Crexendo, Inc. (NASDAQ:CXDO) Q4 2022 Earnings Call Transcript

Jeff Korn: I’ll let Doug answer the second half of the question. I’ll answer the first half. What we have to do with Allegiant is they have a very, very talented group of engineers and a talented group of salespeople and very talented group all across the company. And what we want to do is spread them out, so they’re providing support to all facets of the organization and vice versa, our engineers are working more closely with them. We just want to be one brand. As Doug mentioned a little bit in his comments, the fact that they’re an MSP is very exciting to us. Because we want them to extend that expertise to the Crexendo’s telecom side of the business, so we can add that as an offering and hopefully increase our sales. So it’s an exciting time.

It’s going to take a little bit of a challenge but we’re working tirelessly at it. And Bryan is working very hard and he’s rolled up his sleeves amazingly, providing support to everybody in the organization. So I think it’s going to be a great win for us when we get that fully integrated.

Ron Vincent: I’ll just add that from a financial accounting standpoint, we’ve completed our 805 valuation, finalized our purchase price allocation during the year end close process and so the numbers presented in the footnotes will be final. And then we’re continuing to work with the local accounting team giving them oversight and GAAP assistance. So everything’s working well from a finance and accounting perspective.

Jeff Korn: You want to discuss the margins, Doug?

Doug Gaylor: Yes. And finally on the gross margins, as I said, we saw a great increase on the Software Solutions gross margins on a year-over-year basis. On the Telecom Services side, we saw a little bit of a decline but we expect those to get back into the 70% range relatively quickly. The Allegiant group obviously will be able to take advantage of some of the buying opportunities and cost synergies that we’ll have bringing in Crexendo as a much larger organization. And with the cost management aspect of the business, we anticipate getting back to those margins. I’m not sure if we’ll see them in Q1 but definitely relatively quickly.

Josh Nichols: Perfect. So I’ll just assume probably 2Q, 3Q at the latest or something like that, that’s pretty quick for the margin expansion front. Looking here, I guess, the other question on the top line is the company — you’re actually already running north of the $45 million run rate, right, because especially considering that you only have the Allegiant acquisition starting I believe November 1st for 2 months. So was that business growing? And what’s the expectation for organic growth going forward relative to what you put up in 4Q?

Doug Gaylor: Yes, we did see growth from Allegiant from 2021 to 2022 on an overall basis. We’ve got a great pipeline of opportunities there, so we see strong growth opportunity there. We don’t give forward guidance but I anticipate seeing good organic growth coming out of Allegiant and their numbers along with good organic growth coming out of both segments of the Crexendo side of the house.

Josh Nichols: Great to hear. And then I guess last thing for me. I think I might have missed it. Did you mention where the backlog is at today?

Doug Gaylor: I did. I mentioned that in my comments. So backlog at the end of the year finished at — let me just pull it up here real quick — $46.8 million I believe…

Ron Vincent: Yes, $48.846 million .

Jeff Korn: $46.846 million.

Doug Gaylor: $46.846 million which is up 12% from the end of 2021.

Josh Nichols: And as much, maybe break out how much that was Allegiant versus…

Doug Gaylor: Yes. That number does not include any of Allegiant’s backlog. So we have not been able to do a full calculation on Allegiant’s backlog. So that number is pure organic backlog growth and no Allegiant backlog numbers in there. We’ll have Allegiant backlog numbers hopefully for our Q1 earnings call. But the that $46.8 million does not include any Allegiant backlog. It’s all organic backlog.