Crexendo Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: Reported 13% revenue growth to $16.6 million, driven by 31% year-over-year organic growth in software solutions.
  • Positive Sentiment: Achieved an eighth consecutive GAAP profitable quarter with net income of $1.2 million and $2.8 million adjusted EBITDA.
  • Positive Sentiment: Software platform surpassed 6 million users and gained new licensees from legacy vendors like Metaswitch and BroadSoft.
  • Positive Sentiment: Finalizing migration to Oracle Cloud Infrastructure and sunsetting the classic platform to cut costs and boost long-term margins.
  • Positive Sentiment: Accelerating AI investments with upcoming rollouts of AI call bots and operator functions to expand product offerings.
AI Generated. May Contain Errors.
Earnings Conference Call
Crexendo Q2 2025
00:00 / 00:00

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Operator

Afternoon. Thanks for holding. Your conference will begin in just a couple of minutes. Please remain on the line. Your conference will begin very shortly.

Operator

Greetings, and welcome to the Crescendo Second Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Jeff Korn, Chairman and CEO at Crexendo. Jeff, you may begin.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Thank you, Paul, and good afternoon, everyone. Welcome to Crexendo's second quarter twenty twenty five earnings call. As Paul just said, I'm Jeff Korn, Chairman and CEO. With me in the room today are Doug Gaylor, our President and COO Ron Vincent, our CFO John Britton, our CRO and Anand Bush, our chief strategy officer. In a moment, John will read the safe harbor statement.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

After that, I'll provide an overview of of our performance and strategy. Ron will then dive into the financials, and Doug will close with an operational and business update before we open it up for questions. John, would you please read the safe harbor statement?

Jon Brinton
Jon Brinton
Chief Revenue Officer at Crexendo

Thank you, Jeff. I want to take this opportunity to remind listeners that this call will contain forward looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934.

Jon Brinton
Jon Brinton
Chief Revenue Officer at Crexendo

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward looking statements. All statements made in this conference call other than statements of historical facts are either forward looking statements. Forward looking statements include, but are not limited to words like believe, expect, anticipate, estimate, will and other similar statements of expectation identifying forward looking statements. Investors should be aware that any forward looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission, including the Form 10 ks for fiscal year ended 12/31/2024, and the Form 10 Q as filed.

Jon Brinton
Jon Brinton
Chief Revenue Officer at Crexendo

Crexendo does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events, otherwise. I'd now like to turn the call back over to Jeff. Jeff?

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Thank you, John. I'm pleased to report another exceptional quarter for Crexendo.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

We continue to deliver consistent and impressive profitable growth. This growth in our results underscore the scalability of our business model and the strength of our team. Q two was highlighted by significant success in our software solutions segment combined with growth in our telecom service segment as well as the achievement of key operational milestones. I'm pleased, as you know, we reported a 13% increase in total revenue to $16,600,000, driven by a remarkable 31% year over year organic growth in software solutions revenue. Our GAAP net income was 1,200,000.0, and we delivered 2,800,000.0 in adjusted EBITDA.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

This marks our eighth consecutive quarter of GAAP profitability and our twenty seventh consecutive quarter of GAAP net income. This is clear evidence that our strategy is working, and Crexendo is on a very solid trajectory. Our software platform continues to be a critical engine of our success. As you know, we surpassed 6,000,000 users on our software platform and are marching towards 7,000,000 users. Our ability to scale efficiently was reflected in the continually strong margins we achieved.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

We are very encouraged by the momentum in our licensee and partner ecosystem, which continues to gain gain traction in the wake of disruption from legacy vendors like Metaswitch and BroadSoft. Our differentiated structure with session based pricing, open API, and flexible cloud or on premise deployment continues to resonate with customers seeking control, scalability and reliability. Simply put, we are building the platform of the future and the market is responding. If you want the best products, services, people and pricing, there really is no other choice. We continue to invest in the business and to expand our AI capabilities, and we are expecting to roll out over the next several quarters additional initiatives, including AI call bots and AI operator functions and messaging.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

This is in addition to the services already rolled out. On the telecom side, while the UCaaS landscape remains competitive, we continue to take a disciplined approach. We are not chasing growth at the expense of profitability. Our award winning VIP bundle and industry leading customer satisfaction scores, as validated independently by g two are helping us win in the right way, sustainably and with long term margin expansion in mind. With that said, we continue to look at aggressive promotions to compete with others in the space, but we'll only do that if it leads to profitable and scalable business.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Importantly, we are executing well against our strategic priorities. We are in the final stages of sunsetting our classic platform, which will reduce operational drag and free up internal resources. At the same time, we are aggressively migrating to Oracle Cloud Infrastructure, OCI, a move we expect to yield significant cost savings and improved focus on innovation and customer success. These infrastructure initiatives will help us to continue to improve margins and drive long term efficiencies in 2026. This is particularly impressive as we continue to invest in the business.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

We have no intention of resting on our loyal laurels, and we are continuing to build the future of telecom, software, and services. We also remain focused on inorganic opportunities. We are actively reviewing several potential acquisitions, including smaller tuck ins as well as larger opportunities. I and the team, however, remain disciplined and focused that any acquisition we pursue will be accretive and aligned with our vision of strategic profitable growth. With a strong cash position of $23,500,000 and growing cash flow from operations, we are well positioned to support continued innovation, strategic m and a, and enhanced shareholder value.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Finally, our ecosystem vendor partner program, EVP as we call it, continues to gain momentum. As we lean into AI, analytics, and automation, our open architecture is enabling new integrations that drive real value for our partners, further differentiating our platform from the market and continuing to get us to lead with our open APIs, which is a strong strategic advantage for us. In closing, I've never been more optimistic about where we are and where we're going. Over the last two years, we've transformed Crexendo into a high growth, consistently profitable software company with a clear vision and strong execution. We are building a flexible, scalable, and future ready platform, one that puts customer success and long term value creation at the center of everything we do.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

With that, I'll turn the call over to Ron to walk through the financial results in more detail. Ron?

Ron Vincent
Ron Vincent
CFO at Crexendo

Thank you, Jeff. Good afternoon, everyone.

Ron Vincent
Ron Vincent
CFO at Crexendo

Consolidated revenue for the quarter increased 13% to $16,600,000 compared to $14,700,000 for the second quarter of the prior year. Our service revenue for the quarter increased 4% to $8,400,000 compared to $8,100,000 for the second quarter of the prior year. Our software solutions revenue for the quarter increased 31% to $7,000,000 compared to $5,300,000 for the second quarter of the prior year, and our product revenue decreased 7% to $1,200,000 compared to $1,300,000 for the second quarter of the prior year. Our remaining performance obligation increased to 83,500,000.0 at the end of the second quarter compared to 81,900,000.0 at the end of the first quarter of this year and 71,200,000.0 at June 30 of the prior year. Operating expenses for the quarter increased 10% to $15,400,000 compared to $14,100,000 for the second quarter of the prior year.

Ron Vincent
Ron Vincent
CFO at Crexendo

The operating margin for the quarter increased to 7% compared to 4% for the same period of the prior year. Net income of $1,200,000 for the quarter, that's $04 per basic and diluted common share compared to a net income of 600,000 or $02 per basic and diluted common share for the second quarter of the prior year. Non GAAP net income of 2,900,000.0 for the quarter, that's $0.10 per basic and $09 per diluted common share compared to non GAAP net income of 2,100,000.0 or $08 per basic and $07 per diluted common share for the second quarter of the prior year. EBITDA for the quarter was $2,000,000 compared to $1,400,000 for the second quarter of the prior year. Our adjusted EBITDA for the quarter came in at 2,800,000 as compared to $2,200,000 for the second quarter of the prior year.

Ron Vincent
Ron Vincent
CFO at Crexendo

Cash and cash equivalents at 06/30/2025 was 23,500,000.0 compared to 18,200,000.0 at 12/31/2024. Cash provided by operating activities for the six month period of 2,500,000.0 compared to $2,500,000 in cash provided by operating activities for the same period of the prior year. Cash provided by financing activities for the six month period generated $2,700,000 compared to cash provided by investing activities of $800,000 for the same period of the prior year, primarily related to $3,000,000 net cash received from the stock option exercises and RSUs, offset by $3,300,000 in notes payable repayments and finance lease payments. With that, I'll turn it over to Doug Galer, our President and COO, for additional comments on sales and business operations.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

Thanks, Ron.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

We continue to execute well on our business plan and had a strong Q2 layered on top of a strong Q1 to start the year. We had a 13% year over year increase in revenue for the quarter and a 212% year over year increase in GAAP profitability, combined with strong positive cash flow. This is our eighth consecutive quarter of GAAP profitability and twenty seventh consecutive quarter of non GAAP net income, and the results were a direct result of our focus on growing organically and profitably. Our continued success earned us a coveted inclusion in the Russell 2,000 Index that was announced during the quarter. Our GAAP net income of $1,230,000 for the quarter and non GAAP net income of $2,900,000 for the quarter were reflective of our success in managing the fundamentals of the business and continuing to maximize and recognize synergies within the business.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

Our entire team is continually working to improve business processes and make our company more efficient, and we believe we will continue to see more efficiencies as we continue our growth. During the quarter, we successfully completed our international data center migration to Oracle Cloud Infrastructure, OCI, and have closed down our international data centers, and we continue our U. S. Data center migrations that should show additional meaningful cost savings over the next twelve months. We continue to see tremendous organic growth from our Software Solutions segment of the business, which grew 31% over Q2 compared to 2024 and has seen a 32% growth for the first half of the year for 2025 compared to the first half of the year of 2024.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

In addition to strong upgrade orders from our existing licensees, we won one new logo from NetaSwitch for the quarter and one new logo from Cisco's BroadSoft in the quarter as we continue to see opportunities created by uncertainties created by our two largest software solutions competitors, Cisco's BroadSoft and Metaswitch. Our unique pricing and support model for our software solutions platform, combined with our robust feature set, allows us to differentiate ourselves from the rest of our competition at a much stronger price point than they might currently be paying. Our telecom services retail segment grew at 2% organically for the quarter. Our telecom service revenue was up 4% organically, offset by a reduction in product revenue of 7% to reach the blended 2% increase. As previously stated, we have proactively reduced selling some lower margin product opportunities to maintain margins, thus the decrease in product revenue and increase in segment gross margins.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

We continue to see strong demand for our offerings from our channel partners and our master agent technology service distributors and expect retail segment revenue to continue to grow at a faster pace. The master agent technology service distributors saw an 88% increase in sales bookings year over year, and we expect that momentum to continue. As Jeff previously mentioned, we are focused on profitably growing this segment, and we are not pursuing low margin or unprofitable retail opportunities. Our remaining performance obligation, also referred to as backlog, is now at $83,500,000 an increase of 17% from 2024. Our remaining performance obligation number is the sum of the remaining contract values for our telecom services and software solutions customers that will be recognized on a sliding scale over the next sixty months and is a strong indicator of our future revenue stream.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

Consolidated gross margin for Q2 was 63%, flat with 2024. We continue to see strong gross margins in our Software Solutions segment, where gross margins improved to 74% for the quarter compared to 73% in 2024. For the first six months of the year, our Software Solutions gross margins were 76%, highlighting the scalability and operating leverage we have on the software segment of the business. Our telecom services segment gross margin was 56%, which was down from 2024 and flat with Q1. Our telecom service gross margins are affected by product gross margins, which declined year over year as a result of the decline in product revenue.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

We are confident that we will continue to see gross margin improvements in both segments of the business in the future as we start to recognize cost savings from our planned consolidation of our data centers to Oracle Cloud Infrastructure. Crexendo's engineering team continues to enhance and improve our award winning technology and our platform. Our cloud native platform with robust and advanced API integrations allows us to enhance offerings with both in house and third party developed solutions. Artificial intelligence is leading the charge in these developments with many new and planned releases that will make small and mid sized businesses more efficient and more productive. We currently have a variety of AI solutions already available for end users, including our Voice AI Studio, AI call recording and contact center AI powered by ChatGPT as well as new applications that are close to being released like our AI assistant and our AI operator solutions that will help end user customers do more with less.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

Crexendo's performance for the 2025 was very strong, and I couldn't be more excited about the future direction and opportunity for Crexendo. We continue to see strong double digit organic growth combined with increasing GAAP profitability and strong positive cash flow. We are positioned perfectly with the combination of strong demand for our product offerings along with great solutions with a disruptive pricing model and the best and most talented workforce in the industry to continue our strong growth and success. Committed to delivering the best UCaaS, CCaaS, and CPaaS offerings in the sector to our customers and our partners and the best returns for our shareholders. We're proud to be the fastest growing platform solution in the country and excited to see how future AI enhancements will spur our growth to 7,000,000 end users and higher.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

We're laser focused on enhancing our solutions, improving our efficiencies and continuing to return strong results. And with that, I'll turn it back over to Jeff.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Thank you, John. Thank you, Ron. Paul, you may open the call up to questions.

Operator

Thank you. At this time, we'll be conducting a question and answer session. The confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star queue. First question today is coming from Joshua Rowe from Needham. Joshua, your line is live.

Joshua Reilly
Joshua Reilly
Senior Analyst at Needham & Company

Right. Thanks for taking my questions. Nice job on the quarter here. Maybe just starting off in terms of the pipeline for the second half of the year. Congrats on adding two licensees in the quarter.

Joshua Reilly
Joshua Reilly
Senior Analyst at Needham & Company

Just wanted to verify, does that bring the total active licensee count to two forty? And I guess, what are you just seeing overall in terms of the setup for the second half and in terms of ramping existing licensees to grow software solutions versus adding net new licensees to the to the mix?

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Josh, I'm gonna go in reverse order. We we see we have a lot we have a large number of sandboxes out and a large number of people interested. So we expect to see continued growth in new licensees while also seeing growth in in upgrades.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Both seem to be on a strong trajectory. So we're excited about that. And the number, Doug, what what is the current number of licensees here?

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

Yeah. We always highlight, Josh, 235 plus, but I think that number is probably pretty accurate at 240 with the two additional licensees.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

We usually go with the licensee number when they actually go live. So when we sell an account, maybe a couple of weeks or a month before that actual account goes live. So we don't actually give a ongoing live number as of the moment, but that number is in the is in the right ballpark.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

And we do obviously we do obviously promote when we get wins from from BroadSoft and Cisco from BroadSoft and Metaswitch.

Joshua Reilly
Joshua Reilly
Senior Analyst at Needham & Company

Gotcha.

Joshua Reilly
Joshua Reilly
Senior Analyst at Needham & Company

Understood. And then UScellular, obviously, is a key reseller for you on the telecom side of the business. I believe their acquisition by T Mobile just closed yesterday. Do you think this could create some incremental opportunities for you? Or how are you kind of managing this relationship now that they've been acquired by T Mobile?

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

Yes. I think there's a tremendous opportunity there. U. S. Sailor has been a fantastic partner for us for over eight years now, one of our largest resellers out there.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

A lot of excitement going into the T Mobile combination, and we anticipate getting to the table with T Mobile and seeing if we can expand that great success we've had with U. S. Sailor to their team as well. So I know that we've got a tremendous amount of support with the U. S.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

Sailor folks, and they're excited about the merger. Obviously, they're two or three days into the merger. So there's still a lot of things that they've got to get cleared up on their end. But we had a tremendously strong quarter in first half of the year with U. S.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

Aylor, and we anticipate that excitement and momentum to continue with the T Mobile acquisition. And we're hopeful that we get a really nice seat at the table with T Mobile to expand that offering with them.

Joshua Reilly
Joshua Reilly
Senior Analyst at Needham & Company

Awesome. Maybe I'll just sneak in one question on margins. Now that you've closed down the international data centers, what should we expect in terms of margin improvement for the second half of the year?

Joshua Reilly
Joshua Reilly
Senior Analyst at Needham & Company

Or is it going to be more weighted to next year when you're able to close down the domestic data centers?

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Josh, it's gonna be I'll I'll let Ron give a little more detail, but it's gonna be more weighted last next year when we close more of the data centers in The United States. And as you understand, at the same time, we're continuing to invest back in the business, so that will also have some impact.

Ron Vincent
Ron Vincent
CFO at Crexendo

Yes, that's right. As Jeff mentioned, we're looking for the major savings to be when we're able to shut down our U.

Ron Vincent
Ron Vincent
CFO at Crexendo

S. Data centers. So that will be next year. The shutdown of international data centers on our original timeline is a major accomplishment for us, but incremental savings is minimal. We reinvest that into the business as we add more resources.

Ron Vincent
Ron Vincent
CFO at Crexendo

So international will not have immediate impact in margins, but we do expect the margins to improve when we are able to shut down The US. So stay tuned on that.

Joshua Reilly
Joshua Reilly
Senior Analyst at Needham & Company

Awesome. Thank you. I'll pass the line.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Thanks, Josh.

Operator

Thank you. The next question will be from Mike Latimore from Northern Capital Markets. Mike, your line is live.

Mike Latimore
Mike Latimore
MD & Senior Research Analyst at Northland Capital Markets

Alright. Great. Thanks. Yeah. Excellent results.

Mike Latimore
Mike Latimore
MD & Senior Research Analyst at Northland Capital Markets

Great EBITDA, softer growth. You you touched on master agent growth being very strong. Anything in particular that starts that kind of growth through that channel?

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

I'll start with my thoughts, and then I'll let John add some color to it. But, you know, we've been working the telecom service distributors and brokers out there for quite some time and have some really strong relationships. Those relationships just take a lot of TLC to foster and grow. And so I think as we continue to gain more momentum with because we do a great job of implementing their sales. And so if an agent brings us an opportunity and we do a great job with it, they're likely to bring us more opportunities.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

We always highlight our G2 customer service and satisfaction results out there. And that's pretty evident with being able to gain traction with these master agents out there. If you stub your toe with the master agents, they can put you in the penalty box. And the fact of the matter is, is that we've been doing a great job with them. In fact, I think we're at one of the larger master agents conference as we speak with our team and making great inroads there.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

But I think overall, we're real pleased with the results we're seeing there, and we continue to spend a lot of time and resources to make sure that we grow that part of the business. John, any additional color?

Jon Brinton
Jon Brinton
Chief Revenue Officer at Crexendo

Yes.

Jon Brinton
Jon Brinton
Chief Revenue Officer at Crexendo

I would just add to it, Mike. Our focus there has always been to not try to partner with all of the technology services distributors, but to focus on a small group and grow with them over time. And our team's just been executing well and with partners that we're aligned with. We're making investments in their program, their community and we're getting good word-of-mouth and repeat orders based on some of the factors that Doug talked about with our GT rankings for customer service and success and implementation ability. So it's just continued pull through of long term investment with those parts.

Mike Latimore
Mike Latimore
MD & Senior Research Analyst at Northland Capital Markets

Mhmm. K. Sounds good. And then, Doug, just wanted to be clear that you you did reiterate an expectation of growing at a double digit rate. Is that what you said?

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

That's correct. Organically, you know, I think we're at 13% for the year, and we anticipate staying in that double digit organic growth range.

Mike Latimore
Mike Latimore
MD & Senior Research Analyst at Northland Capital Markets

Okay.

Mike Latimore
Mike Latimore
MD & Senior Research Analyst at Northland Capital Markets

And what what kind of how would you bracket software revenue growth within that then?

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

Yeah. Obviously, if you look at the organic growth, you know, the 30% plus range that we've been in for software solutions for the last three or four quarters now has been pretty exceptional. And that's helped raise the bar for the whole organization. But we continue to see great success with our licensees out there.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

They continue to grow And as they do that, they expand with us. So as we look at where we are today, strong, strong software solutions growth combined with organic growth on the telecom services side. And as I highlighted in my comments, continuing to grow the telecom services revenue is critical for us. We'd like to get that back to double digits.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

Right now, we're seeing a lot more success keeping in the high double digits with software solutions, but we continue to see great success on the telecom services side as well.

Mike Latimore
Mike Latimore
MD & Senior Research Analyst at Northland Capital Markets

Got it. And just lastly, if you look at potential acquisitions, how are how are the valuation expectations of the of the target at this point?

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Correct. When I look at acquisitions I'm just sorry, Mike. When I look at acquisitions, I try to find something that we are convinced that we can save find some savings and will be accretive in no more than three quarters. That that's the benchmark we look at.

Operator

The next question will be from Eric Martinuzzi from Lake Street. Eric, your line is live.

Eric Martinuzzi
Eric Martinuzzi
Senior Research Analyst at Lake Street Capital

I wanted to go a layer deeper on the RPO slash backlog color that you gave us. Impressive growth there. You're up 17% year on year to $83,500,000 Just curious to know if the kind of the mix of the contract terms in there is similar to what we had in coming out of q one as far as, you know, how long what the you know, what's gonna be recognized, say, in the remainder of 2025 or over the next twelve months compared to a quarter ago?

Ron Vincent
Ron Vincent
CFO at Crexendo

Yeah.

Ron Vincent
Ron Vincent
CFO at Crexendo

So on our RPOs, you know, they're highly weighted to the first three years of the five year run out. If you look at our run out, five year run out that we have in our footnotes, and there's 23,000,000 and 25 remaining, 27,000,000 and 26 and 18,000,000 and 27, then it trails off to 9,000,000 and 5,000,000. So it's heavily weighted to those first three years because we typically sell thirty six to sixty month contracts heavily weighted in the three year term.

Eric Martinuzzi
Eric Martinuzzi
Senior Research Analyst at Lake Street Capital

Got it. And then hardware, it is a small number, but it was below what I was modeling. I I was coming in around, you know, a million 5 or so, and you guys did a little bit less than that. You did mention you called out that we're talking about, you know, product is not a focus. Low margin product is not a focus for you guys anymore.

Eric Martinuzzi
Eric Martinuzzi
Senior Research Analyst at Lake Street Capital

But is there a kind of an annualized number that we should be thinking about? Or is it just was there a a one off issue in q two where maybe we recognize them in q one and it will come back in q three?

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

Yeah. As we as we said all along, we typically guide to the lower of our prior four '4 quarter averages because we it's hard to determine when that one time revenue comes in, whether it's a cabling job of a school district or it's the desktop phone or any other equipment we may sell on our MSP division as far as routers and switches. The timing on that is I know it's kind of bumpy and it comes and goes from one quarter to the next. So it's hard for us to put a big number on products when we don't know what period or what quarter that revenue is going come in.

Ron Vincent
Ron Vincent
CFO at Crexendo

And Derek, on top of that, as Doug had mentioned, we are strategically looking at product and trying to disassociate from some of the more labor intensive, very low margin business that just doesn't make sense for us.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

I think one last thing, Eric, just to highlight is that, as Ron said, it does seem to ebb and flow. But in the last quarter, we did see a higher component of customers that brought their own devices. It used to be where the high, high majority of customers that we were selling were legacy premise based customers. And now we're starting to see more and more customers that are moving from one VoIP provider over to Crexendo. So if they move from a RingCentral or an eight by eight and move over to Crexendo and they bring their existing instruments with them, you know, we can adapt them to our system.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

And so we don't have a hardware component in those particular sales.

Eric Martinuzzi
Eric Martinuzzi
Senior Research Analyst at Lake Street Capital

Got it. Thanks for taking my question.

Operator

Thank you. The next question will be from George Sutton from Craig Hallum. George, your line is live.

George Sutton
Senior Research Analyst at Craig-Hallum Capital Group LLC

Thank you. It's nice to see both a Meditwitch and a BroadSoft come over. Could you just give us an update on the movement or activity that you're seeing within those licensee opportunities?

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Well, as I as I said previously, George, we do have a lot of sandboxes out. We do have a lot of excitement.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

But as you understand, it's a long sales process. So it's hard for us to give you an estimate of when we expect x number to close, but we are very excited by the interest we have seen and the discussions we're having with various potential customers.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

And I will highlight that the two opportunities that we did close during the quarter were larger on the larger scale. And so when we look at the amount of revenue that we're seeing out of the new logos, the amount of revenue that we saw in the new logos in q two was considerably higher on average than we've seen in previous quarters because there were larger opportunities.

George Sutton
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great point.

George Sutton
Senior Research Analyst at Craig-Hallum Capital Group LLC

So on your new innovations and as you add AI, call box, for example, can you just walk through as you're adding these in, I assume my existing customers see the benefits, and my new customers are now more opportunistic with those add ons. Is that how this will work from a pricing perspective?

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

You nailed it. Yeah. We see a lot of opportunity for upsell to our existing customers.

Doug Gaylor
Doug Gaylor
COO & President at Crexendo

And in many cases, it might be the reason why a new customer comes on board as they see the technology advantages. So in some cases, customers have been with us for quite some time, take for granted that the system is the system, but we're constantly coming out with new enhancements and letting our customer base know about new enhancements. So instead of them going out and looking on the market to see who can handle a particular application form, in many cases, we already have that. And so their first call is hopefully to us, and we can sell them an upsell on a new AI capability or a new feature capability within the system.

George Sutton
Senior Research Analyst at Craig-Hallum Capital Group LLC

Awesome. That's it for me. Thanks, guys.

Operator

Thank you. The next next question will be from Josh Nichols from B. Riley Securities. Josh, your line is live.

Matthew Doull
Matthew Doull
Senior MD at B. Riley Securities

Hi. This is Matthew on for Josh Nichols. Thanks for taking my question. I guess to start off, I mean, product revenue and margin showed some nice sequential improvement. So do you think competitors are starting to pull back from the the rational pricing?

Mike Latimore
Mike Latimore
MD & Senior Research Analyst at Northland Capital Markets

Or what do you think the status on that is?

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Competitors have not started to pull back on the irrational pricing, and the market is just as competitive as it has been. We think we're winning more because of the value of our product services and customer service in particular. But as we said, we're going to continue to try and expand and continue to grow.

Matthew Doull
Matthew Doull
Senior MD at B. Riley Securities

Got it. Great. And I guess just one last one for me. I mean, just given the sales bankruptcy filing back in March, is there an update on the size of that opportunity for you? Or has there been any benefits from that that you think you realized recently?

Jon Brinton
Jon Brinton
Chief Revenue Officer at Crexendo

Yeah. Hi. This is John. I'll I'll add that we continue to see you know, Mitel has been kind of retracting themselves from their cloud business for some time, but we continue to see opportunity with partners who are Mitel partners overall in who are looking for a transition or home for the future as we do in a lot of the legacy providers. So it continues to be a source for us for potential new licensees and also partners in our retail business.

Jon Brinton
Jon Brinton
Chief Revenue Officer at Crexendo

And we recently made some new introductions around that portfolio that we think will be a benefit to us even more. So we continue to see in that legacy communications market partners that are finding us as the home for the next five to ten years for their customers.

Operator

Okay. The final question today is coming from Bora Capital. Jesse, your line is live.

Jesse Sobelson
Jesse Sobelson
VP - Equity Research at D. Boral Capital

Hey, guys. You know, a lot of things have been hit on here. Thanks for taking one last question here. Guess, just on international expansion, you know, previously you've highlighted some strong demand in Europe. How has how has the the international markets looked for you recently? And is there any specific interest in any geographies in particular recently?

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Thank you. Well, international continues to expand, and we continue to do quite well there. And the advantage of OCI is location is almost irrelevant to us because we can sell one instance in any one country and open up a data center there. So while we primarily rely on Europe and Europe, particularly Europe and Australia, we're willing to expand anywhere.

Jesse Sobelson
Jesse Sobelson
VP - Equity Research at D. Boral Capital

Thank

Operator

Thank you. You. And this does conclude today's q and a session. I will now hand the call back to Jeff Cohen for closing remarks.

Jeff Korn
Jeff Korn
CEO & Executive Chairman at Crexendo

Well, thank you very much, Paul, and thanks thank all of you for your attention. We appreciate your support, and we hope to be delivering equally as exciting news on our q three conference call when we'll speak to you again. So everybody have a great afternoon or evening depending upon where you are, and we'll speak to you on q three. Thank you.

Ron Vincent
Ron Vincent
CFO at Crexendo

Thank Thank you, everybody. Bye bye.

Operator

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Executives
    • Jeff Korn
      Jeff Korn
      CEO & Executive Chairman
    • Jon Brinton
      Jon Brinton
      Chief Revenue Officer
    • Ron Vincent
      Ron Vincent
      CFO
    • Doug Gaylor
      Doug Gaylor
      COO & President
Analysts
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