Crexendo Reports Second Quarter 2012 Financial Results

PHOENIX, AZ -- (Marketwire) -- 08/09/12 -- Crexendo, Inc. (NYSE MKT: EXE), a hosted services company that provides e-commerce software, website development, web hosting, search engine optimization, link building, hosted telecommunication services and broadband internet for businesses and entrepreneurs, today reported financial results for its second quarter ended June 30, 2012.

Second Quarter 2012 Compared to 2011

Net loss for the second quarter of 2012 was $117,000 or $0.01 per diluted common share, compared to a net loss of $9,345,000 or $0.88 per diluted common share in the prior year quarter. Loss before income tax provision for the second quarter of 2012 was $104,000 compared to a loss of $3,183,000 in the prior year quarter. The income tax provision for the second quarter of 2012 was $13,000, compared to an income tax provision of $6,162,000 in the prior year quarter.

Cash provided from operations for the second quarter of 2012 was $87,000 compared to cash provided by operations of $538,000 for the prior year quarter. As of June 30, 2012, cash, cash equivalents, and restricted cash were $10,408,000 working capital was $9,405,000, and working capital excluding deferred revenue was $17,179,000. Total current and long-term trade receivables were $9,360,000 as of June 30, 2012.

Segment Results

StoresOnline

Revenue for the second quarter of 2012 decreased 76% to $4,054,000 compared to $16,928,000 for the prior year quarter. Total segment operating expenses decreased 95% to $944,000 compared to $18,103,000 for the prior year quarter.

Segment other income, primarily related to interest on the collection of accounts receivable decreased 61% to $504,000 during the second quarter of 2012 from $1,276,000 in the prior year quarter.

Total segment income before income taxes increased 3,478% to $3,614,000 in the second quarter of 2012 from $101,000 in the prior year quarter.

Crexendo Web Services

Revenue for the second quarter of 2012 increased 26% to $692,000, from $550,000 in the prior year quarter. Web Services backlog, which is anticipated to be recognized within the next twelve months, was $1,007,000 at June 30, 2012 compared to a backlog of $1,196,000 at June 30, 2011. The decrease in our backlog is the result of increased fulfillment efforts during the quarter which generated the $142,000 increase in revenue over the prior year quarter.

Total segment operating expenses increased 18% to $1,358,000 during the current quarter compared to $1,149,000 in the prior year quarter. The increase in segment operating expenses is primarily due to higher expenses associated with the increase in our sales representatives. Total segment operating loss increased 11% to $666,000 in the second quarter of 2012 compared to $599,000 in the prior year quarter.

Crexendo Network Services

Revenue for the second quarter of 2012 increased to $168,000 from $18,000 in the prior year quarter. Total Network Services operating expenses were $851,000 for the second quarter of 2012 compared to $507,000 in the prior year quarter. Network Services backlog, which is anticipated to be recognized within the next thirty-six months, was $1,292,000 at June 30, 2012 compared to no backlog at June 30, 2011.

Steven G. Mihaylo, Chief Executive Officer of Crexendo, stated, "Our business continues to be effected by improvements to our sales channel. I am pleased with the advances we made this quarter. We are starting to see improvements in our sales process and sales efforts specifically in our network services division. Our hosted telecommunications offering continues to show growth, with a 124% increase in revenue in the second quarter compared to the first quarter of 2012. Although we have not made as many hires as I would like, we are starting to see progress in our hiring process. We have seen improved success with our recent new hires and believe we will have improved retention rates going forward. As of today we have 29 direct sales representatives selling both our web services and our hosted telecommunications offerings, which is an increase of 5 from the prior quarter. We are building sales momentum and expect continued improvements.

"I continue to be impressed with how our products and services continue to improve and develop. We are continuing to improve our lead generation process. We rolled out our University Program curriculum, and it has been excitedly embraced in our first classroom setting. We expect to have our University Program offerings in four universities by year end. We anticipate that by the end of 2013 to have the program offered at a far greater number of universities. We believe the University Program will provide increased lead flow, improved market acceptance and brand recognition of our products. On other fronts we continue to reduce costs and improve efficiencies. I am absolutely convinced we are focused on the right market segment and know our products and services are competitive in the marketplace. Our primary job and focus is to grow and develop the efficiencies of our sales teams, and I am confident with the changes we have made that we will be able to attract and retain quality sales representatives to sell our products. We are guided by the core principle of providing the best products and services to our customers and increase shareholder value."

Doug Gaylor, COO and President, stated, "I am very proud of the commitment and caliber of our employees. The team is working together toward a common goal of providing world-class products and services. Some of the changes we have made to our sales process are beginning to take hold. I am impressed with the quality of our recent hires, and I am also very pleased with the changes we have made to our training program which I believe increases the likelihood of our sales representatives being successful. Our lead generation process is also getting better; we have made improvements to our process and recently hired a director to manage lead generation. We will be concentrating our lead process efforts on a number of sources including trade shows, speaking engagements, associations and organizations, webinars, drip campaigns and the University Program. I am very excited about our progress and our future."

Conference Call

The Company is hosting a conference call today, August 9, 2012 at 4:30 PM EST. The conference call will be broadcast live over the Internet at http://www.crexendo.com. If you do not have Internet access, the telephone dial-in number is 888-500-6974 for domestic participants and 719-457-2658 for international participants. The conference ID to join the call is 4290549. Please dial in five to ten minutes prior to the beginning of the call at 4:30 PM EST.

About Crexendo

Crexendo is a hosted services company that provides e-commerce software, website development, web hosting, search engine optimization, link building, cloud based telecommunication services, and broadband internet for businesses and entrepreneurs. Crexendo's services are designed to make enterprise-class hosting services available to small and medium-sized businesses at affordable monthly rates.

Safe Harbor Statement

This press release contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for such forward-looking statements. The words "believe," "expect," "anticipate," "estimate," "will" and other similar statements of expectation identify forward-looking statements. Specific forward-looking statements in this press release include information about Crexendo (i) business being effected by economic conditions and improvements to the sales channel; (ii) being pleased with the advances made this quarter; (iii) seeing improvements in the sales process and sales efforts; (iii) seeing progress in hiring process as well as improved success with recent new hires resulting in improved retention rates going forward; (iv) building sales momentum and expect continued improvements; being impressed with how its products and services continue to improve and develop; (v) continuing to improve lead generation process; (vi) rolling out the University Program curriculum with it being excitedly embraced in the first classroom setting; (vii) rolling out the University Program offerings in four universities by year end and that by the end of 2013 to have the program rolled out offered at a far greater number of universities; (viii) believing the University Program will increase lead flow, improve market acceptance and brand recognition of products; (ix) continuing to reduce costs and improve efficiencies; (x) being focused on the right market segment and knowing its products and services are competitive in the marketplace; (xi) primary job and focus is to grow and develop the efficiencies of our sales teams; (xii) being confident that the Company will be able to attract and retain quality sales representatives to sell products; (xiii) being guided by the core principal of providing the best products and services to customers and increase shareholder value; (xiv) being very proud of the commitment and caliber of our employees; (xv) team working together toward a common goal of providing world class products and services; (xv) having some of the changes made to sales process beginning to take hold; (xvi) being impressed with the quality of our recent hires and with the changes we have made to its training program; (xvii) changes increasing the likelihood of our sales representatives being successful; (xvii) lead generation process getting better with improvements to process; and (xviii) concentrating lead process efforts on a number of sources including trade shows, speaking engagements, associations and organizations, webinars, drip campaigns and the University Program.

For a more detailed discussion of risk factors that may affect Crexendo's operations and results, please refer to the company's Form 10-K for the period ended December 31, 2011 and Forms 10Q for the periods ending March 31, 2012 and June 30, 2012. These forward-looking statements speak only as of the date on which such statements are made, and the company undertakes no obligation to update such forward-looking statements, except as required by law.

                       CREXENDO, INC. AND SUBSIDIARIES
                    Condensed Consolidated Balance Sheets
               (In thousands, except par value and share data)
                                 (unaudited)

                                                               December 31,
                                                June 30 2012       2011
                                               -------------  -------------
Assets

Current Assets:
  Cash and cash equivalents                    $       8,443  $       8,658
  Restricted cash                                      1,965          1,965
  Trade receivables, net of allowance of
   doubtful accounts of $852 as of June 30,
   2012 and $3,512 as of December 31, 2011             7,735          9,420
  Inventories                                            204            232
  Equipment financing receivables                          9              -
  Income taxes receivable                                514            552
  Prepaid expenses and other                             762            725
                                               -------------  -------------
    Total Current Assets                              19,632         21,552

Certificate of deposit                                   500            500
Long-term trade receivables, net of allowance
 of doubtful accounts of $185 as of June 30,
 2012 and $1,949 as of December 31, 2011               1,625          6,097
Long term equipment financing receivables                 16              -
Property and equipment, net                            3,718          4,055
Deferred income tax assets, net                          272            279
Intangible assets                                         42             79
Goodwill                                                 265            265
Other long-term assets                                   213            233
                                               -------------  -------------
    Total Assets                               $      26,283  $      33,060
                                               =============  =============

Liabilities and Stockholders' Equity

Current Liabilities:
  Accounts payable                             $         463  $       1,153
  Accrued expenses and other                           1,718          2,240
  Dividend payable                                         -            211
  Deferred income tax liability                          272            279
  Deferred revenue, current portion                    7,774          9,288
                                               -------------  -------------
    Total Current Liabilities                         10,227         13,171

Deferred revenue, net of current portion               1,637          6,123
Other long-term liabilities                              250            419
                                               -------------  -------------
  Total Liabilities                                   12,114         19,713
                                               -------------  -------------

Stockholders' Equity:
  Preferred stock, par value $0.001 per share
   - authorized 5,000,000 shares; none issued              -              -
  Common stock, par value $0.001 per share -
   authorized 100,000,000 shares; 10,669,201
   shares outstanding as of June 30, 2012 and
   10,523,078 shares outstanding as of
   December 31, 2011                                      11             11
  Additional paid-in capital                          49,680         48,938
  Accumulated deficit                                (35,522)       (35,602)
                                               -------------  -------------
    Total Stockholders' Equity                        14,169         13,347
                                               -------------  -------------

    Total Liabilities and Stockholders' Equity $      26,283  $      33,060
                                               =============  =============


                       CREXENDO, INC. AND SUBSIDIARIES
               Condensed Consolidated Statements of Operations
               (In thousands, except per share and share data)
                                 (unaudited)

                            Three Months Ended         Six Months Ended
                                 June 30,                  June 30,
                         ------------------------  ------------------------
                             2012         2011         2012         2011
                         -----------  -----------  -----------  -----------

Revenue                  $     4,914  $    17,496  $    10,169  $    32,064
Operating expenses:
  Cost of revenue              1,298        7,675        2,719       13,980
  Selling and marketing          984       10,076        1,917       18,839
  General and
   administrative              2,741        3,333        5,774        6,092
  Research and
   development                   505          871        1,099        1,743
                         -----------  -----------  -----------  -----------
    Total operating
     expenses                  5,528       21,955       11,509       40,654
                         -----------  -----------  -----------  -----------

Loss from operations            (614)      (4,459)      (1,340)      (8,590)
                         -----------  -----------  -----------  -----------

Other income (expense):
  Interest income                524        1,316        1,266        2,469
  Interest expense                 -           (1)           -           (2)
  Other income
   (expense), net                (14)         (39)          14          (33)
                         -----------  -----------  -----------  -----------
    Total other income,
     net                         510        1,276        1,280        2,434
                         -----------  -----------  -----------  -----------

Loss before income tax
 provision                      (104)      (3,183)         (60)      (6,156)

Income tax benefit
 (provision)                     (13)      (6,162)         140       (5,040)

                         -----------  -----------  -----------  -----------
Net (loss) income        $      (117) $    (9,345) $        80  $   (11,196)
                         ===========  ===========  ===========  ===========

Net income (loss) per
 common share:
  Basic                  $     (0.01) $     (0.88) $      0.01  $     (1.05)
  Diluted                $     (0.01) $     (0.88) $      0.01  $     (1.05)

Dividends per common
 share:                  $      0.00  $      0.02  $      0.02  $      0.04

Weighted average common shares
 outstanding:
  Basic                   10,634,104   10,642,384   10,582,372   10,640,489
  Diluted                 10,634,104   10,642,384   10,614,888   10,640,489



                      CREXENDO, INC. AND SUBSIDIARIES
          Condensed Consolidated Statement of Stockholders' Equity
                       Six Months Ended June 30, 2012
                     (In thousands, except share data)
                                (unaudited)

                     Common Stock
                  ------------------
                                     Additional                   Total
                                       Paid-in   Accumulated  Stockholders'
                    Shares    Amount   Capital     Deficit        Equity
                  ---------- ------- ----------  -----------  -------------
Balance, December
 31, 2011         10,523,078 $    11 $   48,938  $   (35,602) $      13,347
  Expense for
   stock options
   granted to
   employees               -       -        455            -            455
  Proceeds from
   the exercise
   of stock
   options           146,123       -        498            -            498
  Dividends
   declared                -       -       (211)           -           (211)
  Net income               -       -          -           80             80
                  ---------- ------- ----------  -----------  -------------
Balance, June 30,
 2012             10,669,201 $    11 $   49,680  $   (35,522) $      14,169
                  ========== ======= ==========  ===========  =============


                      CREXENDO, INC. AND SUBSIDIARIES
              Condensed Consolidated Statements of Cash Flows
                               (In thousands)
                                (unaudited)

                                                  Six Months Ended June 30,
                                                 --------------------------
                                                     2012          2011
                                                 ------------  ------------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                $         80  $    (11,196)
Adjustments to reconcile net income to net cash
 provided by (used for) operating activities:
  Depreciation and amortization                           759           704
  Impariment of inventory and intangible assets             -         1,075
  Expense for stock options issued to employees           455           362
Deferred income tax provision                               -         5,973
Change in uncertain tax positions                        (167)            -
Changes in assets and liabilities:
  Trade receivables                                     6,157        (3,223)
  Equipment financing receivables                         (25)            -
  Inventories                                              28           345
  Income taxes receivable                                  38           570
  Prepaid expenses and other                              (37)          411
  Other long-term assets                                   20            (8)
  Accounts payable, accrued expenses and other           (573)       (1,624)
  Deferred revenue                                     (6,000)        4,773
  Other long-term liabilities                               4          (931)
                                                 ------------  ------------
    Net cash provided by (used for) operating
     activities                                           739        (2,769)
                                                 ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Acquisition of property and equipment                (1,024)         (348)
  Investment in subsidiary                                  -           (56)
                                                 ------------  ------------
    Net cash used for investing activities             (1,024)         (404)
                                                 ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from exercise of stock options                 498            60
  Repurchase of common stock                                -           (89)
  Payments made on contingent consideration                (6)            -
  Dividend payments                                      (422)         (427)
                                                 ------------  ------------
    Net cash provided by (used for) financing
     activities                                            70          (456)
                                                 ------------  ------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                (215)       (3,629)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD          8,658        14,207
                                                 ------------  ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD         $      8,443  $     10,578
                                                 ============  ============

Supplemental disclosure of cash flow
 information:
Cash paid (received) during the period:
  Interest                                       $          -  $          1
  Income taxes                                            (11)         (569)
Supplemental disclosure of non-cash investing
 and financing information:
  Dividends declared                                        -           213
  Purchase of property and equipment included in
   accounts payable                                        16           395

Contact:
Crexendo, Inc.
Steven G. Mihaylo
CEO
775-530-3955
Stevemihaylo@crexendo.com