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Crexendo Reports First Quarter 2014 Financial Results

PHOENIX, AZ -- (Marketwired) -- 05/06/14 -- Crexendo, Inc. (NYSE MKT: EXE), a hosted services company that provides hosted telecommunications services, hosted website services, website development software and broadband internet services for businesses and entrepreneurs, today reported financial results for its first quarter of 2014.

Financial highlights for Crexendo's 2014 first quarter

Consolidated revenue for the first quarter of 2014 decreased 3% or $69,000 to $2.1 million compared to $2.1 million for the fourth quarter of 2013 and decreased 31% or $950,000 compared to $3.0 million for the first quarter of the prior year.

Consolidated operating expenses for the first quarter of 2014 decreased 3% to $3.7 million compared to $3.9 million for the first quarter of the prior year. Consolidated operating expenses for the first quarter of 2014 decreased 8% to $3.7 million compared to $4.1 million for the fourth quarter of the 2013. Consolidated operating expenses for the first quarter of the prior year included the release of our lease abandonment accrual of $606,000 from a settlement of a lawsuit which reduced operating expenses.

Net loss before income tax for the first quarter of 2014 of $(1.6) million compared to $(635,000) for the first quarter of the prior year. Net loss for the first quarter of 2014 of $(1.6) million or $(0.15) per diluted common share, compared to net loss of $(398,000) or $(0.04) per diluted common share for the first quarter of the prior year.

As of March 31, 2014, we have cash and cash equivalents, including restricted cash, of $4.3 million compared to $3.6 million as of December 31, 2013. On February 28, 2014, we entered into a sale-leaseback transaction with a Company owned by our Chief Executive Officer. We sold our corporate headquarters' land, building and fixtures for $2.0 million and entered into a lease agreement with rent payments payable in Crexendo common stock.

Cash used for operations for the first quarter of 2014 was $(1.3) million compared to $(1.8) million for first quarter of the prior year. Cash provided by investing and financing activities for the first quarter 2014 was $2.0 million compared to cash used for investing and financing activities of $(57,000) for the first quarter of the prior year.

Segment Results

The Company has three operating segments, which consist of Crexendo Network Services, Crexendo Web Services and StoresOnline.

Crexendo Network Services

Revenue for the first quarter of 2014 increased 148% to $955,000 compared to $385,000 for the first quarter of the prior year. Network Services backlog, which is anticipated to be recognized within the next thirty-six months, was $7.2 million at March 31, 2014 compared to a backlog of $3.5 million at March 31, 2013.

Total Network Services segment operating expenses for the first quarter of 2014 increased 52% to $2.5 million compared to $1.6 million for the first quarter of the prior year.

Total Network Services segment loss before income taxes for the first quarter of 2014 increased 21% to $(1.5) million compared to $(1.2) million for the first quarter of the prior year.

Crexendo Web Services

Revenue for the first quarter of 2014 decreased 53% to $252,000, compared to $533,000 for the first quarter of the prior year. We anticipate that our revenue from our web service segment will continue to decline due to our strategic decision to limit our provision of web services to our enterprise-sized customers. As a result of this shift in focus, our backlog has decreased to $208,000 at March 31, 2014 compared to $1.3 million at March 31, 2013. This shift in focus will allow us to focus on our rapidly growing Network Services segment and to concentrate more on our website hosting segment and website development software platform.

Total Web Services segment operating expenses for the first quarter of 2014 decreased 59% to $478,000 compared to $1.2 million for the first quarter of the prior year.

Total Web Services segment loss before income taxes for the first quarter of 2014 decreased 65% to $(220,000) compared to $(626,000) for the first quarter of the prior year.

StoresOnline

Revenue for the first quarter of 2014 decreased 58% to $865,000 compared to $2.1 million for the first quarter of the prior year.

Total segment operating expenses decreased 26% to $806,000 for the first quarter of 2014 compared to $1.1 million for the first quarter of the prior year.

Segment other income, primarily related to interest on the collection of accounts receivable for the first quarter of 2014 decreased 75% to $51,000 compared to $206,000 for the first quarter of the prior year.

Total segment income before income taxes for the first quarter of 2014 decreased 91% to $110,000 compared to $1.2 million for the first quarter of the prior year.

Steven G. Mihaylo, Chief Executive Officer, commented, "This has been a fulfilling quarter for us. The legacy revenues continue to decline and in Q2 most of the collections will be completed. 2014 will be the first year where most of the sales will be generated from the new telecom hosting model and our web hosting business. We continue to make strides and are maximizing efficiencies with our direct sales force, while continuing to add resources to our dealer network. Although we have been making progress, we still have work to do. The backlog for Q1 2014 rate of growth was lower in comparison to Q4 2013. We believe that is due in part to a number of customers that rushed to complete the contracting process before year end including some large orders at the end of 2013. Therefore, we had a strong finish in Q4 2013 followed by Q1 2014 weakness. The first month of Q2 2014 is looking like Q2 will be a more consistent quarter. I am encouraged in our ongoing efforts particularly in both the caliber and enthusiasm of our direct sales force and our dealer partners. We continue to see our dealer partner channel grow and contribute higher sales and become a reliable, consistent and important part of our Company and our sales growth."

Mihaylo added, "I continue to monitor our expenses very carefully and stress to our team, that we need to watch every penny. We will continue to grow the business both organically and through accretive acquisitions. We have several acquisitions that we are reviewing now. I am confident that we will continue to find appropriate acquisitions, we will see improvements in our direct sales and the continued growth of our dealer program will be the key to bring us to continued growth."

Conference Call

The Company is hosting a conference call today, May 6, 2014 at 5:00 PM EDT. The conference call will be broadcast live over the Internet at http://www.crexendo.com/investor. If you do not have Internet access, the telephone dial-in number is 888-539-3678 for domestic participants and 719-325-2472 for international participants. The conference ID to join the call is 9821851. Please dial in five to ten minutes prior to the beginning of the call at 5:00 PM EDT.

About Crexendo

Crexendo is a hosted services company that provides hosted telecommunications services, hosted website services, website development software and broadband internet services for businesses and entrepreneurs. Our services are designed to make enterprise-class hosting services available to small, medium-sized and enterprise-sized businesses at affordable monthly rates.

Safe Harbor Statement

This press release contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for such forward-looking statements. The words "believe," "expect," "anticipate," "estimate," "will" and other similar statements of expectation identify forward-looking statements. Specific forward-looking statements in this press release include information about Crexendo (i) having Q1 being a fulfilling quarter ; (ii) continuing to make strides and maximizing efficiencies with its direct sales force; (iii) continuing to add resources to its dealer network: (iv) making progress but still having work to do; (v) the decline in backlog growth being attributable in part to a number of customers that rushed to complete the contracting process before year end including some large orders; (v) believing the first month of Q2 2014 is looking like Q2 will be a more consistent quarter; (vi) being encouraged in its ongoing efforts particularly in both the caliber and enthusiasm of its direct sales force and our dealer partners; (vi) continuing to see its dealer partner channel grow and contribute higher sales and become a reliable, consistent and important part of sales growth; (vii) continuing to monitor its expenses very carefully ; (iix) continuing to grow the business both organically and through accretive acquisitions; (ix) having several acquisitions that are being reviewed now while being confided that the Company will continue to fine appropriate acquisitions; (x) believing that the Company will see improvements in its direct sales, that there will be continued growth in the dealer program with those metrics being the key to continued growth.

For a more detailed discussion of risk factors that may affect Crexendo's operations and results, please refer to the company's Form 10-K for the year ended December 31, 2013 and 10Q for the period ended March 31, 2014. These forward-looking statements speak only as of the date on which such statements are made, and the company undertakes no obligation to update such forward-looking statements, except as required by law.

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

                                                 March 31,     December 31,
                                                   2014            2013
                                               ------------   -------------
Assets

Current Assets:
  Cash and cash equivalents                    $      3,825   $       3,076
  Restricted cash                                       484             487
  Trade receivables, net of allowance of
   doubtful accounts of $95 as of March 31,
   2014 and $163 as of December 31, 2013                750           1,090
  Inventories                                           146             217
  Equipment financing receivables                       114              94
  Income taxes receivable                                55              55
  Prepaid expenses and other                            987             620
                                               ------------   -------------
    Total Current Assets                              6,361           5,639

Certificate of deposit                                  251             250
Long-term trade receivables, net of allowance
 of doubtful accounts of $23 as of March 31,
 2014 and $37 as of December 31, 2013                    97             116
Long-term equipment financing receivables               426             398
Property and equipment, net                             298           2,195
Deferred income tax assets, net                         244             244
Intangible assets                                       522             571
Goodwill                                                 75              75
Long-term prepaid rent                                  617               -
Other long-term assets                                   93             119
                                               ------------   -------------
    Total Assets                               $      8,984   $       9,607
                                               ============   =============

Liabilities and Stockholders' Equity

Current Liabilities:
  Accounts payable                             $         80   $         201
  Accrued expenses and other                          1,132           1,095
  Deferred income tax liability                         244             244
  Deferred revenue, current portion                     885           1,199
  Contingent consideration                               31              51
                                               ------------   -------------
    Total Current Liabilities                         2,372           2,790

Deferred revenue, net of current portion                 97             116
Other long-term liabilities                             273               -
                                               ------------   -------------
    Total Liabilities                                 2,742           2,906
                                               ------------   -------------

Stockholders' Equity:
  Preferred stock, par value $0.001 per share
   - authorized 5,000,000 shares; none issued             -               -
  Common stock, par value $0.001 per share -
   authorized 25,000,000 shares; 11,142,197
   shares outstanding as of March 31, 2014
   and 10,801,315 shares outstandingas of
   December 31, 2013                                     11              11
  Additional paid-in capital                         52,244          50,998
  Contingent consideration                              125             198
  Accumulated deficit                               (46,138)        (44,506)
                                               ------------   -------------
    Total Stockholders' Equity                        6,242           6,701
                                               ------------   -------------
    Total Liabilities and Stockholders'
     Equity                                    $      8,984   $       9,607
                                               ============   =============



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

                                                  Three Months Ended March
                                                            31,
                                                ---------------------------
                                                    2014           2013
                                                ------------   ------------

Revenue                                         $      2,072   $      3,022

Operating expenses:
  Cost of revenue                                        930          1,042
  Selling and marketing                                  653            908
  General and administrative                           1,750          1,438
  Research and development                               414            481
                                                ------------   ------------
    Total operating expenses                           3,747          3,869
                                                ------------   ------------

Loss from operations                                  (1,675)          (847)
                                                ------------   ------------

Other income (expense):
  Interest income                                         48            219
  Other income (expense), net                             29             (7)
                                                ------------   ------------
    Total other income, net                               77            212
                                                ------------   ------------

Loss before income tax provision                      (1,598)          (635)

Income tax (provision) benefit                           (34)           237
                                                ------------   ------------
Net loss                                        $     (1,632)  $       (398)
                                                ------------   ------------

Net loss per common share:
  Basic                                         $      (0.15)  $      (0.04)
  Diluted                                       $      (0.15)  $      (0.04)

Weighted average common shares outstanding:
  Basic                                           10,912,334     10,669,513
  Diluted                                         10,912,334     10,669,513



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

                                                  Three Months Ended March
                                                            31,
                                                ---------------------------
                                                    2014           2013
                                                ------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                        $     (1,632)  $       (398)
Adjustments to reconcile net loss to net cash
 used in operating activities:
  Release of lease abandonment                             -           (606)
  Depreciation and amortization                          226            317
  Amortization of prepaid rent                            27              -
  Amortization of deferred gain                           (8)             -
  Share-based compensation                               164            230
  Gain on disposal of property and equipment              (1)             -
  Change in uncertain tax positions                        -           (253)
Changes in assets and liabilities:
  Trade receivables                                      359          1,242
  Equipment financing receivables                        (48)           (51)
  Inventories                                             71             57
  Income taxes receivable                                  -            358
  Prepaid expenses and other                             (45)          (107)
  Other long-term assets                                  26              6
  Accounts payable, accrued expenses and other           (84)        (1,344)
  Deferred revenue                                      (333)        (1,269)
                                                ------------   ------------
Net cash used in operating activities                 (1,278)        (1,818)
                                                ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Acquisition of property and equipment                    -            (55)
  Sale of property and equipment                       2,002              1
  Release of restricted cash                               3              -
  Purchase of certificate of deposit                      (1)             -
                                                ------------   ------------
Net cash provided by (used in) investing
 activities                                            2,004            (54)
                                                ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from exercise of stock options                 43              3
  Payments made on contingent consideration              (20)            (6)
                                                ------------   ------------
Net cash provided by (used in) financing
 activities                                               23             (3)
                                                ------------   ------------

NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS                                             749         (1,875)
                                                ------------   ------------

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD         3,076          7,440
                                                ------------   ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD        $      3,825   $      5,565
                                                ============   ============

Supplemental disclosure of cash flow
 information:
Cash (paid) received during the period:
  Income taxes, net                             $        (11)  $        342
Supplemental disclosure of non-cash investing
 and financing information:
  Purchases of property and equipment included
   in accounts payable                          $          -   $          6
  Prepayment of rent with common stock          $        966   $          -



                      CREXENDO, INC. AND SUBSIDIARIES
                    Supplemental Segment Financial Data
                               (In thousands)

                                                  Three Months Ended March
                                                            31,
                                                    2014           2013
                                                ------------   ------------
Revenue:
  Crexendo Network Services                     $        955   $        385
  Crexendo Web Services                                  252            533
  StoresOnline                                           865          2,104
                                                ------------   ------------
Consolidated revenue                                   2,072          3,022
                                                ------------   ------------

Income (loss) from Operations:
  Crexendo Network Services                           (1,508)        (1,234)
  Crexendo Web Services                                 (226)          (629)
  StoresOnline                                            59          1,016
                                                ------------   ------------
    Total operating loss                              (1,675)          (847)
                                                ------------   ------------
Other Income, net:
  Crexendo Network Services                               20              3
  Crexendo Web Services                                    6              3
  StoresOnline                                            51            206
                                                ------------   ------------
    Total other income                                    77            212
                                                ------------   ------------
Income (loss) before income tax provision:
  Crexendo Network Services                           (1,488)        (1,231)
  Crexendo Web Services                                 (220)          (626)
  StoresOnline                                           110          1,222
                                                ------------   ------------
Loss before income tax provision                $     (1,598)  $       (635)
                                                ============   ============

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

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