30, 2025 and 2024, the Company paid $42 and $42, respectively, and $126 and $112 for the nine months ended September 30, 2025 and 2024, respectively.

Current wording

On February 1, 2024, the Company entered into a consulting agreement with Steven G. Mihaylo, Chairman Emeritus of the board of directors and a greater than five percent shareholder. In exchange for his consulting services, Mr. Mihaylo is to receive monthly consideration of $14 or $168 annually. During the three months ended March 31, 2026 and 2025, the company paid $42 and $42, respectively.