CREXENDO INC LD Micro 20th Annual Main Event Conference

Welcome. Thanks, Tina. Greatly appreciate it, and thanks for joining us.

Let me dive right into who Crexendo is. Safe harbor statement that I'm sure you've seen all week. We're a unified communications as a service company. What does that mean? Cloud communications. We basically do telecom services for businesses, but we're kind of unique in the fact that we do it in two different flavors. We have a wholesale offering where we sell our software-as-a-service platform to other technology and telecom companies to use as the foundation for their offering, and then we take that same software platform that we sell to others, and we use it internally for our retail offering, where we sell to small and mid-sized businesses. If you look at the slide up here, on the top side here, let me see where my little highlight is here.

On the software side of the house, we're the third-largest software platform provider in the country behind Cisco and Metaswitch. Cisco bought BroadSoft about seven years ago. BroadSoft is the largest telecom software platform out there. Metaswitch was owned by Microsoft. Microsoft, two years ago, announced end of life on the platform, and then they, about six months later, did a complete 180 and decided that they were just going to sell Metaswitch licensees, got nervous, started looking for alternatives, and in the last two years, we've picked up a lot of licensees jumping ship from Metaswitch, and a lot of licensees jumping ship from BroadSoft over to Crexendo. In fact, Frost & Sullivan last year came out and announced us as the fastest-growing UCaaS platform out there. As number one and number two were shrinking in market share, Crexendo's picking up that market share. Pretty excited. 28% organic growth in that segment of the business in 2025 alone.

We're seeing a lot of traction with the catalyst being created by number one and number two, kind of ignoring that segment of the business. As I mentioned, that same software platform that we sell to other companies, and we currently have 250 licensees using that platform, so 250 telecom companies using Crexendo to power their solutions. That same platform that we sell to others, we use internally for our own retail offerings. We compete against the likes of the RingCentrals and the 8x8s and the Vonages of the world, selling that solution to direct end user businesses. We also compete against some of the older legacy providers out there, the Avayas, the Mitels, the Nortels, in providing that solution. The nice part there is that there's still a lot of runway.

Only about 65%-70% of the businesses in the U.S. are currently on the cloud today. That means about 30%, 35% of the businesses in the country today still are using older legacy premise-based equipment. It's not a matter of if they move to the cloud, it's when, and Gartner shows that over the course of the next three years, that transition is going to happen pretty rapidly. There's still a lot of runway left for opportunity there. Why Crexendo? Just a couple of highlights, and then we'll dive a little deeper into each. Fastest-growing UCaaS platform. We currently support over 8 million end users on our platform, both through our retail and through our wholesale offerings. 8 million end users. Last year when we did this presentation, we were at 7 million.

We're adding about 120,000 users to our platform each and every month, so pretty considerable growth there. Last quarter in Q2, we had 49% growth over Q2 of last year. That does include an acquisition. We'll talk about the acquisition here coming up. Last quarter, Q2, was our 12th consecutive GAAP profitable quarter. Not only are we growing the top line, but we're growing the top line profitably, and that's a major factor as we go through the presentation here. As we continue to grow, all of our customers, whether it's a wholesale customer or a retail customer, is on long-term contracts with us, typically three years or five-year agreements. That continues to grow our remaining performance obligation. Our remaining performance obligation is a cumulative total of all of our contracts over the course of the next five years as they run out.

That remaining performance obligation's now at $139 million. That's up 90% from Q2 of last year. The last part that we'll talk about in our presentation today is AI and how AI is contributing to the revenue stream that we've got. All of our existing customers out there are now able to take advantage of some of our AI solutions that we'll talk about here in a few moments. How do the two segments compare? The wholesale side of our business is about 30% of our revenue. Right now, we're on right at about $100 million run rate for this year. If you look at the software solution side of the business, about 30% of our revenue is coming from the wholesale side of the house. About 70% is coming from the retail side of the house.

Again, on the wholesale side of the house, 250 licensees selling our platform as their own to their end user customers. That's where we get that 8 million users on the platform. On the retail side, we've got about 200,000 customers that are our direct customers that we sell directly to. How does all that translate into the financials? Tremendous growth. We've been doing LD Micro now, I think this is our eighth year at LD Micro. Dina's had the opportunity to introduce me for eight years in a row now. We do both LD Micro shows, so probably 16 LD Micro shows. If I go back eight years ago, our story was not nearly as fantastic as it is today. We were a smaller company eight years ago, losing money, trying to grow and get to where we are today.

Three years ago, we committed that we would be at $100 million run rate at the end of 2026. We are going to meet that commitment. Now by the end of 2028, we think we will be at $150 million run rate and continue that same profitable growth. We will talk about how we get there. Through the first half of this year, $45 million in total revenue through the first half. Q2 revenue up 49%. That includes an acquisition that we will talk about. Strong adjusted EBITDA, and 12 consecutive GAAP profitable quarters. As we continue to grow, we continue to add to the profits. As you look at the revenue stream growing, this is just on annual basis through 2025. Those adjusted EBITDA numbers continue to grow and extreme strong cash flow within the business.

How does that strong cash flow relate to the balance sheet? As we continue that profitable growth, with $18.3 million cash on hand at the end of Q2. A big highlight there. At the end of last year, we had $31 million cash on the balance sheet. We spent $27 million of that on the acquisition that we did in March. We have replenished those coffers now. Net cash, $13.4 million, only $4.9 million in debt. Really, really strong balance sheet. As we look at our growth, it is profitable growth. We manage the business by the fundamentals. We have highlighted the inorganic growth at 49%. That 49% included the ESI acquisition that we did in March. You strip that out, still extremely strong revenue, organic growth compared to our competitors out there. 7% organic growth.

As you look at that, how we compare to the competition, extremely strong growth with the acquisition. You take that acquisition out, even the organic growth, still much stronger than most of our competitors out there in the market. As we continue that top-line growth, gross profit growing faster than revenue. As we grow the business, we own all that intellectual property. As we continue to see top-line growth, that results in much higher gross margins. We had a 200-basis-point increase in our gross margins just in Q1 to Q2, and we continue to see those gross margins growing tremendously. One of the highlights that we will talk about with the ESI acquisition was the contribution to the top line, but also wanted to point out the acquisition-related cost.

Even though we had the acquisition in March, we had $800,000 worth of acquisition costs for that acquisition in March that was absorbed in Q1, $1.2 million in intangible amortization that was recognized in Q2. Even with those numbers built in, still extremely profitable for both quarters. This really highlights that amortization cost because it is a factor out there when you look at the financials. Unless you dig deeper, that amortization is a big number, $1.2 million just for the quarter. But even absorbing that, still extremely strong adjusted EBIT numbers. We highlighted that remaining performance obligation, $139 million. That $139 million, again, is the contracted revenue that we will see out of all of our customers, and that flows out over the course of the next five years.

A nice number here that you can concentrate on is in 2027, it is still six months away or five months away, we have $45 million already queued up for 2027 with that remaining performance obligation. A couple of KPIs with the two different segments. Again, when we talk about the wholesale side of the house, that is the software as a service, that is the platform. We have 250 licensees. Those licensees pay us on average about $7,500 a month. A high percentage of that is recurring revenue. About 80% of that revenue stream is monthly recurring revenue. It is a very locked and loaded revenue stream. Virtually no churn on the software side of the house. When we sell somebody our platform to run their business on, they rarely change.