PHOENIX, AZ--(Marketwired - Aug 6, 2014) - Crexendo, Inc. (NYSE MKT: EXE), a hosted services company that provides hosted telecom services, website services, website development software and broadband internet services for businesses and entrepreneurs, today reported financial results for the second quarter of 2014.

Financial highlights for Crexendo's 2014 second quarter

Consolidated revenue for the second quarter of 2014 decreased 34% or $929,000 to $1.8 million compared to $2.7 million for the second quarter of the prior year.

Consolidated operating expenses for the second quarter of 2014 decreased 15% to $3.4 million compared to $4.0 million for the second quarter of the prior year.

Net loss for the second quarter of 2014 of $(1.5) million or $(0.13) per diluted common share, compared to net loss of $(1.1) million or $(0.10) per diluted common share for the second quarter of the prior year.

As of June 30, 2014, we have cash and cash equivalents, including restricted cash, of $3.2 million compared to $3.6 million as of December 31, 2013.

Cash used for operations of $(934,000) for the second quarter of 2014 compared to $(585,000) for second quarter of the prior year. Cash used for investing activities for the second quarter of 2014 of $(196,000) compared to cash provided by investing activities of $57,000 for the second quarter of the prior year. Cash used for financing activities for the second quarter of 2014 of $(18,000) compared to cash provided by financing activities of $6,000 for the second quarter of the prior year.

Segment Results

The Company has two operating segments, which consist of Hosted Telecom Services and Web Services. Effective April 1, 2014, the Company changed its reporting segments to report the StoresOnline and Crexendo Web Services business units as one reportable segment. The Company revised its segment reporting to reflect changes in how the Chief Operating Decision Maker (CODM) internally measures performance and allocates resources. Segment operating results for the prior year has been revised to conform to current year segment operating results presentation and disclosures.

Hosted Telecom Services 

Revenue for the second quarter of 2014 increased 96% to $963,000 compared to $491,000 for the second quarter of the prior year. Hosted Telecom Services backlog, which is anticipated to be recognized within the next thirty-six months, was $8.4 million at June 30, 2014 compared to a backlog of $4.3 million at June 30, 2013.

Total Hosted Telecom Services segment operating expenses for the second quarter of 2014 increased 34% to $2.3 million compared to $1.7 million for the second quarter of the prior year.

Total Hosted Telecom Services segment loss before income taxes for the second quarter of 2014 increased 8% to $(1.4) million compared to $(1.3) million for the second quarter of the prior year.

Web Services

Revenue for the second quarter of 2014 decreased 62% to $845,000, compared to $2.3 million for the second quarter of the prior year. We anticipate that our revenue from our web service segment will continue to decline due to our strategic decision to limit our provision of web services to our enterprise-sized customers. As a result of this shift in focus, our backlog has decreased to $117,000 at June 30, 2014 compared to $1.2 million at June 30, 2013. This shift in focus will allow us to concentrate on our Hosted Telecom Services segment and concentrate on our website development software platform and web hosting services.

Total Web Services segment operating expenses for the second quarter of 2014 decreased 53% to $1.0 million compared to $2.2 million for the second quarter of the prior year.

Total Web Services segment loss before income taxes for the second quarter of 2014 increased 181% to $(126,000) compared to income before income taxes of $155,000 for the second quarter of the prior year.

Steven G. Mihaylo, Chief Executive Officer, commented, "We made a strategic decision with the internal sales force to concentrate on larger enterprise sales. We have several large sales that we believe will close this quarter. Larger enterprise sales have a far more complicated sales process and take far longer than smaller sales, but provide substantial strategic benefits in the long term and avoid channel conflict with our dealers. We believe that the dealer network will be able to provide the smaller sales, and despite our strongest sales quarter by the dealer network, we have not yet had the traction we were hoping for. Although I see great progress in the dealer network it is not fully matured, we are working on that daily and I expect to see much better results in the next several quarters. Additionally, Crexendo's engineering team is working diligently with our contract manufactures to bring the cost of our end-points down. We expect a substantial decrease in the cost of goods sold in the fourth quarter and further cost reductions in 2015."

Mihaylo added, "With all that said I do see great progress. We have done a good job of reducing costs, and streamlining the sales force. The dealer network continues to attract highly qualified dealers and should grow substantially. Our products and services continue to gain market acceptance and we believe we provide substantial value to SMB and enterprise customers. The Company is reviewing strategic financing options which we believe will provide long term stability and enable us to continue to grow the business both organically and by strategic acquisitions. I continue to not only say I believe in the Company but support that belief by my actions, in the 10Q we have filed today, you will see I have continued to agree to provide backstop financing to the Company if that becomes necessary. My belief however is that we are seeing good progress and that we should continue to improve our results and continue on the road to profitability and long term growth.

Conference Call

The Company is hosting a conference call today, August 6, 2014 at 5:00 PM EDT. The telephone dial-in number is 888-364-3109 for domestic participants and 719-457-2697 for international participants. The conference ID to join the call is 9133256. Please dial in five to ten minutes prior to the beginning of the call at 5:00 PM EDT.

About Crexendo

Crexendo is a hosted services company that provides hosted telecommunications services, hosted website services, website development software and broadband internet services for businesses and entrepreneurs. Our services are designed to make enterprise-class hosting services available to small, medium-sized and enterprise-sized businesses 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) closing several enterprise sales this quarter; (ii) larger enterprise sales being a far more complicated sales process and take far longer than smaller sales; (iii) enterprise sales providing substantial strategic benefits in the long term and avoid channel conflict with dealers; (iv) believing that the dealer network will be able to provide the smaller sales; (v) seeing great progress in the dealer network; (vi) the dealer network has not fully matured;(vii) working daily on the dealer network and expecting to see much better results in the next several quarters (viii) engineering team working diligently with our contract manufactures to bring the cost of our end-points down; (ix) expecting a substantial decrease in the cost of goods sold in the fourth quarter and further cost reductions in 2015; (x) seeing great progress having done a good job of reducing costs, and streamlining the sales force; (xi) the dealer network continuing to attract highly qualified dealers which should grow substantially; (xii) products and services continuing to gain market acceptance and provide substantial value too small to enterprise customers; (xii) reviewing strategic financing options which will provide long term stability and enable the Company to continue to grow the business both organically and by strategic acquisitions and (xiii) seeing good progress and that we should continue to improve our results and continue on the road to profitability and long term growth.

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 year ended December 31, 2013 and 10Q for the period ended March 31, 2014 and June 30, 2014. 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  
Consolidated Balance Sheets  
(In thousands, except par value and share data)  
   
    June 30, 2014     December 31, 2013  
Assets                
                 
Current Assets:                
  Cash and cash equivalents   $ 2,677     $ 3,076  
  Restricted cash     482       487  
  Trade receivables, net of allowance of doubtful accounts of $95 as of March 31, 2014 and $163 as of December 31, 2013    
651		      
1,090		  
  Inventories     115       217  
  Equipment financing receivables     141       94  
  Income taxes receivable     43       55  
  Prepaid expenses and other     1,050       620  
    Total Current Assets     5,159       5,639  
                 
Certificate of deposit     251       250  
Long-term trade receivables, net of allowance of doubtful accounts of $23 as of March 31, 2014 and $37 as of December 31, 2013    
94		      
116		  
Long-term equipment financing receivables     473       398  
Property and equipment, net     189       2,195  
Deferred income tax assets, net     244       244  
Intangible assets     820       571  
Goodwill     272       75  
Long-term prepaid rent     537       -  
Other long-term assets     43       119  
    Total Assets   $ 8,082     $ 9,607  
                 
Liabilities and Stockholders' Equity                
                 
Current Liabilities:                
  Accounts payable   $ 27     $ 201  
  Accrued expenses and other     1,318       1,095  
  Deferred income tax liability     244       244  
  Deferred revenue, current portion     776       1,199  
  Contingent consideration     228       51  
    Total Current Liabilities     2,593       2,790  
                 
Deferred revenue, net of current portion     94       116  
Other long-term liabilities     249       -  
    Total Liabilities     2,936       2,906  
                 
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 25,000,000 shares; 11,142,197 shares outstanding as of March 31, 2014 and 10,801,315 shares outstanding as of December 31, 2013     11       11  
  Additional paid-in capital     52,708       50,998  
  Contingent consideration     59       198  
  Accumulated deficit     (47,632 )     (44,506 )
    Total Stockholders' Equity     5,146       6,701  
    Total Liabilities and Stockholders' Equity   $ 8,082     $ 9,607  
                     
                 
   
CREXENDO, INC. AND SUBSIDIARIES  
Consolidated Statements of Operations  
(In thousands, except per share and share data)  
   
    Three Months Ended June 30,     Six Months Ended June 30,  
    2014     2013     2014     2013  
                                 
Revenue   $ 1,808     $ 2,737     $ 3,880     $ 5,759  
                                 
Operating expenses:                                
  Cost of revenue     884       970       1,814       2,012  
  Selling and marketing     504       717       1,157       1,625  
  General and administrative     1,548       1,852       3,298       3,290  
  Research and development     435       414       849       895  
    Total operating expenses     3,371       3,953       7,118       7,822  
                                 
Loss from operations     (1,563 )     (1,216 )     (3,238 )     (2,063 )
                                 
Other income (expense):                                
  Interest income     37       146       85       365  
  Other income (expense), net     45       (26 )     74       (33 )
    Total other income, net     82       120       159       332  
                                 
Loss before income tax provision     (1,481 )     (1,096 )     (3,079 )     (1,731 )
                                 
Income tax (provision) benefit     (13 )     26       (47 )     263  
Net loss   $ (1,494 )   $ (1,070 )   $ (3,126 )   $ (1,468 )
                                 
Net loss per common share:                                
  Basic   $ (0.13 )   $ (0.10 )   $ (0.28 )   $ (0.14 )
  Diluted   $ (0.13 )   $ (0.10 )   $ (0.28 )   $ (0.14 )
                                 
Weighted average common shares outstanding:                                
  Basic     11,173,762       10,682,393       11,043,770       10,675,990  
  Diluted     11,173,762       10,682,393       11,043,770       10,675,990  
                                 
                                 
   
CREXENDO, INC. AND SUBSIDIARIES  
Consolidated Statements of Cash Flows  
(In thousands)  
   
  Three Months Ended
June 30,		  
  2014   2013  
CASH FLOWS FROM OPERATING ACTIVITIES            
Net loss $ (3,126 ) $ (1,468 )
Adjustments to reconcile net loss to net cash used in operating activities:            
  Lease abandonment   -     (606 )
  Depreciation and amortization   393     598  
  Expense for stock options granted to employees   429     430  
  Change in uncertain tax positions   -     (253 )
  Gain on disposal of property and equipment   (1 )   -  
  Amortization of deferred gain   (32 )   -  
  Change in fair value of contingent consideration   3     -  
Changes in assets and liabilities:            
  Trade receivables   461     1,945  
  Equipment financing receivables   (121 )   (123 )
  Inventories   102     40  
  Income taxes receivable   12     371  
  Prepaid expenses and other   (108 )   (177 )
  Amortization of prepaid rent   107     -  
  Other long-term assets   76     2  
  Accounts payable, accrued expenses and other   38     (1,202 )
  Deferred revenue   (445 )   (1,960 )
Net cash used in operating activities   (2,212 )   (2,403 )
CASH FLOWS FROM INVESTING ACTIVITIES            
  Redemption of certificate of deposit   -     250  
  Release of restricted cash   5     -  
  Acquisition of property and equipment   (3 )   (60 )
  Sale of property and equipment   2,002     -  
  Acquistion of PBX Central   -     (300 )
  Acquisition of One Stop Voice   (195 )   -  
  Purchase of long-term investment   (1 )   -  
Net cash provided by (used in) investing activities   1,808     (110 )
CASH FLOWS FROM FINANCING ACTIVITIES            
  Proceeds from exercise of stock options   42     3  
  Payments made on contingent consideration   (37 )   -  
Net cash provided by (used in) financing activities   5     3  
             
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (399 )   (2,510 )
             
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   3,076     7,440  
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,677   $ 4,930  
             
Supplemental disclosure of cash flow information:            
Cash (paid) received during the period:            
  Income taxes, net $ (11 ) $ 382  
Supplemental disclosure of non-cash investing and financing information:            
  Purchases of property and equipment included in accounts payable $ -   $ -  
  Business acquisition with stock $ 134   $ 107  
  Contingent consideration related to acquisition $ 211   $ 363  
  Prepayment of rent with common stock $ 966   $ -  
             
             
   
CREXENDO, INC. AND SUBSIDIARIES  
Supplemental Segment Financial Data  
(In thousands)  
   
    Three Months Ended
June 30,		  
    2014     2013  
Revenue:                
  Hosted Telecommunications Services   $ 963     $ 491  
  Web Services     845       2,246  
Consolidated revenue     1,808       2,737  
                 
Income (loss) from Operations:                
  Hosted Telecommunications Services     (1,376 )     (1,251 )
  Web Services     (187 )     35  
    Total operating loss     (1,563 )     (1,216 )
Other Income, net:                
  Hosted Telecommunications Services     21       -  
  Web Services     61       120  
    Total other income     82       120  
Income (loss) before income tax provision:                
  Hosted Telecommunications Services     (1,355 )     (1,251 )
  Web Services     (126 )     155  
Loss before income tax provision   $ (1,481 )   $ (1,096 )