PHOENIX, AZ--(Marketwire - Nov 5, 2012) -  Crexendo, Inc. (NYSE MKT: EXE), a hosted services company that provides e-commerce software, website development, web hosting, search engine optimization, link building, hosted telecommunication services and broadband internet for businesses and entrepreneurs, today reported financial results for its third quarter ended September 30, 2012.

Third Quarter 2012 Compared to 2011

Net loss for the third quarter of 2012 was $806,000 or $0.08 per diluted common share, compared to net income of $4,507,000 or $0.42 per diluted common share in the prior year quarter. Loss before income tax provision for the third quarter of 2012 was $796,000 compared to income of $4,546,000 in the prior year quarter. The income tax provision for the third quarter of 2012 was $10,000, compared to an income tax provision of $39,000 in the prior year quarter. 

Cash provided from operations for the nine month period ended September 30, 2012 was $248,000 compared to cash used for operations of $3,089,000 for the prior year quarter. As of September 30, 2012, cash, cash equivalents, and restricted cash were $9,604,000 working capital was $8,707,000, and working capital excluding deferred revenue was $12,941,000. Total current and long-term trade receivables were $5,046,000 as of September 30, 2012.

Segment Results

StoresOnline

Revenue for the third quarter of 2012 decreased 68% to $3,055,000 compared to $9,542,000 for the prior year quarter. Total segment operating expenses decreased 72% to $791,000 compared to $2,850,000 for the prior year quarter. 

Segment other income, primarily related to interest on the collection of accounts receivable for the third quarter of 2012 decreased 67% to $406,000 compared to $1,241,000 in the prior year quarter.

Total segment income before income taxes for the third quarter of 2012 decreased 66% to $2,670,000 compared to $7,933,000 in the prior year quarter.

Crexendo Web Services

Revenue for the third quarter of 2012 decreased 11% to $575,000, from $648,000 in the prior year quarter. Web Services backlog, which is anticipated to be recognized within the next twelve months, was $904,000 at September 30, 2012 compared to a backlog of $1,135,000 at September 30, 2011. 

Total segment operating expenses for the third quarter of 2012 increased 19% to $1,406,000 compared to $1,185,000 in the prior year quarter. The increase in segment operating expenses is primarily due to higher expenses associated with the increase in our sales representatives. Total segment operating loss increased 55% to $831,000 compared to $537,000 in the prior year quarter.

Crexendo Network Services

Revenue for the third quarter of 2012 increased 352% to $235,000 from $52,000 in the prior year quarter. Network Services backlog, which is anticipated to be recognized within the next thirty-six months, was $2,221,000 at September 30, 2012 compared to no backlog at September 30, 2011.

Total Network Services operating expenses for the third quarter of 2012 increased 44% to $827,000 compared to $573,000 in the prior year quarter. The increase in segment operating expenses is primarily related to increased customer support and sales representative's salaries and benefits and bandwidth costs as revenue in our Network Services segment continues to increase each quarter. Total segment operating loss increased 14% to $592,000 compared to $521,000 in the prior year quarter.

Steven G. Mihaylo, Chief Executive Officer, commented, "While we are disappointed with the results, I believe we are still on track to achieve profitability by the end of 2013. I had expected sales to ramp up faster than they have, but for the most part we are operating as anticipated. I am particularly pleased with the fact that we have grown our Network Services backlog to $2M and I fully expect that number will continue to multiply. As we discussed previously, we are essentially in a startup mode and we are operating the Company on that premise. We have the benefit of having an excellent infrastructure including our web building software, which we are utilizing in our University Program. Our telecom products are world class, and we are working to improve our sales processes and infrastructure to increase productivity of our direct sales representatives. We are starting to sign up dealers in our dealer programs and I have high expectations of sales and recurring revenue being derived from that channel. We believe that the dealer program will work as a supplement to our direct sales channel. I am working with our sales management team to continue to improve our training and lead generation. The University Program continues to gain acceptance and we now have three universities teaching on our web builder, with five classes. We expect to have 30 schools and 60 classes on line by the end of 2013 and we also believe there are big opportunities with junior colleges, community colleges, vocational schools, trade schools and high schools, which we will start to address. I have very high expectations of our University Program increasing our brand recognition, leads and cross sell opportunities."

Mihaylo added, "I am very excited by what we are working on. We work on improving our products and services every day. We need to make a few changes to our mobile apps, but when we have that completed, I have expectations that we should be amongst the lowest cost providers in the market with excellent products and services. Our Engineering team continues to add enhancements to our mobile offering and we will enhance our marketing of the product in the summer. We believe this will be a substantial value to our customers and build additional sales. We continue to have very positive feedback from our telecom and web customers and I am convinced that our products and services will be what drive sales, profits and shareholder value. We are watching our expenses very carefully and running a lean and aggressive Company. Our team and I are fully aware of our need to increase shareholder value."

Conference Call

The Company is hosting a conference call tomorrow, November 6, 2012 at 8:30 AM EST. The conference call will be broadcast live over the Internet at http://www.crexendo.com. If you do not have Internet access, the telephone dial-in number is 888-427-9419 for domestic participants and 719-325-2323 for international participants. The conference ID to join the call is 3994287. Please dial in five to ten minutes prior to the beginning of the call at 8:30 AM EST.

About Crexendo

Crexendo is a hosted services company that provides e-commerce software, website development, web hosting, search engine optimization, link building, hosted telecommunication services, and broadband Internet for businesses and entrepreneurs. Crexendo's services are designed to make enterprise-class hosting services available to small and medium-sized businesses without any capital expense, 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) continuing to be on track to achieve profitability by the end of 2013; (ii) for the most part operating as anticipated; (iii) Network Services backlog continuing to multiply; (iv) being essentially in startup mode and operating the Company on that premise; (v) having the benefit of an excellent infrastructure; (vi) telecom product being world class; (vii) working to improve its sales process and infrastructure; (viii) having high expectations of sales and recurring revenue being derived from the Dealer channel; (ix) working to continue to improve training and lead generation; (x) University Program continuing to gain acceptance; (xi) having a big opportunity with vocational schools in the University Program as well as having that program increase name recognition and cross sell opportunities; (xii) improving our products and services every day; (xii) mobile apps allowing it to be amongst the lowest cost providers in the market (xiv) enhancing our marketing of the product in the summer;(xv) products and services will be what drive sales profits and shareholder value, and (xvi) watching its expenses very carefully and running a lean and aggressive Company with the management team working to increase shareholder value.

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 period ended December 31, 2011 and Forms 10Q for the periods ending March 31, 2012 and June 30, 2012. 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  
Condensed Consolidated Balance Sheets  
(In thousands, except par value and share data)  
(unaudited)  
   
    September 30, 2012     December 31, 2011  
Assets            
                 
Current Assets:                
  Cash and cash equivalents   $ 7,639     $ 8,658  
  Restricted cash     1,965       1,965  
  Trade receivables, net of allowance of doubtful accounts of $1,993 as of September 30, 2012 and $3,512 as of December 31, 2011     4,326       9,420  
  Inventories     185       232  
  Equipment financing receivables     11       -  
  Income taxes receivable     339       552  
  Prepaid expenses and other     821       725  
    Total Current Assets     15,286       21,552  
                 
Certificate of deposit     500       500  
Long-term trade receivables, net of allowance of doubtful accounts of $349 as of September 30, 2012 and $1,949 as of December 31, 2011     720       6,097  
Long-term equipment financing receivables     48       -  
Property and equipment, net     3,568       4,055  
Deferred income tax assets, net     272       279  
Intangible assets     24       79  
Goodwill     265       265  
Other long-term assets     188       233  
    Total Assets   $ 20,871     $ 33,060  
                 
Liabilities and Stockholders' Equity                
                 
Current Liabilities:                
  Accounts payable   $ 638     $ 1,153  
  Accrued expenses and other     1,435       2,240  
  Dividend payable     -       211  
  Deferred income tax liability     272       279  
  Deferred revenue, current portion     4,234       9,288  
    Total Current Liabilities     6,579       13,171  
                 
Deferred revenue, net of current portion     728       6,123  
Other long-term liabilities     252       419  
    Total Liabilities     7,559       19,713  
                 
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 100,000,000 shares; 10,669,201 shares outstanding as of September 30, 2012 and 10,523,078 shares outstanding as of December 31, 2011     11       11  
  Additional paid-in capital     49,629       48,938  
  Accumulated deficit     (36,328 )     (35,602 )
    Total Stockholders' Equity     13,312       13,347  
                 
    Total Liabilities and Stockholders' Equity   $ 20,871     $ 33,060  
                 
                 
 
CREXENDO, INC. AND SUBSIDIARIES 
Condensed Consolidated Statements of Operations 
(In thousands, except per share and share data) 
(unaudited) 
 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2012     2011     2012     2011  
                                 
Revenue   $ 3,865     $ 10,242     $ 14,034     $ 42,306  
Operating expenses:                                
  Cost of revenue     1,233       2,057       3,952       16,037  
  Selling and marketing     987       806       2,904       19,645  
  General and administrative     2,440       3,276       8,214       9,368  
  Research and development     420       807       1,519       2,550  
    Total operating expenses     5,080       6,946       16,589       47,600  
                                 
Income (loss) from operations     (1,215 )     3,296       (2,555 )     (5,294 )
                                 
Other income (expense):                                
  Interest income     383       1,306       1,649       3,775  
  Interest expense     -       -       -       (2 )
  Other income (expense), net     36       (56 )     50       (89 )
    Total other income, net     419       1,250       1,699       3,684  
                                 
Income (loss) before income tax provision     (796 )     4,546       (856 )     (1,610 )
                                 
Income tax benefit (provision)     (10 )     (39 )     130       (5,079 )
                                 
Net income (loss)   $ (806 )   $ 4,507     $ (726 )   $ (6,689 )
                                 
Net income (loss) per common share:                                
  Basic   $ (0.08 )   $ 0.43     $ (0.07 )   $ (0.63 )
  Diluted   $ (0.08 )   $ 0.42     $ (0.07 )   $ (0.63 )
                                 
Dividends per common share:   $ 0.02     $ 0.02     $ 0.04     $ 0.06  
                                 
Weighted average common shares outstanding:                                
  Basic     10,666,816       10,589,132       10,610,813       10,623,341  
  Diluted     10,666,816       10,618,254       10,610,813       10,623,341  
                                 
                                 
   
CREXENDO, INC. AND SUBSIDIARIES  
Condensed Consolidated Statement of Stockholders' Equity  
Nine Months Ended September 30, 2012  
(In thousands, except share data)  
(unaudited)  
   
    Common Stock                  
    Shares   Amount   Additional Paid-in Capital     Accumulated Deficit     Total Stockholders' Equity  
Balance, January 1, 2012   10,523,078   $ 11   $ 48,938     $ (35,602 )   $ 13,347  
  Expense for stock options granted to employees   -     -     617       -       617  
  Proceeds from the exercise of stock options   146,123     -     498       -       498  
  Dividends declared   -     -     (424 )     -       (424 )
  Net loss   -     -     -       (726 )     (726 )
Balance, September 30, 2012   10,669,201   $ 11   $ 49,629     $ (36,328 )   $ 13,312  
                                   
                                   
 
CREXENDO, INC. AND SUBSIDIARIES 
Condensed Consolidated Statements of Cash Flows 
(In thousands) 
(unaudited) 
 
    Nine Months Ended September 30,  
    2012     2011  
                 
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (726 )   $ (6,689 )
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:                
  Depreciation and amortization     1,042       1,000  
  Impairment of inventory and intangible assets     -       1,169  
  Loss on subsidiary     -       56  
  Expense for stock options issued to employees     617       686  
  Deferred income tax provision     -       5,973  
  Change in uncertain tax positions     (165 )     -  
Changes in assets and liabilities:                
  Trade receivables     10,471       2,216  
  Equipment financing receivables     (59 )     -  
  Inventories     47       419  
  Income taxes receivable     213       583  
  Prepaid expenses and other     (96 )     557  
  Other long-term assets     45       (15 )
  Accounts payable, accrued expenses and other     (696 )     (4,171 )
  Deferred revenue     (10,449 )     (3,942 )
  Other long-term liabilities     4       (931 )
    Net cash provided by (used for) operating activities     248       (3,089 )
CASH FLOWS FROM INVESTING ACTIVITIES                
  Acquisition of property and equipment     (1,124 )     (764 )
  Investment in subsidiary     -       (56 )
    Net cash used for investing activities     (1,124 )     (820 )
CASH FLOWS FROM FINANCING ACTIVITIES                
  Proceeds from exercise of stock options     498       68  
  Repurchase of common stock     -       (682 )
  Payments made on contingent consideration     (6 )     (36 )
  Dividend payments     (635 )     (640 )
    Net cash used for financing activities     (143 )     (1,290 )
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS     (1,019 )     (5,199 )
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     8,658       14,207  
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 7,639     $ 9,008  
                 
Supplemental disclosure of cash flow information:                
Cash received during the period:                
  Income taxes   $ 178     $ 530  
Supplemental disclosure of non-cash investing and financing information:                
  Dividends declared     -       211  
  Purchase of property and equipment included in accounts payable     31       313