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Crexendo Reports Second Quarter 2014 Financial Results

PHOENIX, AZ -- (Marketwired) -- 08/06/14 -- 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)

                                                               December 31,
                                               June 30, 2014       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    Six Months Ended June
                                    30,                       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)
                                                   ===========  ===========


CONTACT:
Crexendo, Inc.
Steven G. Mihaylo
CEO
602-345-7777
[email protected]

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