CXDO 10-Q
Crexendo, Inc. (CXDO)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM
_________________________
(Mark One)
For the quarterly period ended
OR
For the transition period from ________ to ________.
Commission file number
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(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of |
| (I.R.S. Employer Identification No.) |
incorporation or organization) |
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(Address of Principal Executive Offices) |
| (Zip Code) |
(
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (check one).
Large accelerated filer | ☐ |
| Accelerated filer | ☐ |
☐ | (Do not check if a smaller reporting company) | Smaller reporting company | ||
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares outstanding of the registrant’s common stock as of October 31, 2025 was
INDEX
| 2 |
| Table of Contents |
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
CREXENDO, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except par value and share data)
|
| September 30, 2025 |
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| December 31, 2024 |
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Assets |
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| Current assets: |
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Cash and cash equivalents |
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Trade receivables, net of allowance of $ |
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Inventories |
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Equipment financing receivables, net of allowance of $ |
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Contract costs |
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Prepaid expenses |
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Income tax receivable |
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Other current assets |
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Total current assets |
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| Contract assets, net of allowance of $ |
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| Long-term equipment financing receivables, net of allowance of $ |
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| Property and equipment, net |
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| Operating lease right-of-use assets |
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| Intangible assets, net |
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| Goodwill |
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| Contract costs, net of current portion |
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Other long-term assets |
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Total Assets |
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| Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
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Accrued expenses |
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Finance leases |
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Notes payable |
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Operating lease liabilities |
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Income tax payable |
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Contract liabilities |
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Total current liabilities |
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Contract liabilities, net of current portion |
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Finance leases, net of current portion |
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Notes payable, net of current portion |
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Operating lease liabilities, net of current portion |
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Total liabilities |
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Stockholders' equity: |
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Preferred stock, par value $ |
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Common stock, par value $ |
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shares issued and outstanding as of September 30, 2025 and |
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and outstanding as of December 31, 2024 |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive income |
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Total stockholders' equity |
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Total Liabilities and Stockholders' Equity |
| $ |
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| $ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
| 3 |
| Table of Contents |
CREXENDO, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share and share data)
|
| Three Months Ended September 30, |
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| Nine Months Ended September 30, |
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| 2025 |
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| 2024 |
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| 2025 |
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| 2024 |
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| Service revenue |
| $ |
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| $ |
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| $ |
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| Software solutions revenue |
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| Product revenue |
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Total revenue |
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| Operating expenses: |
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Cost of service revenue |
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Cost of software solutions revenue |
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Cost of product revenue |
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Selling and marketing |
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General and administrative |
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Research and development |
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Total operating expenses |
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Income/(loss) from operations |
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| Other income/(expense): |
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Interest income |
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Interest expense |
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Other income/(expense), net |
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Total other income/(expense), net |
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| Income/(loss) before income tax |
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| Income tax (provision)/benefit |
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| Net income/(loss) |
| $ |
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| $ |
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| Earnings per common share: |
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Basic |
| $ |
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| $ |
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Diluted |
| $ |
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| $ |
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| $ |
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Weighted-average common shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
| 4 |
| Table of Contents |
CREXENDO, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited, in thousands)
|
| Three Months Ended September 30, |
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| Nine Months Ended September 30, |
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| 2025 |
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| 2024 |
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| 2025 |
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| 2024 |
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| Net income/(loss) |
| $ |
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| $ |
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| $ |
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| $ |
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| Other comprehensive income, net of tax |
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Foreign currency translation gain/(loss) |
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| ( | ) |
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| ( | ) |
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| ( | ) | |
| Total other comprehensive income/(loss) |
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| ( | ) | |
| Comprehensive income/(loss) |
| $ |
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| $ |
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| $ |
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| $ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
| 5 |
| Table of Contents |
CREXENDO, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
Nine Months Ended September 30, 2025 and 2024
(Unaudited, in thousands, except share data)
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| Accumulated |
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| Additional |
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| Other |
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| Total |
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| Common Stock |
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| Paid-in |
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| Comprehensive |
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| Accumulated |
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| Stockholders' |
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| Shares |
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| Amount |
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| Capital |
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| Income |
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| Deficit |
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| Equity |
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| Balance, January 1, 2025 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Share-based compensation |
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| - |
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Vesting of restricted stock units |
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Foreign currency translation adjustment, net of tax |
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| - |
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Issuance of common stock for exercise of stock options |
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Taxes paid on the net settlement of stock options and RSUs |
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| - |
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Net income/(loss) |
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| - |
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| Balance, March 31, 2025 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Share-based compensation |
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| - |
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Vesting of restricted stock units |
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Foreign currency translation adjustment, net of tax |
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| - |
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Issuance of common stock for exercise of stock options |
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Taxes paid on the net settlement of stock options and RSUs |
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| - |
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Net income/(loss) |
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| - |
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| Balance, June 30, 2025 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Share-based compensation |
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| - |
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Vesting of restricted stock units |
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Foreign currency translation adjustment, net of tax |
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| - |
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Issuance of common stock for exercise of stock options |
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Taxes paid on the net settlement of stock options and RSUs |
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| - |
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Net income/(loss) |
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| - |
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| Balance, September 30, 2025 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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| Accumulated |
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| Additional |
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| Other |
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| Total |
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| Common Stock |
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| Paid-in |
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| Comprehensive |
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| Accumulated |
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| Stockholders' |
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| Shares |
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| Amount |
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| Capital |
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| Income |
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| Deficit |
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| Equity |
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| Balance, January 1, 2024 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Share-based compensation |
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| - |
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Vesting of restricted stock units |
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| - |
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Foreign currency translation adjustment, net of tax |
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| - |
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Issuance of common stock for exercise of stock options |
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Taxes paid on the net settlement of stock options and RSUs |
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| - |
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| ( | ) |
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| ( | ) | |||
Net income/(loss) |
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| - |
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| Balance, March 31, 2024 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Share-based compensation |
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| - |
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Vesting of restricted stock units |
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Foreign currency translation adjustment, net of tax |
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| - |
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| ( | ) |
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| ( | ) | |||
Issuance of common stock for exercise of stock options |
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Taxes paid on the net settlement of stock options and RSUs |
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| - |
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| ( | ) |
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| ( | ) | |||
Net income/(loss) |
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| - |
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| Balance, June 30, 2024 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Share-based compensation |
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| - |
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Vesting of restricted stock units |
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Foreign currency translation adjustment, net of tax |
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| - |
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| ( | ) |
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Issuance of common stock for exercise of stock options |
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Taxes paid on the net settlement of stock options and RSUs |
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| - |
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| ( | ) |
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| ( | ) | |||
Net income/(loss) |
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| - |
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| Balance, September 30, 2024 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
| |||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 6 |
| Table of Contents |
CREXENDO, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
| Nine Months Ended September 30, |
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| 2025 |
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| 2024 |
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| CASH FLOWS FROM OPERATING ACTIVITIES |
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| Net income/(loss) |
| $ |
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| $ |
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| Adjustments to reconcile net income/(loss) to net cash provided by/(used for) operating activities: |
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Depreciation and amortization |
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Allowance for credit losses |
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| ( | ) |
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Share-based compensation |
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Non-cash operating lease amortization |
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Contract assets |
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Equipment financing receivables |
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Inventories |
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Contract costs |
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Prepaid expenses |
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Income tax receivable |
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Other assets |
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Accounts payable and accrued expenses |
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Purchase of property and equipment |
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Repayments made on finance leases |
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Repayments made on notes payable |
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Proceeds from exercise of options |
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Taxes paid on the net settlement of stock options and RSUs |
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Net cash provided by/(used for) financing activities |
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Effect of exchange rate changes on cash |
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| NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS |
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| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD |
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Income taxes, net |
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Interest expense |
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Supplemental disclosure of non-cash investing and financing information: |
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Capitalized software development costs |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
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CREXENDO, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited, in thousands, except per share and share data)
1. Significant Accounting Policies
Description of Business – Crexendo, Inc. is incorporated in the state of Nevada. As used hereafter in the notes to condensed consolidated financial statements, we refer to Crexendo, Inc. and its wholly owned subsidiaries, as “we,” “us,” or “our Company.” 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) offerings, including voice, video, contact center, 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 235 cloud communication platform software subscribers and our direct retail offering. The Company has two operating segments, which consist of Cloud Telecommunications and Software Solutions.
Basis of Presentation–The consolidated financial statements include the accounts and operations of Crexendo, Inc. and its wholly owned subsidiaries, which include Allegiant Networks, LLC, Crexendo Business Solutions, Inc., NetSapiens, LLC, Crexendo Business Solutions of Virginia, Inc., NSHC, Inc., NetSapiens Canada, Inc., NetSapiens International Limited and Crexendo International, Inc. All intercompany account balances and transactions have been eliminated in consolidation. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”), consistent in all material respects with those applied in our financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Because these financial statements address interim periods, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. Such interim financial information is unaudited but reflects all adjustments that in the opinion of management are necessary for the fair presentation of the interim periods presented. The results of operations presented in this Quarterly Report on Form 10-Q are not necessarily indicative of the results that may be expected for the year ending December 31, 2025 or for any future periods. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited financial statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Foreign Currency Translation-The functional currency of our international subsidiaries is the local currency. We translate assets and liabilities of foreign subsidiaries, whose functional currency is their local currency, at exchange rates in effect at the balance sheet date. We translate revenue and expenses at the monthly average exchange rates. We include accumulated net translation adjustments in stockholders’ equity as a component of accumulated other comprehensive income (loss).
Due to changes in exchange rates between reporting periods and changes in certain account balances, the foreign currency translation adjustment will change from period to period. During the three months ended September 30, 2025 and 2024, the Company recorded foreign currency translation gains/(losses) of $(
Cash and Cash Equivalents–We consider all highly liquid, short-term investments with maturities of three months or less at the time of purchase to be cash equivalents. As of September 30, 2025 and December 31, 2024, we had cash and cash equivalents in financial institutions in excess of federally insured limits in the amount of $
Trade Receivables and Allowance for Credit Losses–Trade receivables from our cloud telecommunications services and software solutions segments are recorded at invoiced amounts. Trade receivables are generally due within 30 days after the invoice date. We provide an allowance for credit losses based on historical loss experience, the age of the receivables, specific troubled accounts and other currently available information.
The allowance for credit losses is determined based on an assessment of historical collection experience using the aging schedule method as well as consideration of current and future economic conditions. Trade receivables are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our trade receivable credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients. We continually evaluate the adequacy of the allowance for credit losses and adjust as necessary.
Equipment Financing Receivables and Allowance for Credit Losses–Equipment financing receivables are comprised of sales-type leases. Sales-type leases are from financing options provided to clients for cloud telecommunications equipment (IP or cloud telephone desktop devices) or software licenses and are generally due in installments over periods ranging from three to five years.
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We provide an allowance for credit losses based on historical loss experience, adverse situations that may affect a client's ability to pay, current economic conditions and outlook based on reasonable and supportable forecasts. We continually evaluate the adequacy of the allowance for credit losses and adjust as necessary. Equipment financing receivables are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our equipment financing receivable credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients.
Contract Assets and Allowance for Credit Losses–Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed as of the reporting date. The Company recognizes a contract asset when the Company transfers products or services to a customer and the right to consideration is conditional on something other than the passage of time. The contract assets are transferred to receivables when the rights become unconditional.
The allowance for credit losses is determined based on an assessment of historical collection experience using the loss-rate method as well as consideration of current and future economic conditions and changes in our loss-rate trends. We utilize a five-year lookback period to establish our estimate of expected credit losses, as our contractual terms range from three to five years. Contract assets are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our contract assets credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients. We continually evaluate the adequacy of the allowance for credit losses and adjust as necessary.
Contract Costs–Contract costs primarily relate to incremental commission costs paid to sales representatives and sales leadership as a result of obtaining software solutions and telecommunication service contracts which are recoverable. The Company capitalized contract costs in the amount of $
Inventory–Finished goods telecommunications equipment inventory is stated at the lower of cost or net realizable value (first-in, first-out method). In accordance with applicable accounting guidance, we regularly evaluate whether inventory is stated at the lower of cost or net realizable value. If net realizable value is less than cost, the write-down is recognized as a loss in earnings in the period in which the excess occurs.
Property and Equipment–Depreciation and amortization expense is computed using the straight-line method in amounts sufficient to allocate the cost of depreciable assets over their estimated useful lives ranging from two to five years. The cost of leasehold improvements is amortized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the related lease. Depreciable lives by asset group are as follows:
| Computer and office equipment | |
| Computer software | |
| Internal-use software | |
| Furniture and fixtures | |
| Leasehold improvements | |
| Vehicles |
Maintenance and repairs are expensed as incurred. The cost and accumulated depreciation of property and equipment sold or otherwise retired are removed from the accounts and any related gain or loss on disposition is reflected in the statement of operations.
Asset Acquisitions–Periodically we acquire customer relationships that we account for as an asset acquisition and record a corresponding intangible asset that is amortized over its estimated useful life. Any excess of the fair value of the purchase price over the fair value of the identifiable assets and liabilities is allocated on a relative fair value basis. No goodwill is recorded in an asset acquisition. If the fair value of the assets acquired exceeds the initial consideration paid as of the date of acquisition but includes a contingent consideration arrangement and ASC 450 and ASC 815 do not apply to contingent consideration, we analogize to the guidance in ASC 323 on recognizing contingent consideration in the acquisition of an equity method investment. The Company recognizes a liability equal to the lesser of, the maximum amount of contingent consideration or the excess of the fair value of the net assets acquired over the initial cost measurement. In accordance with the requirements of ASC 323 for equity method investments, the Company recognizes any excess of the contingent consideration issued or issuable, over the amount that was initially recognized as a liability, as an additional cost of the asset acquisition. If the amount initially recognized as a liability exceeds the contingent consideration issued or issuable, the entity recognizes that amount as a reduction of the cost of the asset acquisition.
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Business Acquisitions -We account for business combinations using the acquisition method of accounting. The acquisition method of accounting requires that the purchase price, including the fair value of contingent consideration, of the acquisition be allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent the Company identifies adjustments to the preliminary purchase price allocation. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. We include the results of all acquisitions in our consolidated financial statements from the date of acquisition. Acquisition-related transaction costs, such as banking, legal, accounting and other costs incurred in connection with an acquisition, are expensed as incurred in general and administrative expenses.
Goodwill–We have recorded goodwill related to various business acquisitions. Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. In each of our acquisitions, the objective of the acquisition was to expand our product offerings and customer base and to achieve synergies related to cross selling opportunities, all of which contributed to the recognition of goodwill. We test goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate that goodwill might be impaired. Items that could reasonably be expected to negatively affect key assumptions used in estimating fair value include but are not limited to: sustained decline in our stock price due to a decline in our financial performance due to the loss of key customers, loss of key personnel, emergence of new technologies or new competitors; and decline in overall market or economic conditions leading to a decline in our stock price.
The process of estimating the fair value of goodwill is subjective and requires the Company to make estimates that may significantly impact the outcome of the analysis. A qualitative assessment considers events and circumstances such as macroeconomic conditions, industry and market conditions, cost factors and overall financial performance, as well as company specifications. If after performing this assessment, the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the Company must perform the quantitative test. Under the quantitative test, a goodwill impairment is identified by comparing the fair value of the reporting unit to the carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, goodwill is considered impaired and an impairment charge is recognized in an amount equal to the excess, not to exceed the carrying amount of goodwill.
Impairment assessment inherently involves management judgments regarding a number of assumptions. The reporting unit fair value also depends on the future strength of the U.S. economy. New and developing competition as well as technological change could also adversely affect future fair value estimates. Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size of the Company’s recorded goodwill, differences in assumptions could have a material effect on the estimated fair values. For further information, see Note 8 (Intangible Assets and Goodwill).
Intangible Assets–Our intangible assets consist of customer relationships, developed technologies, trademarks and trade name. The intangible assets are amortized following the patterns in which the economic benefits are consumed or straight-line over the estimated useful life. We periodically review the estimated useful lives of our intangible assets and review these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The determination of impairment is based on estimates of future undiscounted cash flows. If an intangible asset is considered to be impaired, the amount of the impairment will be equal to the excess of the carrying value over the fair value of the asset.
Amortizable intangible assets are amortized over the estimated useful lives as follows:
| Customer relationships | |
| Developed technologies | |
| Trademark and trade names | |
| Capitalized software development costs |
Contract Liabilities–Our contract liabilities consist primarily of advance consideration received from customers for telecommunications contracts. The product and monthly service revenue is recognized on completion of the implementation and the remaining activation fees are reclassified as contract liabilities.
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Use of Estimates–In preparing the consolidated financial statements, management makes assumptions, estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of net sales and expenses during the reported periods. Specific estimates and judgments include valuation of goodwill and intangible assets in connection with business acquisitions and asset acquisitions, allowances for doubtful accounts, uncertainties related to certain income tax benefits, valuation of deferred income tax assets, valuations of share-based payments, annual incentive bonuses accrual, recoverability of long-lived assets and intangible assets, and product warranty liabilities. Management’s estimates are based on historical experience and on our expectations that are believed to be reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our current estimates and those differences may be material.
Contingencies–The Company accrues for claims and contingencies when losses become probable and reasonably estimable. As of the end of each applicable reporting period, the Company reviews each of its matters and, where it is probable that a liability has been or will be incurred, it accrues for all probable and reasonably estimable losses. Where the Company can reasonably estimate a range of losses it may incur regarding such a matter, it records an accrual for the amount within the range that constitutes its best estimate. If the Company can reasonably estimate a range but no amount within the range appears to be a better estimate than any other, it uses the amount that is the low end of such range.
Service, Software Solutions and Product Revenue Recognition–Revenue is recognized upon transfer of control of promised services, software solutions or products to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services and excludes any amounts collected on behalf of third parties. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. We recognize revenue for delivered elements only when we determine there are no uncertainties regarding customer acceptance. Changes in the allocation of the sales price between delivered and undelivered elements can impact the timing of revenue recognized but does not change the total revenue recognized on any agreement. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. For more detailed information about revenue, see Note 2.
Cost of Service Revenue–Cost of service revenue includes cloud telecommunications services. Cloud telecommunications cost of service revenue primarily consists of fees we pay to third-party telecommunications and broadband Internet providers, costs of other third-party services we resell, personnel and travel expenses related to system implementation, and customer service.
Cost of Software Solutions Revenue–Cost of software solutions revenue consists primarily of royalties and other fees paid to third parties whose technology or products are sold as part of the Company’s products, direct costs to manufacture and distribute products, direct costs to provide product support and professional support services, direct costs associated with delivery of the Company’s software offerings, and amortization expense related to developed technology intangible assets.
Cost of Product Revenue–Cost of product revenue primarily consists of the costs associated with the purchase of desktop devices and other third-party equipment we purchase for resale.
Product Warranty–We provide for the estimated cost of product warranties at the time we recognize revenue. We evaluate our warranty obligations on a product group basis. Our standard product warranty terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period of time. We base our estimated warranty obligation upon warranty terms, ongoing product failure rates, and current period product shipments. If actual product failure rates, repair rates or any other post-sales support costs were to differ from our estimates, we would be required to make revisions to the estimated warranty liability. Warranty terms generally last for the duration that the customer has service.
Contingent Consideration–Contingent consideration represents deferred business acquisition and asset acquisition consideration to be paid out at some point in the future, typically over a one-year period or less from the acquisition date. Contingent consideration is recorded at the asset acquisition date fair value. Contingent consideration recorded in connection with a business acquisition is reported at fair value each reporting period until the contingency is resolved. Any changes in fair value are recognized in earnings. Contingent consideration recorded in connection with an asset acquisition is not derecognized until the related contingency is resolved and the consideration is paid or becomes payable. If the amount initially recorded as contingent consideration exceeds the amount paid or payable, the Company recognizes that excess amount as a reduction in the cost of the related intangible assets.
Research and Development –Research and development expenses consist primarily of personnel and related expenses for the Company’s research and development staff, including salaries, benefits, bonuses and stock-based compensation and the cost of certain third-party contractors. Research and development costs are expensed as incurred. Costs related to internally developed software are expensed as research and development expense until technological feasibility has been achieved, after which the costs are capitalized.
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Fair Value Measurements–The fair value of our financial assets and liabilities was determined based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 — Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.
Level 2 — Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:
| · | Quoted prices for similar assets or liabilities in active markets; |
| · | Quoted prices for identical or similar assets in non-active markets; |
| · | Inputs other than quoted prices that are observable for the asset or liability; and |
| · | Inputs that are derived principally from or corroborated by other observable market data. |
Level 3 — Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
Lease Obligations–We determine if an agreement is a lease at inception. We evaluate the lease terms to determine whether the lease will be accounted for as an operating or finance lease. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, current portion, and operating lease liabilities, net of current portion in our consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
A lease that transfers substantially all of the benefits and risks incidental to ownership of property are accounted for as finance leases. At the inception of a finance lease, an asset and finance lease obligation is recorded at an amount equal to the lesser of the present value of the minimum lease payments and the property’s fair market value. Finance lease obligations are classified as either current or long-term based on the due dates of future minimum lease payments, net of interest.
Notes Payable–We record notes payable net of any discounts or premiums. Discounts and premiums are amortized as interest expense or income over the life of the note in such a way as to result in a constant rate of interest when applied to the amount outstanding at the beginning of any given period.
Income Taxes–We recognize a liability or asset for the deferred tax consequences of all temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. Accruals for uncertain tax positions are provided for in accordance with accounting guidance. Accordingly, we may recognize the tax benefits from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accounting guidance is also provided on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in assessing the future tax consequences of events that have been recognized in the financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position, results of operations, and cash flows. In assessing the need for a valuation allowance, we evaluate all significant available positive and negative evidence, including historical operating results, estimates of future taxable income and the existence of prudent and feasible tax planning strategies. At December 31, 2024, we determined that it is more likely-than-not that we will not be able to realize our deferred income tax assets in the future. A valuation allowance of $
Interest and penalties associated with income taxes are classified as income tax expense in the condensed consolidated statements of operations.
Share-Based Compensation–For equity-classified awards, compensation expense is recognized over the requisite service period based on the computed fair value on the grant date of the award. Equity classified awards include the issuance of stock options and restricted stock units (“RSUs”).
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Operating Segments–Accounting guidance establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires enterprises to report selected information about operating segments in financial reports issued to stockholders. The Company has reorganized into two operating segments, which consist of cloud telecommunications services and software solutions. The software solutions segment includes the results of operation of NetSapiens, LLC, NSHC, Inc., NetSapiens Canada, Inc., and NetSapiens International Limited. The cloud telecommunications segment includes the results of operations of Allegiant Networks, LLC, Crexendo Business Solutions, Inc., Crexendo International, Inc., and Crexendo Business Solutions of Virginia, Inc. We generate 94% of our total revenue from customers within the United States and
Significant Customers–No customer accounted for
Recently Adopted Accounting Pronouncements– In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, to require a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. The Company adopted ASU 2023-07 (Topic 280) on a retrospective basis as of December 31, 2024, adding significant segment expense disclosures for the years ended December 31, 2024 and 2023. For more detailed information about reportable segments, see Note 17.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance the transparency and decision-usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The ASU’s amendments are effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company adopted ASU 2023-09 (Topic 740) as of January 1, 2025, the adoption of this ASU did not have a material impact on our quarterly income tax disclosures in our condensed consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements– In November 2024, the FASB issued ASU No. 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires a public business entity (“PBE”) to disclose information in the notes to financial statements about purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion for each income statement line item that contains those expenses. Entities would also have to disclose other specific expenses, gains, or losses that are already required to be disclosed under GAAP in this same disclosure, a qualitative description of the amounts remaining that are not separately disaggregated quantitatively, and the total amount of selling expenses, as well as the PBE’s definition of selling expenses. In January 2025, the FASB Issued ASU No. 2025-01, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)," which clarified that ASU 2024-03 is effective public business entities for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The application of this new guidance is not expected to have a material impact on the Company’s financial statements, as the guidance pertains only to disclosures.
2. Revenue
Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product, service, or software solution to a customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. The following is a description of principal activities – separated by reportable segments – from which the Company generates its revenue. For more detailed information about reportable segments, see Note 17.
Cloud Telecommunications Services Segment
Products and services may be sold separately or in bundled packages. The typical length of a contract for service is thirty-nine to ninety months. Customers are billed for these services on a monthly basis. For bundled packages, the Company accounts for individual products and services separately if they are distinct – i.e. if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate products and services in a bundle based on their relative stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the desktop devices and telecommunication services. For items that are not sold separately (e.g. additional features) the Company estimates stand-alone selling prices using the adjusted market assessment approach. When we provide a free trial period, we do not begin to recognize recurring revenue until the trial period has ended and the customer has been billed for the services.
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Desktop Devices–Revenue generated from the sale of telecommunications equipment (desktop devices) is recognized when the customer takes possession of the devices and the cloud telecommunications services begin. The Company typically bills and collects the fees for the equipment upon entering into a contract with a customer. Cash receipts are recorded as a contract liability until implementation is complete and the services begin.
Equipment Financing Revenue–Fees generated from renting our cloud telecommunication equipment (IP or cloud telephone desktop devices) through leasing contracts are recognized as revenue based on whether the lease qualifies as an operating lease or sales-type lease. The two primary accounting provisions which we use to classify transactions as sales-type or operating leases are: 1) lease term to determine if it is equal to or greater than 75% of the economic life of the equipment and 2) the present value of the minimum lease payments to determine if they are equal to or greater than 90% of the fair market value of the equipment at the inception of the lease. The economic life of most of our products is estimated to be three years, since this represents the most frequent contractual lease term for our products, and there is no residual value for used equipment. Residual values, if any, are established at the lease inception using estimates of fair value at the end of the lease term. The vast majority of our leases that qualify as sales-type leases are non-cancelable and include cancellation penalties approximately equal to the full value of the lease receivables. Leases that do not meet the criteria for sales-type lease accounting are accounted for as operating leases. Revenue from sales-type leases is recognized upon installation and the interest portion is deferred and recognized as earned. Revenue from operating leases in recognized ratably over the applicable service period.
Cloud Telecommunications Services–Cloud telecommunication services include voice, data, collaboration software, broadband Internet access, managed IT services, cloud server rental and support, managed security, cabling, software license sales, interest generated from equipment financing revenue, and support for premise-based PBX phone systems. The Company recognizes revenue as services are provided in service revenue. Fees generated from reselling broadband Internet access are recognized as revenue net of the costs charged by the third-party service providers. Cloud telecommunications services are billed and paid on a monthly basis. Our telecommunications services contracts typically have a term of thirty-nine to ninety months.
Fees, Commissions, and Other, Recognized over Time–Includes contracted and non-contracted items such as:
· | Contracted activation and flash fees – The Company generally allocates a portion of the activation fees to the desktop devices, which is recognized at the time of the installation or customer acceptance, and a portion to the service, which is recognized over the contract term using the straight-line method. |
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· | Non-contracted carrier cost recovery fee – This fee recovers the various costs and expenses that the Company incurs in connection with complying with legal, regulatory, and other requirements, including without limitation federal, state, and local reporting and filing requirements. This fee is assessed as a set percentage of our monthly billing and is recognized monthly. |
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· | Non-contracted administrative fees – Administrative fees are recognized as revenue on a monthly basis. |
One-Time Fees, Commissions, and Other–Includes contracted and non-contracted items such as:
· | Contracted professional service revenue – Professional service revenue includes professional installation services, custom integration, and other professional services. The Company typically bills and collects professional service revenue upon entering into a contract with a customer. Professional service revenue is recognized as revenue when the performance obligations are completed. |
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· | Non-contracted cancellation fees – These cancellation fees relate to remaining contractual term buyout payments in connection with early cancellation and are billed and recognized as revenue upon receipt. |
|
|
· | Other non-contracted fees – These fees include disconnect fees, shipping fees, restocking fees, and porting fees. Other non-contracted fees are recognized as revenue upon receipt of payment. |
Software Solutions Segment
The Software Solutions segment derives revenues from three primary sources: software licenses, software maintenance support and professional services. Software and services may be sold separately or in bundled packages. Generally, contracts with customers contain multiple performance obligations, consisting of software and services. For bundled packages, the Company accounts for individual products and services separately if they are distinct – i.e. if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate products and services in a bundle based on their relative stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the software licenses and professional services. For items that are not sold separately (e.g. additional features) the Company estimates stand-alone selling prices using the adjusted market assessment approach. When we provide a free trial period, we do not begin to recognize recurring revenue until the trial period has ended and the customer has been billed for the services.
| 14 |
| Table of Contents |
Software Licenses-The Company's software licenses typically provide a perpetual right to use the Company's software. The Company also sells term-based software licenses that expire and Software-as-a-Service ("SaaS") based software which are referred to as subscription arrangements. The Company does not customize its software nor are installation services required, as the customer has a right to utilize internal resources or a third-party service company. The software is delivered before related services are provided and are functional without professional services or customer support. The Company has concluded that its software licenses are functional intellectual property that are distinct, as the user can benefit from the software on its own. The software license revenue could be recognized upon transfer of control or when the software is made available for download, as this is the point that the user of the software can direct the use of, and obtain substantially all of the remaining benefits from, the functional intellectual property. However, historical experience shows that customers regularly renegotiate the number of licenses during the installation process. Therefore, the Company recognizes revenue from software licenses when the setup is complete. The Company does not recognize software revenue related to the renewal of subscription software licenses earlier than the beginning of the subscription period.
· | SNAPsolution® - a comprehensive, IP-based platform that provides a broad suite of UC services including hosted Private Branch Exchange (PBX), auto-attendant, call center, conferencing, and mobility. The platform includes a broad range of feature-sets, custom-built to provide unprecedented levels of flexibility, making the solution competitive with the market’s leading players. SNAPsolution includes a full suite of Voice over Internet Protocol (VoIP)/UC features with one low cost universal license, as opposed to pricing each feature individually. The Company licenses its platform based on concurrent sessions, not per seat/per feature. This allows service providers to oversubscribe their networks, driving down the cost per seat as volume increases. As the service provider increases their customer base, they only have to ensure they have sufficient concurrent call licenses to support users across the network. The Company recognizes one-time upfront software license revenue when the software setup is complete. |
· | SNAPaccel – aSoftware-as-a-Service ("SaaS") based software license referred to as subscription arrangements. The Company recognizes revenue as subscriptions are provided in service revenue on a monthly basis. |
Subscription Maintenance and Support -Subscription maintenance and support revenue includes revenue from maintenance service contracts, customer support, and other supportive services. The Company offers warranties on its products. The warranty period for the Company’s licensed software is generally 90 days. Certain of the Company's warranties are considered to be assurance-type in nature and do not cover anything beyond ensuring that the product is functioning as intended. Based on the guidance in ASC 606, assurance-type warranties do not represent separate performance obligations. The Company also sells separately-priced maintenance service contracts, which qualify as service-type warranties and represent separate performance obligations. The Company does not typically allow and has no history of accepting material product returns. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. Subscription and maintenance support revenue is recognized ratably over the term of the customer support agreement, which is typically one year.
Professional Services and Other -The Company's professional services include consulting, technical support, resident engineer services, design services and installation services. Revenue from professional services and other is recognized when the performance obligation is complete and the customer has accepted the performance obligation.
| 15 |
| Table of Contents |
Disaggregation of Revenue
In the following table, revenue is disaggregated by primary major product line, and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with the reportable segments.
| Three Months Ended September 30, 2025 |
| Cloud |
|
| Software |
|
| Total |
| |||
| (In thousands) |
| Telecommunications |
|
| Solutions |
|
| Reportable |
| |||
|
| Segment |
|
| Segment |
|
| Segments |
| |||
| Major products/services lines |
|
|
|
|
|
|
|
|
| |||
| Desktop devices |
| $ |
|
| $ |
|
| $ |
| |||
| Equipment financing revenue |
|
|
|
|
|
|
|
|
| |||
| Telecommunications services |
|
|
|
|
|
|
|
|
| |||
| Fees, commissions, and other, recognized over time |
|
|
|
|
|
|
|
|
| |||
| One time fees, commissions and other |
|
|
|
|
|
|
|
|
| |||
| Software licenses |
|
|
|
|
|
|
|
|
| |||
| Software license and maintenance and support subscriptions |
|
|
|
|
|
|
|
|
| |||
| Professional services and other |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
| Timing of revenue recognition |
|
|
|
|
|
|
|
|
|
|
|
|
| Products, services, and fees recognized at a point in time |
| $ |
|
| $ |
|
| $ |
| |||
| Products, services, and fees transferred over time |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
| Three Months Ended September 30, 2024 |
| Cloud |
|
| Software |
|
| Total |
| |||
| (In thousands) |
| Telecommunications |
|
| Solutions |
|
| Reportable |
| |||
|
| Segment |
|
| Segment |
|
| Segments |
| |||
| Major products/services lines |
|
|
|
|
|
|
|
|
| |||
| Desktop devices |
| $ |
|
| $ |
|
| $ |
| |||
| Equipment financing revenue |
|
|
|
|
|
|
|
|
| |||
| Telecommunications services |
|
|
|
|
|
|
|
|
| |||
| Fees, commissions, and other, recognized over time |
|
|
|
|
|
|
|
|
| |||
| One time fees, commissions and other |
|
|
|
|
|
|
|
|
| |||
| Software licenses |
|
|
|
|
|
|
|
|
| |||
| Software license and maintenance and support subscriptions |
|
|
|
|
|
|
|
|
| |||
| Professional services and other |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
| Timing of revenue recognition |
|
|
|
|
|
|
|
|
|
|
|
|
| Products, services, and fees recognized at a point in time |
| $ |
|
| $ |
|
| $ |
| |||
| Products, services, and fees transferred over time |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
| Nine Months Ended September 30, 2025 |
| Cloud |
|
| Software |
|
| Total |
| |||
| (In thousands) |
| Telecommunications |
|
| Solutions |
|
| Reportable |
| |||
|
| Segment |
|
| Segment |
|
| Segments |
| |||
| Major products/services lines |
|
|
|
|
|
|
|
|
| |||
| Desktop devices |
| $ |
|
| $ |
|
| $ |
| |||
| Equipment financing revenue |
|
|
|
|
|
|
|
|
| |||
| Telecommunications services |
|
|
|
|
|
|
|
|
| |||
| Fees, commissions, and other, recognized over time |
|
|
|
|
|
|
|
|
| |||
| One time fees, commissions and other |
|
|
|
|
|
|
|
|
| |||
| Software licenses |
|
|
|
|
|
|
|
|
| |||
| Software license and maintenance and support subscriptions |
|
|
|
|
|
|
|
|
| |||
| Professional services and other |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
| Timing of revenue recognition |
|
|
|
|
|
|
|
|
|
|
|
|
| Products and fees recognized at a point in time |
| $ |
|
| $ |
|
| $ |
| |||
| Services and fees transferred over time |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
| 16 |
| Table of Contents |
| Nine Months Ended September 30, 2024 |
| Cloud |
|
| Software |
|
| Total |
| |||
| (In thousands) |
| Telecommunications |
|
| Solutions |
|
| Reportable |
| |||
|
| Segment |
|
| Segment |
|
| Segments |
| |||
| Major products/services lines |
|
|
|
|
|
|
|
|
| |||
| Desktop devices |
| $ |
|
| $ |
|
| $ |
| |||
| Equipment financing revenue |
|
|
|
|
|
|
|
|
| |||
| Telecommunications services |
|
|
|
|
|
|
|
|
| |||
| Fees, commissions, and other, recognized over time |
|
|
|
|
|
|
|
|
| |||
| One time fees, commissions and other |
|
|
|
|
|
|
|
|
| |||
| Software licenses |
|
|
|
|
|
|
|
|
| |||
| Software license and maintenance and support subscriptions |
|
|
|
|
|
|
|
|
| |||
| Professional services and other |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
| Timing of revenue recognition |
|
|
|
|
|
|
|
|
|
|
|
|
| Products and fees recognized at a point in time |
| $ |
|
| $ |
|
| $ |
| |||
| Services and fees transferred over time |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
Contract balances
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers:
|
| September 30, |
|
| December 31, |
| ||
| (In thousands) |
| 2025 |
|
| 2024 |
| ||
| Receivables, which are included in trade receivables, net of allowance for credit losses |
| $ |
|
| $ |
| ||
| Contract assets, net of allowance for credit losses |
|
|
|
|
|
| ||
| Contract liabilities |
|
|
|
|
|
| ||
Significant changes in the contract assets and the contract liabilities balances during the period are as follows:
|
| For the Nine Months Ended |
|
| For the Year Ended |
| ||||||||||
| (In thousands) |
| September 30, 2025 |
|
| December 31, 2024 |
| ||||||||||
|
| Contract Assets |
|
| Contract Liabilities |
|
| Contract Assets |
|
| Contract Liabilities |
| ||||
| Revenue recognized that was included in the contract liability balance at the beginning of the period |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | ||
| Increase due to cash received, excluding amounts recognized as revenue during the period |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Transferred to receivables from contract assets recognized at the beginning of the period, net of allowance for credit losses |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Increase due to additional unamortized discounts |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contract assets and allowance for credit losses
Our contract assets balance consists of the Company’s rights to consideration for work completed but not billed as of the reporting date. The contract assets are transferred to receivables when the rights become unconditional. Contract assets were as follows (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2025 |
|
| 2024 |
| ||
| Gross contract assets |
| $ |
|
| $ |
| ||
| Less: allowance for credit losses |
|
| ( | ) |
|
| ( | ) |
| Contract assets, net of allowance for credit losses |
| $ |
|
| $ |
| ||
The allowance for credit losses was as follows (in thousands):
| Balance at December 31, 2024 |
| $ |
| |
| Provision |
|
|
| |
| Write-offs |
|
| ( | ) |
| Recoveries and other |
|
| ( | ) |
| Balance at March 31, 2025 |
| $ |
| |
| Provision |
|
|
| |
| Write-offs |
|
| ( | ) |
| Recoveries and other |
|
|
| |
| Balance at June 30, 2025 |
| $ |
| |
| Provision |
|
|
| |
| Write-offs |
|
|
| |
| Recoveries and other |
|
| ( | ) |
| Balance at September 30, 2025 |
| $ |
|
| 17 |
| Table of Contents |
The allowance for credit losses is determined based on an assessment of historical collection experience using the loss-rate method as well as consideration of current and future economic conditions and changes in our loss-rate trends.
Transaction price allocated to the remaining performance obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period (in thousands):
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| 2028 |
|
| 2029 and thereafter |
|
| Total |
| ||||||
| Desktop devices |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
| Telecommunications services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Software Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| All consideration from contracts with customers is included in the amounts presented above |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. Earnings Per Common Share
Basic net income/(loss) per common share is computed by dividing the net income/(loss) for the period by the weighted-average number of common shares outstanding during the period. Diluted net income per common share is computed giving effect to all dilutive common stock equivalents, consisting of common stock options. The following table sets forth the computation of basic and diluted net income/(loss) per common share:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2025 |
|
| 2024 |
|
| 2025 |
|
| 2024 |
| ||||
| Net income/(loss) (in thousands) (A) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-average share reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding (B) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dilutive effect of stock-based awards |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Diluted weighted-average outstanding shares of common stock (C) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic (A/B) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| Diluted (A/C) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
For the three and nine months ended September 30, 2025 and 2024, the following potentially dilutive common stock, including awards granted under our equity incentive compensation plans, were excluded from the computation of diluted net income per share because including them would be anti-dilutive:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2025 |
|
| 2024 |
|
| 2025 |
|
| 2024 |
| ||||
| Stock options |
|
|
|
|
|
|
|
|
|
|
|
| ||||
4. Trade Receivables and Allowance for Credit Losses
Our trade receivables balance consists of traditional trade receivables. Trade receivables were as follows (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2025 |
|
| 2024 |
| ||
| Gross trade receivables |
| $ |
|
| $ |
| ||
| Less: allowance for credit losses |
|
| ( | ) |
|
| ( | ) |
| Trade receivables, net |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
| Current trade receivables, net |
| $ |
|
| $ |
| ||
| Long-term trade receivables, net |
|
|
|
|
|
| ||
| Trade receivables, net |
| $ |
|
| $ |
| ||
| 18 |
| Table of Contents |
The allowance for credit losses was as follows (in thousands):
| Balance at December 31, 2024 |
| $ |
| |
| Provision |
|
|
| |
| Write-offs |
|
| ( | ) |
| Recoveries and other |
|
|
| |
| Balance at March 31, 2025 |
| $ |
| |
| Provision |
|
|
| |
| Write-offs |
|
| ( | ) |
| Recoveries and other |
|
| ( | ) |
| Balance at June 30, 2025 |
| $ |
| |
| Provision |
|
|
| |
| Write-offs |
|
| ( | ) |
| Recoveries and other |
|
| ( | ) |
| Balance at September 30, 2025 |
| $ |
|
The allowance for credit losses is determined based on an assessment of historical collection experience using the aging schedule method as well as consideration of current and future economic conditions. Based on that assessment, the allowance for credit losses as a percent of gross trade receivables decreased to
5. Equipment Financing Receivables and Allowance for Credit Losses
Our equipment financing receivables balance consists of sales-type leases arising from lease financing of cloud telecommunication equipment (IP or cloud telephone desktop devices) bundled and sold with our cloud telecommunications services and software licenses. The majority of our leases that qualify as sales-type leases are non-cancelable and include cancellation penalties approximately equal to the full value of the lease receivables. Revenue from sales-type leases is recognized upon installation and the interest portion is deferred and recognized as earned. These receivables are typically collateralized by a security interest in the underlying equipment. Equipment financing receivables were as follows (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2025 |
|
| 2024 |
| ||
| Gross equipment financing receivables |
| $ |
|
| $ |
| ||
| Less: unearned income |
|
| ( | ) |
|
| ( | ) |
| Less: allowance for credit losses |
|
| ( | ) |
|
| ( | ) |
| Equipment financing receivables, net |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
| Current equipment financing receivables, net |
| $ |
|
| $ |
| ||
| Long-term equipment financing receivables, net |
|
|
|
|
|
| ||
| Equipment financing receivables, net |
| $ |
|
| $ |
| ||
A summary of our gross equipment financing receivables’ future contractual maturities, is as follows (in thousands):
| Year ending December 31, |
|
|
| |
2025 remaining |
| $ |
| |
2026 |
|
|
| |
2027 |
|
|
| |
2028 |
|
|
| |
2029 |
|
|
| |
2030 and thereafter |
|
|
| |
Total |
| $ |
| |
Allowance for Credit Losses
The allowance for credit losses was as follows (in thousands):
| Balance at December 31, 2024 |
| $ |
| |
| Provision |
|
|
| |
| Write-offs |
|
| ( | ) |
| Recoveries and other |
|
| ( | ) |
| Balance at March 31, 2025 |
| $ |
| |
| Provision |
|
|
| |
| Write-offs |
|
| ( | ) |
| Recoveries and other |
|
|
| |
| Balance at June 30, 2025 |
| $ |
| |
| Provision |
|
|
| |
| Write-offs |
|
| ( | ) |
| Recoveries and other |
|
|
| |
| Balance at September 30, 2025 |
| $ |
|
| 19 |
| Table of Contents |
Aging of Receivables
The aging of gross equipment financing receivables was as follows (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2025 |
|
| 2024 |
| ||
| Past due amounts 0 - 90 days |
| $ |
|
| $ |
| ||
| Past due amounts > 90 days |
|
|
|
|
|
| ||
| Total |
| $ |
|
| $ |
| ||
Our equipment financing receivable portfolio is primarily in the United States. The allowance for credit losses is determined principally based on an assessment of origination year and past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends. Based on that assessment, the allowance for credit losses as a percent of gross equipment financing receivables (net of unearned income) decreased to
The allowance for credit losses represents an estimate of the losses expected to be incurred from the Company's equipment financing receivable portfolio. The projected loss rates are primarily based upon historical loss experience adjusted for judgments about the probable effects of relevant observable data including current and future economic conditions as well as delinquency trends, resolution rates, and the aging of receivables. The allowance for credit losses for equipment finance receivables is inherently more difficult to estimate than the allowance for trade receivables because the underlying lease portfolio has an average maturity, at any time, of approximately three to five years and contains unbilled amounts. We consider all available information in our quarterly assessments of the adequacy of the allowance for credit losses. We believe our estimates, including any qualitative adjustments, are reasonable and have considered all reasonably available information about past events, current conditions, and reasonable and supportable forecasts of future events and economic conditions. The identification of account-specific exposure is not a significant factor in establishing the allowance for credit losses for equipment finance receivables. We continue to monitor developments in future economic conditions and trends, and as a result, our reserve may need to be updated in future periods.
The table below shows gross equipment financing receivables and current period gross write offs by year of origination (in thousands):
|
| September 30, 2025 |
|
| December 31, 2024 |
| ||||||||||||||||||||||||||
|
| 2025 |
|
| 2024 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| Prior |
|
| Total Equipment Financing Receivables |
|
| Total Equipment Financing Receivables |
| ||||||||
| United States |
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||||||||
| Current period gross write offs |
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||||||||
6. Prepaid Expenses
Prepaid expenses consisted of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2025 |
|
| 2024 |
| ||
| Prepaid corporate insurance |
| $ |
|
| $ |
| ||
| Prepaid software services and support |
|
|
|
|
|
| ||
| Prepaid employee insurance premiums |
|
|
|
|
|
| ||
| Prepaid Nasdaq listing fee |
|
|
|
|
|
| ||
| User group meeting fees |
|
|
|
|
|
| ||
| Prepaid rent |
|
|
|
|
|
| ||
| Other prepaid expenses |
|
|
|
|
|
| ||
| Total prepaid expenses |
| $ |
|
| $ |
| ||
| 20 |
| Table of Contents |
7. Property and Equipment
Property and equipment consisted of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2025 |
|
| 2024 |
| ||
| Computer and office equipment |
|
|
|
|
|
| ||
| Computer software |
|
|
|
|
|
| ||
| Internal-use software |
|
|
|
|
|
| ||
| Vehicles |
|
|
|
|
|
| ||
| Leasehold improvements |
|
|
|
|
|
| ||
| Less: accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
| Total property and equipment, net |
| $ |
|
| $ |
| ||
Depreciation expense is included in general and administrative expenses and totaled $
8. Intangible Assets and Goodwill
Acquired intangible assets subject to amortization consisted of the following (in thousands):
|
| September 30, 2025 |
|
| December 31, 2024 |
| ||||||||||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| ||||||
Customer relationships |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
Developed technologies |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||
Trademark and trade names |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||
Capitalized software development costs |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total acquired intangible assets |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
As of September 30, 2025, the weighted average remaining useful life for customer relationships was
Amortization expense for customer relationships intangible assets is included in selling and marketing expenses, amortization expense for developed technologies intangible assets is included in cost of software solutions revenue, amortization expense for trademark and trade name intangible assets is included in general and administrative expenses, amortization expense for capitalized software development costs intangible assets is included in general and administrative expenses. The following table summarizes the amortization expense by financial statement line item (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2025 |
|
| 2024 |
|
| 2025 |
|
| 2024 |
| ||||
Cost of software solutions revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Selling and marketing |
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total amortization expense |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 21 |
| Table of Contents |
As of September 30, 2025, annual amortization of definite lived intangible assets, based on existing intangible assets and current useful lives, is estimated to be the following (in thousands):
| Year ending December 31, |
|
|
| |
2025 remaining |
| $ |
| |
2026 |
|
|
| |
2027 |
|
|
| |
2028 |
|
|
| |
2029 |
|
|
| |
2030 and thereafter |
|
|
| |
Total |
| $ |
| |
The following table provides a summary of changes in the carrying amounts of goodwill (in thousands):
|
| Goodwill |
| |
| Balance at January 1, 2024 |
| $ |
| |
Additions |
|
|
| |
| Balance at December 31, 2024 |
| $ |
| |
Additions |
|
|
| |
Balance at September 30, 2025 |
| $ |
| |
9. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2025 |
|
| 2024 |
| ||
| Accrued wages and benefits |
| $ |
|
| $ |
| ||
| Accrued accounts payable |
|
|
|
|
|
| ||
| Accrued sales and telecommunications taxes |
|
|
|
|
|
| ||
| Product warranty liability |
|
|
|
|
|
| ||
| Cloud computing arrangements |
|
|
|
|
|
| ||
| Credit cards |
|
|
|
|
|
| ||
| Other |
|
|
|
|
|
| ||
| Total accrued expenses |
| $ |
|
| $ |
| ||
The changes in aggregate product warranty liabilities for the year ended December 31, 2024 and the nine months ended September 30, 2025 were as follows (in thousands):
|
| Warranty Liabilities |
| |
| Balance at January 1, 2024 |
| $ |
| |
Accrual for warranties |
|
|
| |
Adjustments related to pre-existing warranties |
|
| ( | ) |
Warranty settlements |
|
| ( | ) |
| Balance at December 31, 2024 |
|
|
| |
Accrual for warranties |
|
|
| |
Warranty settlements |
|
| ( | ) |
| Balance at September 30, 2025 |
| $ |
| |
Product warranty expense is included in cost of product revenue expense and totaled $
| 22 |
| Table of Contents |
10. Notes Payable
Notes payable consists of short and long-term financing arrangements:
|
| September 30, |
|
| December 31, |
| ||
|
| 2025 |
|
| 2024 |
| ||
| Related party note payable |
| $ |
|
| $ |
| ||
| Other notes payable |
|
|
|
|
|
| ||
| Total notes payable |
| $ |
|
| $ |
| ||
| Less: current notes payable |
|
| ( | ) |
|
| ( | ) |
| Notes payable, net of current portion |
| $ |
|
| $ |
| ||
On February 27, 2024, we entered into a promissory note with CrossFirst Bank in the amount of $
On November 1, 2022, as part of the acquisition of Allegiant Networks, we entered into a promissory note with the seller in the amount of $
As of September 30, 2025, future principal payments are scheduled as follows (in thousands):
| Year ending December 31, |
|
|
| |
2025 remaining |
| $ |
| |
2026 |
|
|
| |
2027 |
|
|
| |
2028 |
|
|
| |
2029 |
|
|
| |
Total |
| $ |
| |
11. Line of Credit
The Company maintains a line of credit with a maximum principal amount of $
12. Fair Value Measurements
We have financial instruments as of September 30, 2025 and December 31, 2024 for which the fair value is summarized below (in thousands):
|
| September 30, 2025 |
|
| December 31, 2024 |
| ||||||||||
|
| Carrying Value |
|
| Estimated Fair Value |
|
| Carrying Value |
|
| Estimated Fair Value |
| ||||
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Trade receivables, net |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Equipment financing receivables |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease obligations |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Notes payable |
|
|
|
|
|
|
|
|
|
|
|
| ||||
We have no liabilities for which fair value is recognized in the balance sheet on a recurring basis as of September 30, 2025 and December 31, 2024.
| 23 |
| Table of Contents |
13. Income Taxes
Our effective tax rate for the three months ended September 30, 2025 and 2024 was
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the evidence available, it is more-likely-than-not that such assets will not be realized. In making the assessment under the more-likely-than-not standard, appropriate consideration must be given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods by jurisdiction, unitary versus stand-alone state tax filings, our experience with loss carryforwards expiring unutilized, and all tax planning alternatives that may be available. As of December 31, 2024, management reviewed the weight of all the positive and negative evidence available. Management reviewed negative evidence such as three years of cumulative pretax loss in the U.S. federal tax jurisdiction, and positive evidence such as projections of future pretax income and the duration of statutory carry-forward periods. As of December 31, 2024 the Company has a cumulative pretax loss for the three year lookback excluding the gain on the sale of property and equipment, which is considered significant objectively verifiable negative evidence. Management also evaluated projections of future pretax income and the duration of statutory carry-forward periods to determine if the NOL carryforwards could be utilized in whole or in part before they expire unutilized. Forecasts and projections of future income are inherently subjective and therefore generally are given less weight, based on the extent to which the assumptions can be objectively verified based on historical experience. Although historical trends utilized in our projections are objectively verifiable we assigned less weight to this positive evidence given the subjective nature of assumptions in projections. Management reviewed negative evidence related to experience of credits and loss carryforwards expiring unutilized, and determined that although negative evidence exists, it was not significant evidence, as the current loss carryforwards do not begin to expire until 2032 and therefore risk is minimal. After reviewing the weight of the positive and negative evidence, management determined that the positive evidence was not sufficient enough to overcome the negative evidence of cumulative pretax losses for the three-year lookback to conclude that it is more likely than not that deferred tax assets of $
14. Share-Based Compensation
The following table summarizes the statement of operations effect of share-based compensation for the three and nine months ended September 30, 2025 and 2024 (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2025 |
|
| 2024 |
|
| 2025 |
|
| 2024 |
| ||||
Cost of service revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Cost of software solutions revenue |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling and marketing |
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total share-based compensation expense |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
15. Leases
Lessee Accounting
We determine if an agreement is a lease at inception. We lease office space, data center colocation space, other assets, and office equipment under operating leases. We lease data center equipment, including maintenance contracts and vehicles under finance leases.
Operating leases are recorded as right-of-use (“ROU”) assets and lease liabilities on the balance sheet, excluding leases that are less than 12 months. ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate at the commencement date to determine the present value of lease payments. The operating lease ROU assets also include any lease payments made and exclude lease incentives. The Company’s lease agreements do not contain any variable lease payments, material residual value guarantees or any restrictive covenants. Our lease terms may include options, at our sole discretion, to extend or terminate the lease.
| 24 |
| Table of Contents |
We leased office space in Tempe, Arizona under a non-cancelable
We currently are in a non-cancelable commercial sublease operating agreement to sublease office space in Tempe Arizona, which is the headquarters for the Company. This sublease commenced on October 1, 2024, and will continue for thirty-seven (37) months through October 31, 2027. The base monthly rent is as follows:
We leased office space in Reston, Virginia under a non-cancelable
We currently lease office space in San Diego, California under a non-cancelable
We currently lease office space in Overland Park, Kansas under a non-cancelable
We currently lease other assets under multiple operating leases.
We currently lease data center colocation space in Grand Rapids, Michigan, Las Vegas, Nevada, Dallas, Texas and Lenexa, Kansas, under non-cancelable
We have lease agreements with lease and non-lease components, and we account for the lease and non-lease components as a single lease component. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company leases equipment and support under finance lease agreements which extends through 2029. The Company also leases one vehicle under a financing agreement. The outstanding balance for finance leases was $
| 25 |
| Table of Contents |
The maturity of operating leases and finance lease liabilities as of September 30, 2025 are as follows:
| Year ending December 31, |
| Operating Leases |
|
| Finance Leases |
| ||
2025 remaining |
| $ |
|
| $ |
| ||
2026 |
|
|
|
|
|
| ||
2027 |
|
|
|
|
|
| ||
2028 |
|
|
|
|
|
| ||
2029 |
|
|
|
|
|
| ||
Total minimum lease payments |
|
|
|
|
|
| ||
Less: amount representing interest |
|
| ( | ) |
|
|
| |
Present value of minimum lease payments |
| $ |
|
| $ |
| ||
| Lease term and discount rate |
| September 30, 2025 |
| |
Weighted-average remaining lease term (years) |
|
|
| |
Operating leases |
|
|
| |
Finance leases |
|
|
| |
Weighted-average discount rate |
|
|
|
|
Operating leases |
|
| % | |
Finance leases |
|
| % | |
|
| Nine Months Ended September 30, 2025 |
|
| Nine Months Ended September 30, 2024 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
| ||
Operating cash flows from operating leases |
| $ |
|
| $ |
| ||
Operating cash flows from finance leases |
|
|
|
|
|
| ||
Financing cash flows from finance leases |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
| Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
| Additions to ROU assets obtained from: |
|
|
|
|
|
|
|
|
New operating lease liabilities |
| $ |
|
| $ |
| ||
New finance lease liabilities |
|
|
|
|
|
| ||
16. Commitments and Contingencies
Annual Employee Bonus Plan Accrual
We utilize incentive bonuses to reward performance achievements, which provides potential annual cash bonus awards to Company employees, including Named Executive Officers (“NEOs”). Under the Bonus Plan,
| 26 |
| Table of Contents |
Purchase Obligations
In February 2024, the Company entered into a $
Legal Proceedings
In the ordinary course of business, the Company may be involved in a variety of claims, lawsuits, investigations, and other proceedings, including patent infringement claims, employment litigation, regulatory compliance matters, and contractual disputes, that can arise in the normal course of the Company's operations. The Company recognizes a provision when management believes information available prior to the issuance of the financial statements indicates it is probable a loss has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated. The Company adjusts the amount of the provision to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. As of September 30, 2025, the Company does not have a recorded liability for estimated losses. Legal costs are expensed as incurred.
17. Segment Reporting
The Company has two reportable operating segments, which consist of cloud telecommunications services and software solutions and uses segment income/(loss) from operations to assess performance against forecasted results and allocate resources to its segments. Segment income/(loss) from operations is determined on the same basis as consolidated income/(loss) from operations presented in the Company’s consolidated statements of operations. The cloud telecommunications services segment generates revenue from selling cloud telecommunication services, products, and other internet services. The software solutions segment generates revenue from selling perpetual software licenses and software subscriptions, subscription maintenance and support, and professional services.
| 27 |
| Table of Contents |
Our chief operating decision maker (CODM) is our Chief Executive Officer, Jeffrey G. Korn. The CODM uses segment income/(loss) from operations before income tax for purposes of allocating resources and evaluating financial performance predominantly in the annual budget and forecasting process. The CODM considers budget-to-actual variances on a quarterly basis using the segment income/(loss) before income tax measure when making decisions about allocating capital and personnel to the segments. The CODM does not review assets in evaluating the results of the operating segments, and therefore, such information is not presented. Segment revenue, significant segment expenses, income/(loss) from operations, other income/(expense) and income/(loss) before income tax for the three and nine months ended September 30, 2025 and 2024 are as follows (in thousands):
| Three Months Ended September 30, 2025 |
| Cloud |
|
| Software |
|
|
|
| |||
| (In thousands) |
| Telecommunications |
|
| Solutions |
|
| Total |
| |||
|
| Segment |
|
| Segment |
|
| Consolidated |
| |||
| Service revenue |
| $ |
|
| $ |
|
| $ |
| |||
| Software solutions revenue |
|
|
|
|
|
|
|
|
| |||
| Product revenue |
|
|
|
|
|
|
|
|
| |||
Consolidated revenue |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less: significant and other segment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Employee expenses |
|
|
|
|
|
|
|
|
| |||
Commissions |
|
|
|
|
|
|
|
|
| |||
Contractor expense |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
|
|
|
|
|
|
|
| |||
Other segment items (1) |
|
|
|
|
|
|
|
|
| |||
Total operating expense |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Segment income/(loss) from operations |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less: other segment income/(expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
| |||
Interest expense |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Other income/(expense) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income/(loss) before income tax |
| $ |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax benefit/(provision) |
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income/(loss) |
|
|
|
|
|
|
|
|
| $ |
| |
____________________
(1) | Other segment items primarily includes third-party telecommunication charges, cost of product revenue, software costs, data center costs, and other overhead expenses. |
| 28 |
| Table of Contents |
| Three Months Ended September 30, 2024 |
| Cloud |
|
| Software |
|
|
|
| |||
| (In thousands) |
| Telecommunications |
|
| Solutions |
|
| Total |
| |||
|
| Segment |
|
| Segment |
|
| Consolidated |
| |||
| Service revenue |
| $ |
|
|
|
|
| $ |
| |||
| Software solutions revenue |
|
|
|
|
|
|
|
|
|
| ||
| Product revenue |
|
|
|
|
|
|
|
|
|
| ||
Consolidated revenue |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less: significant and other segment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Employee expenses |
|
|
|
|
|
|
|
|
| |||
Commissions |
|
|
|
|
|
|
|
|
| |||
Contractor expense |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
|
|
|
|
|
|
|
| |||
Other segment items (1) |
|
|
|
|
|
|
|
|
| |||
Total operating expense |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Segment income/(loss) from operations |
|
| ( | ) |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less: other segment income/(expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
| |||
Interest expense |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Other income/(expense) |
|
|
|
|
| ( | ) |
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income/(loss) before income tax |
| $ |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax benefit/(provision) |
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income/(loss) |
|
|
|
|
|
|
|
|
| $ |
| |
____________________
(1) | Other segment items primarily includes third-party telecommunication charges, cost of product revenue, software costs, data center costs, and other overhead expenses. |
| 29 |
| Table of Contents |
| Nine Months Ended September 30, 2025 |
| Cloud |
|
| Software |
|
|
|
| |||
| (In thousands) |
| Telecommunications |
|
| Solutions |
|
| Total |
| |||
|
| Segment |
|
| Segment |
|
| Consolidated |
| |||
| Service revenue |
| $ |
|
| $ |
|
| $ |
| |||
| Software solutions revenue |
|
|
|
|
|
|
|
|
| |||
| Product revenue |
|
|
|
|
|
|
|
|
| |||
Consolidated revenue |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less: significant and other segment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Employee expenses |
|
|
|
|
|
|
|
|
| |||
Commissions |
|
|
|
|
|
|
|
|
| |||
Contractor expense |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
|
|
|
|
|
|
|
| |||
Other segment items (1) |
|
|
|
|
|
|
|
|
| |||
Total operating expense |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Segment income/(loss) from operations |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less: other segment income/(expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
| |||
Interest expense |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Other income/(expense) |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income/(loss) before income tax |
| $ |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax benefit/(provision) |
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income/(loss) |
|
|
|
|
|
|
|
|
| $ |
| |
___________________
(1) | Other segment items primarily includes third-party telecommunication charges, cost of product revenue, software costs, data center costs, and other overhead expenses. |
| 30 |
| Table of Contents |
| Nine Months Ended September 30, 2024 |
| Cloud |
|
| Software |
|
|
|
| |||
| (In thousands) |
| Telecommunications |
|
| Solutions |
|
| Total |
| |||
|
| Segment |
|
| Segment |
|
| Consolidated |
| |||
| Service revenue |
| $ |
|
|
|
|
| $ |
| |||
| Software solutions revenue |
|
|
|
|
|
|
|
|
|
| ||
| Product revenue |
|
|
|
|
|
|
|
|
|
| ||
Consolidated revenue |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less: significant and other segment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Employee expenses |
|
|
|
|
|
|
|
|
| |||
Commissions |
|
|
|
|
|
|
|
|
| |||
Contractor expense |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
|
|
|
|
|
|
|
| |||
Other segment items (1) |
|
|
|
|
|
|
|
|
| |||
Total operating expense |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Segment income/(loss) from operations |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less: other segment income/(expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
| |||
Interest expense |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Other income/(expense) |
|
|
|
|
| ( | ) |
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income/(loss) before income tax |
| $ |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax benefit/(provision) |
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income/(loss) |
|
|
|
|
|
|
|
|
| $ |
| |
____________________
(1) | Other segment items primarily includes third-party telecommunication charges, cost of product revenue, software costs, data center costs, and other overhead expenses. |
The Company operates in two geographic areas, the United States and international. Revenue by geography is based on the location of the customer from which the revenue is earned. Revenue by geographic location is as follows (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2025 |
|
| 2024 |
|
| 2025 |
|
| 2024 |
| ||||
| United States |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
International |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 31 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and our Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A, “Risk Factors,” which are incorporated herein by reference. The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”) filed with the SEC and the Condensed Consolidated Financial Statements and notes thereto included in the 2025 Form 10-Qs and elsewhere in this Form 10-Q. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.
OVERVIEW
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:
Cloud Telecommunications Services – Our cloud telecommunications services transmit calls using IP or cloud technology, which converts voice signals into digital data packets for transmission over the Internet or cloud. Each of our calling plans provides a number of basic features typically offered by traditional telephone service providers, plus a wide range of enhanced features that we believe offer an attractive value proposition to our customers. This platform enables a user, via a single “identity” or telephone number, to access and utilize services and features regardless of how the user is connected to the Internet or cloud, whether it’s from a desktop device or an application on a mobile device or computer.
We generate recurring revenue from our cloud telecommunications services, broadband Internet services, managed IT services, software license sales, and infrastructure as a service. Our cloud telecommunications contracts typically have a thirty-six to sixty-month term. We may also charge activation and flash fees and the Company generally allocates a portion of the activation fees to the desktop devices, which is recognized at the time of the installation or customer acceptance, and a portion to the service, which is recognized over the contract term using the straight-line method. We also charge other various contracted and non-contracted fees.
We generate product revenue, equipment financing revenue, and device as a service revenue from the sale and lease of our cloud telecommunications equipment. Revenues from the sale of equipment, including those from sales-type leases, are recognized at the time of sale or at the inception of the lease, as appropriate.
Software Solutions – Our software solutions segment derives revenues from three primary sources: software licenses, software maintenance support and professional services. Software and services may be sold separately or in bundled packages. Generally, contracts with customers contain multiple performance obligations, consisting of software and services. For bundled packages, the Company accounts for individual products and services separately if they are distinct – i.e. if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration is allocated between separate products and services in a bundle based on their relative stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the software licenses and professional services. For items that are not sold separately (e.g. additional features) the Company estimates stand-alone selling prices using the adjusted market assessment approach. When we provide a free trial period, we do not begin to recognize recurring revenue until the trial period has ended and the customer has been billed for the services.
We generate software license revenue from the sale of perpetual software licenses, term-based software licenses that expire, and Software-as-a-Service ("SaaS") based software which are referred to as subscription arrangements. The Company does not recognize software revenue related to the renewal of subscription software licenses earlier than the beginning of the subscription period.
We generate subscription and maintenance support revenue from customer support and other supportive services. The Company offers warranties on its products. The warranty period for our licensed software is generally 90 days. Certain of the Company's warranties are considered to be assurance-type in nature and do not cover anything beyond ensuring that the product is functioning as intended. Based on the guidance in ASC 606, assurance-type warranties do not represent separate performance obligations. The Company also sells separately-priced maintenance service contracts, which qualify as service-type warranties and represent separate performance obligations. The Company does not typically allow and has no history of accepting material product returns. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. Subscription and maintenance support revenue is recognized ratably over the term of the customer support agreement, which is typically one to three years.
| 32 |
| Table of Contents |
We generate professional services and other revenue from consulting, technical support, resident engineer services, design services and installation services. Revenue for professional services and other is recognized when the performance obligation is complete and the customer has accepted the performance obligation.
OUR SERVICES AND PRODUCTS
Our solution was recently recognized as the fastest growing UCaaS platform in the United States. By providing a variety of comprehensive and scalable solutions, we are able to cater to businesses of all sizes on a monthly subscription basis without the need for expensive capital investments, regardless of where their business is in its lifecycle. Our products and services can be categorized in the following offerings:
Cloud Telecommunications Services – Our cloud telecommunications service offering includes hardware, software, and unified IP or cloud technology over any high-speed Internet connection. These services are rendered through a variety of devices and communication solutions for businesses using user interfaces such as a Crexendo branded and third party desktop phones and/or mobile and desktop applications. Some examples of mobile devices are Android cell phones, iPhones, iPads or Android tablets. These services enable our customers to seamlessly communicate with others through phone calls that originate/terminate on our network or PSTN networks. Our cloud telecommunications services are powered by our proprietary implementation of standards based Web and VoIP cloud technologies. Our services use our highly scalable complex infrastructure that we build and manage based on industry standard best practices to achieve greater efficiencies, better quality of service (QoS) and customer satisfaction. Our infrastructure comprises of compute, storage, network technologies, 3rd party products and vendor relationships. We also develop end user portals for account management, license management, billing and customer support and adopt other cloud technologies through our partnerships.
Crexendo’s cloud telecommunication service offers a wide variety of essential and advanced features for businesses of all sizes. Many of these features included in the service offering are:
| · | Business Productivity Features such as dial-by extension and name, transfer, conference, call recording, Unlimited calling to anywhere in the US and Canada, International calling, Toll free (Inbound and Outbound). |
| · | Individual Productivity Features such as Caller ID, Call Waiting, Last Call Return, Call Recording, Music/Message-On-Hold, Voicemail, Unified Messaging, Hot-Desking. |
| · | Group Productivity Features such as Call Park, Call Pickup, Interactive Voice Response (IVR), Individual and Universal Paging, Corporate Directory, Multi-Party Conferencing, Group Mailboxes, Web and mobile devices based collaboration applications. |
| · | Call Center Features such as Automated Call Distribution (ACD), Call Monitor, Whisper and Barge, Automatic Call Recording, One way call recording, Analytics. |
| · | Advanced Unified Communication Features such as Find-Me-Follow-Me, Sequential Ring and Simultaneous Ring, Voicemail transcription. |
| · | Mobile Features such as extension dialing, transfer and conference and seamless hand-off from WiFi to/from 3G, 4G, 5G, and LTE, as well as other data services. These features are also available on CrexMo, VIP Mobile, and Snap Mobile which are intelligent mobile application for iPhones and Android smartphones, as well as iPads and Android tablets. |
| · | Traditional PBX Features such as Busy Lamp Fields, System Hold. 16-48 Port density Analog Device Gateways. |
| · | Expanded Desktop Device Selection such as Entry Level Phone, Executive Desktop, DECT Phone for roaming users. |
| · | Advanced Faxing solution such as Cloud Fax (cFax) allowing customers to send and receive Faxes from their Email Clients, Mobile Phones and Desktops without having to use a Fax Machine simply by attaching a file. |
| · | Web based online portal to administer, manage and provision the system. |
| · | Asynchronous communication tools like SMS/MMS, chat and document sharing to keep in pace with emerging communication trends. |
| · | Video collaboration tools for video conferencing and meeting collaboration. |
Many of these services are included in our basic offering to our customers for a monthly recurring fee and do not require a capital expense. Some of the advanced features such as Automatic Call Recording and Call Center Features require additional monthly fees. Crexendo continues to invest and develop its technology and CPaaS offerings to make them more competitive and profitable.
| 33 |
| Table of Contents |
Software Solutions – Our software solutions offering provides a comprehensive suite of unified communications (UC), video conferencing, collaboration & contact center solutions. Our platform enables service providers to customize packages with unprecedented levels of flexibility, profitability, and ease of use.
Our software solutions offering are as follows:
| · | SNAPsolution® - a comprehensive, IP-based platform that provides a broad suite of UC services including hosted Private Branch Exchange (PBX), auto-attendant, call center, conferencing, and mobility. The platform includes a broad range of feature-sets, custom-built to provide unprecedented levels of flexibility, making the solution competitive with the market’s leading players. SNAPsolution includes a full suite of Voice over Internet Protocol (VoIP)/UC features with one low cost universal license, as opposed to pricing each feature individually. The Company licenses its platform based on concurrent sessions, not per seat/per feature. This allows service providers to oversubscribe their networks, driving down the cost per seat as volume increases. As the service provider increases their customer base, they only have to ensure they have sufficient concurrent call licenses to support users across the network. |
| · | SNAPaccel – a Software-as-a-Service ("SaaS") based software license referred to as subscription arrangements. |
| · | Subscription Maintenance and Support - The Company also sells separately-priced maintenance service contracts, which qualify as service-type warranties and represent separate performance obligations and customer support. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. |
| · | Professional Services and Other - The Company's professional services include consulting, technical support, resident engineer services, design services and installation services. |
KEY BUSINESS METRICS
In addition to United States generally accepted accounting principles (“U.S. GAAP”) and financial measures such as total revenues, gross margin, and cash flows from operations, we review a number of key business metrics to evaluate growth trends, measure our performance, and make strategic decisions. We discuss revenues and operating expenses under “Results of Operations”, and cash flow from operations under “Liquidity and Capital Resources.” Other key business metrics are discussed below.
Annualized Exit Monthly Recurring Subscriptions
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.
Net Monthly Subscription Dollar Retention Rate
We believe that our Net Monthly Subscription Dollar Retention Rate provides insight into our ability to retain and grow subscriptions revenue, as well as our customers’ potential long-term value to us. We believe that our ability to retain our customers and expand their use of our solutions over time is a leading indicator of the stability of our revenue base and we use these trends to formulate financial projections and make strategic business decisions. We define our Net Monthly Subscription Dollar Retention Rate as (i) one plus (ii) the quotient of Dollar Net Change divided by Average Monthly Recurring Subscriptions.
We define Dollar Net Change as the quotient of (i) the difference of our Monthly Recurring Subscriptions at the end of a period minus our Monthly Recurring Subscriptions at the beginning of a period minus our Monthly Recurring Subscriptions at the end of the period from new customers we added during the period, all divided by (ii) the number of months in the period. We define our Average Monthly Recurring Subscriptions as the average of the Monthly Recurring Subscriptions at the beginning and end of the measurement period.
For example, if our Monthly Recurring Subscriptions were $122 at the end of a quarterly period and $100 at the beginning of the period, and $24 at the end of the period from new customers we added during the period, then the Dollar Net Change would be equal to ($0.67), or the amount equal to the difference of $122 minus $100 minus $24, all divided by three months. Our Average Monthly Recurring Subscriptions would equal $111, or the sum of $100 plus $122, divided by two. Our Net Monthly Subscription Dollar Retention Rate would then equal 99.4%, or approximately 99%, or one plus the quotient of the Dollar Net Change divided by the Average Monthly Recurring Subscriptions.
| 34 |
| Table of Contents |
Adjusted EBITDA
In addition, we use Adjusted EBITDA to manage our business, evaluate our performance and make planning decisions. We consider this metric to be a useful measure of our operating performance, because it contains adjustments for unusual events or factors that do not directly affect what management considers the core operating performance, and are used by our management for that purpose. We also believe this measure enables us to better evaluate our performance by facilitating a meaningful comparison of our core operating results in a given period to those in prior and future periods. Investors often use similar measures to evaluate the operating performance with competitors. Adjusted EBITDA represents net income before interest and other income, income taxes, depreciation, amortization of intangible assets, and share-based compensation and related taxes.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
| · | Adjusted EBITDA does not consider any expenses for assets being depreciated and amortized that are necessary to our business; |
| · | Adjusted EBITDA does not consider the impact of interest and other income/(expense), income taxes, share-based compensation and related taxes, and amortization of intangible assets; and |
| · | Other companies, including companies in our industry, may calculate diluted EBITDA differently, which reduces its usefulness as a comparative measure. |
Because of these limitations, Adjusted EBITDA should be considered alongside other financial performance measures, including net income/(loss) and our other GAAP results.
Our key business metrics for the periods ended September 30, 2025 and September 30, 2024, were as follows (in thousands, except for percentages):
|
| As of September 30, 2025 |
|
| As of September 30, 2024 |
| ||||||||||||||||||
|
| Cloud Telecommunications Services |
|
| Software Solutions |
|
| Consolidated |
|
| Cloud Telecommunications Services |
|
| Software Solutions |
|
| Consolidated |
| ||||||
Annualized exit recurring revenue |
| $ | 35,397 |
|
| $ | 20,703 |
|
| $ | 56,100 |
|
| $ | 31,873 |
|
| $ | 17,166 |
|
| $ | 49,039 |
|
Net dollar subscription retention rate |
|
| 99 | % |
|
| 102 | % |
|
| 100 | % |
|
| 99 | % |
|
| 102 | % |
|
| 100 | % |
Adjusted EBITDA |
|
| 936 |
|
|
| 2,007 |
|
|
| 2,943 |
|
|
| 845 |
|
|
| 916 |
|
|
| 1,761 |
|
Results of Operations
The following discussion of financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto and other financial information included elsewhere in this Form 10-Q.
Results of Consolidated Operations (in thousands, except for per share amounts):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2025 |
|
| 2024 |
|
| 2025 |
|
| 2024 |
| ||||
| Service revenue |
| $ | 8,607 |
|
| $ | 7,953 |
|
| $ | 25,163 |
|
| $ | 23,865 |
|
| Software solutions revenue |
|
| 7,521 |
|
|
| 5,860 |
|
|
| 21,364 |
|
|
| 16,331 |
|
| Product revenue |
|
| 1,369 |
|
|
| 1,814 |
|
|
| 3,579 |
|
|
| 4,402 |
|
| Total revenue |
| $ | 17,497 |
|
| $ | 15,627 |
|
| $ | 50,106 |
|
| $ | 44,598 |
|
| Income/(loss) before income tax |
|
| 1,493 |
|
|
| 194 |
|
|
| 3,988 |
|
|
| 1,270 |
|
| Income tax (provision)/benefit |
|
| (43 | ) |
|
| (46 | ) |
|
| (135 | ) |
|
| (100 | ) |
| Net income/(loss) |
|
| 1,450 |
|
|
| 148 |
|
|
| 3,853 |
|
|
| 1,170 |
|
| Basic earnings per share |
| $ | 0.05 |
|
| $ | 0.01 |
|
| $ | 0.13 |
|
| $ | 0.04 |
|
| Diluted earnings per share |
| $ | 0.05 |
|
| $ | 0.00 |
|
| $ | 0.12 |
|
| $ | 0.04 |
|
| 35 |
| Table of Contents |
Three months ended September 30, 2025 compared to three months ended September 30, 2024
Total Revenue
Total revenue consists of service revenue, software solutions revenue, and product revenue. The following table reflects our total revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Total revenue |
| $ | 17,497 |
|
| $ | 15,627 |
|
| $ | 1,870 |
|
|
| 12 | % |
The increase in total revenue is due to an increase in software solutions revenue of $1,661, an increase in service revenue of $616, offset by a decrease in product revenue of $407.
Income/(Loss) Before Income Tax
The following table reflects our income/(loss) before income tax for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Income/(loss) before income tax |
| $ | 1,493 |
|
| $ | 194 |
|
| $ | 1,299 |
|
|
| 670 | % |
The increase in income/(loss) before income tax is primarily related to an increase in revenue of $1,870 and an increase in other income/(expense) of $129, offset by an increase in operating expenses of $700. The increase in revenue is related to organic growth from new and existing customers. The increase in operating expenses is primarily related to increase in contract labor and outsourced engineering services of $298, an increase in commission expenses of $250, and an increase in third-party telecommunication charges of $163, offset by a decrease in other operating expenses of $11. The increase in other income/(expense) is primarily related to an increase in interest income of $130, offset by a decrease in other income/(expense) of $1.
Income Tax Benefit/(Provision)
The following table reflects our income tax benefit/(provision) for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Income tax benefit/(provision) |
| $ | (43 | ) |
| $ | (46 | ) |
| $ | 3 |
|
|
| 7 | % |
The decrease in income tax provision is due to the quarterly impact of the tax provision adjustment.
Nine months ended September 30, 2025 compared to nine months ended September 30, 2024
Total Revenue
Total revenue consists of service revenue, software solutions revenue, and product revenue. The following table reflects our service revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Total revenue |
| $ | 50,106 |
|
| $ | 44,598 |
|
| $ | 5,508 |
|
|
| 12 | % |
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.
| 36 |
| Table of Contents |
Income/(Loss) Before Income Tax
The following table reflects our income/(loss) before income tax for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Income/(loss) before income tax |
| $ | 3,988 |
|
| $ | 1,270 |
|
| $ | 2,718 |
|
|
| 214 | % |
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.
Income Tax Benefit/(Provision)
The following table reflects our income tax benefit/(provision) for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Income tax benefit/(provision) |
| $ | (135 | ) |
| $ | (100 | ) |
| $ | (35 | ) |
|
| -35 | % |
The increase in income tax provision is due to minimum state tax increases as a result of increased revenue.
Use of Non-GAAP Financial Measures
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.
In our November 4, 2025 earnings press release, as furnished on Form 8-K, we included Non-GAAP net income, EBITDA and Adjusted EBITDA. The terms Non-GAAP net income, EBITDA, and Adjusted EBITDA are not defined under U.S. GAAP, and are not measures of operating income, operating performance or liquidity presented in analytical tools, and when assessing our operating performance, Non-GAAP net income, EBITDA, and Adjusted EBITDA should not be considered in isolation, or as a substitute for net income/(loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Some of these limitations include, but are not limited to:
| · | EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; |
| · | they do not reflect changes in, or cash requirements for, our working capital needs; |
| · | they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt that we may incur; |
| · | they do not reflect income taxes or the cash requirements for any tax payments; |
| · | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will be replaced sometime in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; |
| · | while share-based compensation is a component of operating expense, the impact on our financial statements compared to other companies can vary significantly due to such factors as the assumed life of the options and the assumed volatility of our common stock; and |
| · | other companies may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures. |
| 37 |
| Table of Contents |
We compensate for these limitations by relying primarily on our U.S. GAAP results and using Non-GAAP net income, EBITDA, and Adjusted EBITDA only as supplemental support for management’s analysis of business performance. Non-GAAP net income, EBITDA and Adjusted EBITDA are calculated as follows for the periods presented.
Reconciliation of Non-GAAP Financial Measures
In accordance with the requirements of Regulation G issued by the SEC, we are presenting the most directly comparable U.S. GAAP financial measures and reconciling the unaudited Non-GAAP financial metrics to the comparable U.S. GAAP measures.
Reconciliation of U.S. GAAP Net Income/(Loss) to Non-GAAP Net Income
(Unaudited, in thousands, except for per share and share data)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2025 |
|
| 2024 |
|
| 2025 |
|
| 2024 |
| ||||
| U.S. GAAP net income/(loss) |
| $ | 1,450 |
|
| $ | 148 |
|
| $ | 3,853 |
|
| $ | 1,170 |
|
Share-based compensation and related taxes (1) |
|
| 799 |
|
|
| 797 |
|
|
| 2,422 |
|
|
| 2,323 |
|
Amortization of intangible assets |
|
| 785 |
|
|
| 755 |
|
|
| 2,292 |
|
|
| 2,273 |
|
| Non-GAAP net income |
| $ | 3,034 |
|
| $ | 1,700 |
|
| $ | 8,567 |
|
| $ | 5,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-GAAP earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
| $ | 0.10 |
|
| $ | 0.06 |
|
| $ | 0.29 |
|
| $ | 0.22 |
|
| Diluted |
| $ | 0.10 |
|
| $ | 0.06 |
|
| $ | 0.27 |
|
| $ | 0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
| 30,397,144 |
|
|
| 26,848,644 |
|
|
| 29,292,516 |
|
|
| 26,610,130 |
|
| Diluted |
|
| 31,818,738 |
|
|
| 29,857,261 |
|
|
| 31,418,659 |
|
|
| 29,827,531 |
|
Reconciliation of U.S. GAAP Net Income/(Loss) to EBITDA to Adjusted EBITDA
(Unaudited, in thousands)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2025 |
|
| 2024 |
|
| 2025 |
|
| 2024 |
| ||||
| U.S. GAAP net income/(loss) |
| $ | 1,450 |
|
| $ | 148 |
|
| $ | 3,853 |
|
| $ | 1,170 |
|
Depreciation and amortization |
|
| 839 |
|
|
| 829 |
|
|
| 2,466 |
|
|
| 2,505 |
|
Interest expense |
|
| 3 |
|
|
| 7 |
|
|
| 18 |
|
|
| 31 |
|
Other, net |
|
| (191 | ) |
|
| (66 | ) |
|
| (448 | ) |
|
| (103 | ) |
Income tax provision |
|
| 43 |
|
|
| 46 |
|
|
| 135 |
|
|
| 100 |
|
| EBITDA |
|
| 2,144 |
|
|
| 964 |
|
|
| 6,024 |
|
|
| 3,703 |
|
Share-based compensation and related taxes (1) |
|
| 799 |
|
|
| 797 |
|
|
| 2,422 |
|
|
| 2,323 |
|
| Adjusted EBITDA |
| $ | 2,943 |
|
| $ | 1,761 |
|
| $ | 8,446 |
|
| $ | 6,026 |
|
___________________
(1) | For the three months ended September 30, 2025 and 2024, employer payroll tax expense related to share-based compensation was $33 and $16, respectively. For the nine months ended September 30, 2025 and 2024, employer payroll tax expense related to share-based compensation was $168 and $30, respectively. |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our revenue, operating income or loss and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet. Please see Note 1 of Part I, Item 1 of this quarterly report on Form 10-Q for a summary of significant accounting policies. In addition, the estimates, assumptions and judgments involved in our accounting policies described in critical accounting policies and estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
| 38 |
| Table of Contents |
Segment Operating Results
The Company has two operating segments, which consist of Cloud Telecommunications Services and Software Solutions. The information below is organized in accordance with our two reportable segments. Segment operating income is equal to segment net revenue less segment cost of service revenue, cost of software solution revenue, cost of product revenue, sales and marketing, research and development, and general and administrative expenses.
Operating Results of our Cloud Telecommunications Services Segment (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
Cloud Telecommunications Services |
| 2025 |
|
| 2024 |
|
| 2025 |
|
| 2024 |
| ||||
Service revenue |
| $ | 8,607 |
|
| $ | 7,953 |
|
| $ | 25,163 |
|
| $ | 23,865 |
|
Product revenue |
|
| 1,369 |
|
|
| 1,814 |
|
|
| 3,579 |
|
|
| 4,402 |
|
Total revenue |
| $ | 9,976 |
|
| $ | 9,767 |
|
| $ | 28,742 |
|
| $ | 28,267 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service revenue |
| $ | 3,664 |
|
| $ | 3,336 |
|
| $ | 10,707 |
|
| $ | 9,691 |
|
Cost of product revenue |
|
| 888 |
|
|
| 1,081 |
|
|
| 2,174 |
|
|
| 2,507 |
|
Selling and marketing |
|
| 3,215 |
|
|
| 2,976 |
|
|
| 9,148 |
|
|
| 8,580 |
|
General and administrative |
|
| 1,928 |
|
|
| 2,278 |
|
|
| 5,824 |
|
|
| 6,668 |
|
Research and development |
|
| 122 |
|
|
| 134 |
|
|
| 369 |
|
|
| 661 |
|
Total operating expenses |
|
| 9,817 |
|
|
| 9,805 |
|
|
| 28,222 |
|
|
| 28,107 |
|
Operating income/(loss) |
|
| 159 |
|
|
| (38 | ) |
|
| 520 |
|
|
| 160 |
|
Other income/(expense), net |
|
| 194 |
|
|
| 64 |
|
|
| 398 |
|
|
| 104 |
|
Income/(loss) before income tax |
| $ | 353 |
|
| $ | 26 |
|
| $ | 918 |
|
| $ | 264 |
|
Three months ended September 30, 2025 compared to three months ended September 30, 2024
Service Revenue
Cloud telecommunications service revenue consists primarily of fees collected for cloud telecommunications services, professional services, interest from sales-type leases, reselling broadband Internet services, managed IT service, and administrative fees. The following table reflects our service revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Service revenue |
| $ | 8,607 |
|
| $ | 7,953 |
|
| $ | 654 |
|
|
| 8 | % |
The increase in service revenue is due to an increase in telecommunications services fees of $560, an increase in fees, commissions, and other, recognized over time of $50, an increase in sales-type lease interest of $40, and an increase in one-time fees, commissions and other of $4.
Product Revenue
Product revenue consists primarily of fees collected from the sale of desktop phone devices, third-party equipment, and device as a service. The following table reflects our product revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Product revenue |
| $ | 1,369 |
|
| $ | 1,814 |
|
| $ | (445 | ) |
|
| -25 | % |
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.
| 39 |
| Table of Contents |
Remaining Performance Obligations
Remaining Performance Obligations (RPOs) represents the total contract value of all contracts signed, less revenue recognized from those contracts as of September 30, 2025 and 2024. RPO’s increased 11%, or $6,030 to $58,993 as of September 30, 2025 as compared to $52,963 as of September 30, 2024. Below is a table which displays the Cloud Telecommunications segment revenue remaining performance obligations as of July 1, 2025 and 2024, and September 30, 2025 and 2024, which we expect to recognize as revenue within the next thirty-six to sixty months (in thousands):
| Cloud Telecommunications RPO's as of July 1, 2025 |
| $ | 56,392 |
|
| Cloud Telecommunications RPO's as of September 30, 2025 |
| $ | 58,993 |
|
|
|
|
|
|
| Cloud Telecommunications RPO's as of July 1, 2024 |
| $ | 51,684 |
|
| Cloud Telecommunications RPO's as of September 30, 2024 |
| $ | 52,963 |
|
Cost of Service Revenue
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:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Cost of service revenue |
| $ | 3,664 |
|
| $ | 3,336 |
|
| $ | 328 |
|
|
| 10 | % |
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.
Cost of Product Revenue
Cost of product revenue consists of the costs associated with desktop phone devices and third-party equipment. The following table reflects our cost of product revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Cost of product revenue |
| $ | 888 |
|
| $ | 1,081 |
|
| $ | (193 | ) |
|
| -18 | % |
The decrease in cost of product revenue is directly related to the decrease in product revenue for the three months ended September 30, 2025.
Selling and Marketing
Selling and marketing expenses consist primarily of direct and channel sales representative salaries, benefits, bonuses, and share-based compensation, partner channel commissions, amortization of costs to acquire contracts, travel expenses, lead generation services, trade shows, internal and third-party marketing costs, amortization of customer relationship intangible assets, the production of marketing materials, and sales support software. The following table reflects our selling and marketing expenses for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Selling and marketing |
| $ | 3,215 |
|
| $ | 2,976 |
|
| $ | 239 |
|
|
| 8 | % |
| 40 |
| Table of Contents |
The increase in selling and marketing expense is primarily related to an increase in commission expense of $144 directly related to the increase in revenue, an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $83, and an increase in other sales and marketing expense of $12.
General and Administrative
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:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
General and administrative |
| $ | 1,928 |
|
| $ | 2,278 |
|
| $ | (350 | ) |
|
| -15 | % |
The decrease in general and administrative expenses is primarily related to a decrease in administrative salaries, benefits, bonuses, share-based compensation, and headcount of $163, a decrease in telecommunication annual taxes and fees of $76, a decrease in utility expense of $53, and a decrease in other general and administrative expenses of $58.
Research and Development
Research and development expenses primarily consist of salaries, benefits, bonuses, and share-based compensation and outsourced engineering services related to the development of new cloud telecommunications features and products. 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:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Research and development |
| $ | 122 |
|
| $ | 134 |
|
| $ | (12 | ) |
|
| -9 | % |
The decrease in research and development expenses is primarily related to the allocation of engineering resources to the Software Solutions segment of $23 as we finalize the migration of our classic customers to our VIP platform, offset by an increase in other research and development expenses of $11.
Other Income/(Expense)
Other income/(expense) primarily relates to interest income, interest expense, net foreign exchange gains or losses, gain on the sale of property and equipment, and credit card cash back rewards. The following table reflects our other income/(expense) for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Other income/(expense) |
| $ | 194 |
|
| $ | 64 |
|
| $ | 130 |
|
|
| 203 | % |
The change in other income/(expense) is primarily related to an increase in interest income of $130 and a decrease in interest expense of $4, offset by a decrease in other income of $4.
| 41 |
| Table of Contents |
Nine months ended September 30, 2025 compared to nine months ended September 30, 2024
Service Revenue
Cloud telecommunications service revenue consists primarily of fees collected for cloud telecommunications services, professional services, interest from sales-type leases, reselling broadband Internet services, managed IT service, and administrative fees. The following table reflects our service revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Service revenue |
| $ | 25,163 |
|
| $ | 23,865 |
|
| $ | 1,298 |
|
|
| 5 | % |
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.
Product Revenue
Product revenue consists primarily of fees collected from the sale of desktop phone devices, third-party equipment, and device as a service. The following table reflects our product revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Product revenue |
| $ | 3,579 |
|
| $ | 4,402 |
|
| $ | (823 | ) |
|
| -19 | % |
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.
Remaining Performance Obligations
Remaining Performance Obligations (RPO’s) represents the total contract value of all contracts signed, less revenue recognized from those contracts as of September 30, 2025 and 2024. RPO’s increased 11%, or $6,030 to $58,993 as of September 30, 2025 as compared to $52,963 as of September 30, 2024. Below is a table which displays the Cloud Telecommunications segment revenue remaining performance obligations as of January 1, 2025 and 2024, and September 30, 2025 and 2024, which we expect to recognize as revenue within the next thirty-six to sixty months (in thousands):
| Cloud Telecommunications RPO's as of January 1, 2025 |
| $ | 55,369 |
|
| Cloud Telecommunications RPO's as of September 30, 2025 |
| $ | 58,993 |
|
|
|
|
|
|
| Cloud Telecommunications RPO's as of January 1, 2024 |
| $ | 44,810 |
|
| Cloud Telecommunications RPO's as of September 30, 2024 |
| $ | 52,963 |
|
Cost of Service Revenue
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 nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Cost of service revenue |
| $ | 10,707 |
|
| $ | 9,691 |
|
| $ | 1,016 |
|
|
| 10 | % |
The increase in cost of service revenue was primarily related to an increase in third-party telecommunication charges of $417, an increase in contract labor costs to assist with the migration of our customers to our new VIP platform of $412, an increase in data center hosting costs of $111, an increase in software costs of $73, and an increase in other cost of service revenue of $3.
| 42 |
| Table of Contents |
Cost of Product Revenue
Cost of product revenue consists of the costs associated with desktop phone devices and third-party equipment. The following table reflects our cost of product revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Cost of product revenue |
| $ | 2,174 |
|
| $ | 2,507 |
|
| $ | (333 | ) |
|
| -13 | % |
The decrease in cost of product revenue is primarily related to the decrease in product revenue for the nine months ended September 30, 2025.
Selling and Marketing
Selling and marketing expenses consist primarily of direct and channel sales representative salaries, benefits, bonuses, and share-based compensation, partner channel commissions, amortization of costs to acquire contracts, travel expenses, lead generation services, trade shows, internal and third-party marketing costs, amortization of customer relationship intangible assets, the production of marketing materials, and sales support software. The following table reflects our selling and marketing expenses for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Selling and marketing |
| $ | 9,148 |
|
| $ | 8,580 |
|
| $ | 568 |
|
|
| 7 | % |
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.
General and Administrative
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 nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
General and administrative |
| $ | 5,824 |
|
| $ | 6,668 |
|
| $ | (844 | ) |
|
| -13 | % |
The decrease in general and administrative expenses is primarily related to a decrease in administrative salaries, benefits, bonuses, share-based compensation, and headcount of $563, a decrease in telecommunication annual taxes and fees of $147, a decrease in legal fees of $56 related to the filing of our Form S-3 in 2024, a decrease in consulting fees of $28, and a decrease in other general and administrative expenses of $50.
Research and Development
Research and development expenses primarily consist of salaries, benefits, bonuses, and share-based compensation, and outsourced engineering services related to the development of new cloud telecommunications features and products. The following table reflects our research and development expenses for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Research and development |
| $ | 369 |
|
| $ | 661 |
|
| $ | (292 | ) |
|
| -44 | % |
The decrease in research and development expenses is primarily related to the allocation of engineering resources to our Software Solutions segment of $302 as we finalize the migration of our customers to our VIP platform, offset by an increase in other research and development expenses of $10.
| 43 |
| Table of Contents |
Other Income/(Expense)
Other income/(expense) primarily relates to interest income, interest expense, net foreign exchange gains or losses, gain on the sale of property and equipment, and credit card cash back rewards. The following table reflects our other income/(expense) for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Other income/(expense), net |
| $ | 398 |
|
| $ | 104 |
|
| $ | 294 |
|
|
| 283 | % |
The change in other income/(expense) is primarily related to an increase in interest income of $281 and a decrease in interest expense of $13.
Operating Results of Software Solutions segment (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
Software Solutions |
| 2025 |
|
| 2024 |
|
| 2025 |
|
| 2024 |
| ||||
Software solutions revenue |
| $ | 7,521 |
|
| $ | 5,860 |
|
| $ | 21,364 |
|
| $ | 16,331 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software solutions revenue |
|
| 1,924 |
|
|
| 1,686 |
|
|
| 5,227 |
|
|
| 4,523 |
|
Selling and marketing |
|
| 1,307 |
|
|
| 1,245 |
|
|
| 4,034 |
|
|
| 3,626 |
|
General and administrative |
|
| 1,852 |
|
|
| 1,417 |
|
|
| 5,060 |
|
|
| 3,755 |
|
Research and development |
|
| 1,292 |
|
|
| 1,339 |
|
|
| 4,005 |
|
|
| 3,389 |
|
Total operating expenses |
|
| 6,375 |
|
|
| 5,687 |
|
|
| 18,326 |
|
|
| 15,293 |
|
Operating income/(loss) |
|
| 1,146 |
|
|
| 173 |
|
|
| 3,038 |
|
|
| 1,038 |
|
Other income/(expense), net |
|
| (6 | ) |
|
| (5 | ) |
|
| 32 |
|
|
| (32 | ) |
Income/(loss) before income tax |
| $ | 1,140 |
|
| $ | 168 |
|
| $ | 3,070 |
|
| $ | 1,006 |
|
Three months ended September 30, 2025 compared to three months ended September 30, 2024
Software Solutions Revenue
Software solutions revenue consists primarily of software license fees, subscription maintenance and support, professional services, and annual user group meeting fees. Software licenses are billed by the number of concurrent sessions a customer has purchased or subscribes to. Subscription maintenance and support is ongoing and provides for software updates and improvements, support for add-on modules, bug fixes, and other general maintenance items. Professional services and other revenues consist of professional services such as the installation of software and integration of other modules, training and implementation as well as custom mobile branding. The following table reflects our service revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Software solutions revenue |
| $ | 7,521 |
|
| $ | 5,860 |
|
| $ | 1,661 |
|
|
| 28 | % |
The increase in software solutions revenue is primarily related to an increase in recurring software license and maintenance and support subscriptions of $1,040, an increase in perpetual software license revenue of $605, and an increase in professional services and other revenue of $16.
| 44 |
| Table of Contents |
Remaining Performance Obligations
Remaining Performance Obligations (RPOs) represents the total contract value of all contracts signed, less revenue recognized from those contracts as of September 30, 2025 and 2024. RPO’s increased 18%, or $4,480 to $28,888 as of September 30, 2025 as compared to $24,408 as of September 30, 2024. Below is a table which displays the software solutions segment revenue remaining performance obligations as of July 1, 2025 and 2024, and September 30, 2025 and 2024, which we expect to recognize as revenue within the next thirty-six to sixty months (in thousands):
| Software solutions RPO's as of July 1, 2025 |
| $ | 27,077 |
|
| Software solutions RPO's as of September 30, 2025 |
| $ | 28,888 |
|
|
|
|
|
|
| Software solutions RPO's as of July 1, 2024 |
| $ | 19,478 |
|
| Software solutions RPO's as of September 30, 2024 |
| $ | 24,408 |
|
Cost of Software Solutions Revenue
Cost of software solutions revenue consists primarily of salaries, benefits, bonuses, and share-based compensation, amortization expense for developed technologies intangible assets, cost of data center hosting, third-party software, annual user group meeting costs, and outsourced services required to install and support software solutions. 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:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Cost of software solutions revenue |
| $ | 1,924 |
|
| $ | 1,686 |
|
| $ | 238 |
|
|
| 14 | % |
The increase in cost of software solutions revenue is primarily related to an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $175 and an increase in third-party hosting service costs of $63.
Selling and Marketing
Selling and marketing expenses consist primarily of sales and marketing salaries, benefits, bonuses, commissions, share-based compensation, travel expenses, lead generation services, trade shows, third-party marketing services, the production of marketing materials, annual user group meeting costs, and sales support software. The following table reflects our selling and marketing expenses for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Selling and marketing |
| $ | 1,307 |
|
| $ | 1,245 |
|
| $ | 62 |
|
|
| 5 | % |
The increase in selling and marketing expense is primarily related to an increase in commission expense of $106 directly related to the increase in revenue, offset by a decrease in salaries, benefits, bonuses, share-based compensation, and headcount of $42 primarily from an allocation of resources to the Cloud Telecommunications services segment, and a decrease in other selling and marketing costs of $2.
General and Administrative
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:
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
General and administrative |
| $ | 1,852 |
|
| $ | 1,417 |
|
| $ | 435 |
|
|
| 31 | % |
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.
| 45 |
| Table of Contents |
Research and Development
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:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Research and development |
| $ | 1,292 |
|
| $ | 1,339 |
|
| $ | (47 | ) |
|
| -4 | % |
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.
Other Income/(Expense)
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:
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Other income/(expense), net |
| $ | (6 | ) |
| $ | (5 | ) |
| $ | (1 | ) |
|
| -20 | % |
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.
Nine months ended September 30, 2025 compared to nine months ended September 30, 2024
Software Solutions Revenue
Software solutions revenue consists primarily of software license fees, subscription maintenance and support, professional services, and annual user group meeting fees. Software licenses are billed by the number of concurrent sessions a customer has purchased or subscribes to. Subscription maintenance and support is ongoing and provides for software updates and improvements, support for add-on modules, bug fixes, and other general maintenance items. Professional services and other revenues consist of professional services such as the installation of software and integration of other modules, training and implementation as well as custom mobile branding. The following table reflects our service revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Software solutions revenue |
| $ | 21,364 |
|
| $ | 16,331 |
|
| $ | 5,033 |
|
|
| 31 | % |
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.
Remaining Performance Obligations
Remaining Performance Obligations (RPOs) represents the total contract value of all contracts signed, less revenue recognized from those contracts as of September 30, 2025 and 2024. RPO’s increased 18%, or $4,480 to $28,888 as of September 30, 2025 as compared to $24,408 as of September 30, 2024. Below is a table which displays the software solutions segment revenue remaining performance obligations as of January 1, 2025 and 2024, and September 30, 2025 and 2024, which we expect to recognize as revenue within the next thirty-six to sixty months (in thousands):
| Software solutions RPO's as of January 1, 2025 |
| $ | 30,262 |
|
| Software solutions RPO's as of September 30, 2025 |
| $ | 28,888 |
|
|
|
|
|
|
| Software solutions RPO's as of January 1, 2024 |
| $ | 19,122 |
|
| Software solutions RPO's as of September 30, 2024 |
| $ | 24,408 |
|
| 46 |
| Table of Contents |
Cost of Software Solutions Revenue
Cost of software solutions revenue consists primarily of salaries, benefits, bonuses, and share-based compensation, amortization expense for developed technologies intangible assets, cost of data center hosting, third-party software, annual user group meeting costs, and outsourced services required to install and support software solutions. The following table reflects our cost of service revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Cost of software solutions revenue |
| $ | 5,227 |
|
| $ | 4,523 |
|
| $ | 704 |
|
|
| 16 | % |
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.
Selling and Marketing
Selling and marketing expenses consist primarily of sales and marketing salaries, benefits, bonuses, commissions, share-based compensation, travel expenses, lead generation services, trade shows, third-party marketing services, the production of marketing materials, annual user group meeting costs, and sales support software. The following table reflects our selling and marketing expenses for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Selling and marketing |
| $ | 4,034 |
|
| $ | 3,626 |
|
| $ | 408 |
|
|
| 11 | % |
The increase in selling and marketing expense is primarily related to an increase in commission expense of $409 directly related to the increase in revenue and an increase in marketing materials and trade show costs of $103, offset by a decrease in salaries, benefits, bonuses, share-based compensation, and headcount of $58 primarily from an allocation of resources to the Cloud Telecommunications services segment, a decrease in sales support software of $27, and a decrease in other selling and marketing costs of $19.
General and Administrative
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 nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
General and administrative |
| $ | 5,060 |
|
| $ | 3,755 |
|
| $ | 1,305 |
|
|
| 35 | % |
The increase in general and administrative expenses is primarily related to an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $842 due to allocation of resources from the Cloud Telecommunications services segment, an increase in legal expenses of $217, an increase amortization of the capitalized software development costs intangible asset of $84, an increase in professional service costs of $45, an increase in consulting fees of $42, an increase in accounting software costs of $27 associated with service contract fees for our new accounting system, and an increase in other general and administrative expenses of $48.
Research and Development
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 nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Research and development |
| $ | 4,005 |
|
| $ | 3,389 |
|
| $ | 616 |
|
|
| 18 | % |
| 47 |
| Table of Contents |
The increase in research and development expenses is primarily related to an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $519 due to the allocation of engineering resources from the Cloud Telecommunications segment as we finalize the migration of our classic customers to the VIP platform and an increase in outsourced engineering services expenses of $101, offset by a decrease in other research and development expenses of $4.
Other Income/(Expense)
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 nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Other income/(expense) |
| $ | 32 |
|
| $ | (32 | ) |
| $ | 64 |
|
|
| 200 | % |
The change in other income/(expense) is primarily related to an increase in foreign exchange gains of $68, offset by a decrease in other income of $4.
Liquidity and Capital Resources
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.
Operating Activities
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:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Net cash provided by/(used in) operating activities |
| $ | 6,950 |
|
| $ | 4,107 |
|
| $ | 2,843 |
|
|
| 69 | % |
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.
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.
| 48 |
| Table of Contents |
Investing Activities
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:
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Net cash provided by/(used in) investing activities |
| $ | (18 | ) |
| $ | - |
|
| $ | (18 | ) |
|
| 100 | % |
The net cash used in investing activities for the nine months ended September 30, 2025 was for the purchase of property and equipment.
Financing Activities
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:
|
| 2025 |
|
| 2024 |
|
| Dollar Change |
|
| Percent Change |
| ||||
Net cash provided by/(used in) financing activities |
| $ | 3,421 |
|
| $ | 1,011 |
|
| $ | 2,410 |
|
|
| 238 | % |
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.
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.
Contractual Obligations and Commitments
Except as set forth in Notes 10, 14, and 15 in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no significant changes in our commitments under contractual obligations, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
Off Balance Sheet Arrangements
As of September 30, 2025, we are not involved in any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Related Party Transactions
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.
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.
| 49 |
| Table of Contents |
Impact of Recent Accounting Pronouncements
The information set forth under Note 1 to the condensed consolidated financial statements under the caption “Recent Accounting Pronouncements” is incorporated herein by reference.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk
For all periods presented, our sales and operating expenses were predominately denominated in U.S. dollars. We therefore have not had material foreign currency risk associated with sales and cost-based activities. The functional currency of our material operating entities is the U.S. dollar.
For the periods presented, we believe the exposure to foreign currency fluctuation from operating expenses is immaterial as the related costs do not constitute a significant portion of our total expenses. As we grow operations, our exposure to foreign currency risk may become more significant.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition, or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Report, have concluded that, based on the evaluation of these controls and procedures, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 50 |
| Table of Contents |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. There are no matters pending or threatened that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.
Item 1A. Risk Factors
There are many risk factors that may affect our business and the results of our operations, many of which are beyond our control. Information on certain risks that we believe are material to our business is set forth in “Part I – Item 1A. Risk Factors” of the 2024 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 5. Other Information
Adoption of New 10b5-1 Plan
No
Termination of 10b5-1 Plan
No directors or officers, as defined in Rule 16a-1(f), have
| 51 |
| Table of Contents |
Item 6. Exhibits
EXHIBIT INDEX
Exhibit |
|
| Incorporated By Reference |
| Filed Herewith | |||||
No. |
| Exhibit Description |
| Form |
| Date |
| Number |
| |
|
|
|
|
|
|
|
|
|
|
|
| Certification Pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934 as amended |
|
|
|
|
|
|
| X | |
| Certification Pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934 as amended |
|
|
|
|
|
|
| X | |
|
|
|
|
|
|
|
| X | ||
|
|
|
|
|
|
|
| X | ||
101.INS |
| XBRL INSTANCE DOCUMENT |
|
|
|
|
|
|
|
|
101.SCH |
| XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT |
|
|
|
|
|
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101.CAL |
| XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT |
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101.DEF |
| XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT |
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101.LAB |
| XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT |
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101.PRE |
| XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT |
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__________________
| * | In accordance with Rule 406T of Regulation S-T, these XBRL (eXtensible Business Reporting Language) documents are furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections. |
| 52 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Crexendo, Inc. |
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November 4, 2025 | By: | /s/ Jeffrey G. Korn |
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| Jeffrey G. Korn Chief Executive Officer |
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November 4, 2025 | By: | /s/ RONALD VINCENT |
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| Ronald Vincent Chief Financial Officer |
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EXHIBIT 31.1
Certification Pursuant to
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Amended
I, Jeffrey G. Korn, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Crexendo, Inc.; |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 4, 2025 | By: | /s/ JEFFREY G. KORN |
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| Jeffrey G. Korn Chief Executive Officer |
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EXHIBIT 31.2
Certification Pursuant to
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Amended
I, Ronald Vincent, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Crexendo, Inc.; |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 4, 2025 | By: | /s/ RONALD VINCENT |
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| Ronald Vincent Chief Financial Officer |
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EXHIBIT 32.1
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of Crexendo, Inc., a Nevada corporation (the “Company”), on Form 10-Q for the quarter ended September 30, 2025, as filed with the Securities and Exchange Commission (the “Report”), Jeffrey G. Korn, Chief Executive Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge:
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| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| Date: November 4, 2025 | By: | /s/ JEFFREY G. KORN |
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| Jeffrey G. Korn Chief Executive Officer |
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EXHIBIT 32.2
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of Crexendo, Inc., a Nevada corporation (the “Company”), on Form 10-Q for the quarter ended September 30, 2025, as filed with the Securities and Exchange Commission (the “Report”), Ronald Vincent, Chief Financial Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge:
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| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| Date: November 4, 2025 | By: | /s/ RONALD VINCENT |
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| Ronald Vincent Chief Financial Officer |
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