Company: CXDO
Filing Date: 2025-03-04
Form Type: 10-K
Source: 0001654954-25-002287
Chunk: 20

Company: Crexendo, Inc.
Filing Date: 2025-03-04
Form: 10-K
Item: Item 1
Chunk 20
---
 may increase our cost of revenue and lower our margins and profits.

The Software Solutions Division previously sold licenses primarily as a “perpetual” license. We are now selling more subscriptions based licenses on a monthly recurring revenue model, how the sale is structured may affect results on a quarter-to-quarter basis.

The Software Solutions division sells both perpetual licenses as well as a subscription model with monthly recurring revenue. The Service Provider Partners license the core NetSapiens Platform and host it themselves or have us host it on their behalf.  The size of such a license is dictated by the Service Provider’s capacity requirements and business objectives (e.g. number of customers they plan to service, etc.). They choose one of two commercial options for licensing the core platform, namely purchase or subscription. The purchase option allows the customer to make an initial investment to procure a small license to begin its contractual relationship with the Company, with monthly maintenance and support fees along with other monthly services that the customer typically procures. The subscription option is a much lower upfront start-up cost and a monthly subscription fee based on an initial committed capacity followed by increases in subscription charges based on increased utilization. Providing a choice of commercial licensing options has and continues to be a competitive advantage but is subject to variances in quarterly revenue and is less certain than a recurring revenue model. The Company continues to promote the subscription option while still selling the purchase option. The Company maintains both models as it finds it is a competitive driver and to the best of our knowledge not offered by other service providers. If the shift to a subscription model becomes pronounced, it may initially cause quarterly revenue to be reduced during the transition period, but it is expected to increase total contract value and provide a more predictable revenue model on a go-forward basis. 

The Managed Service Provider Industry is highly competitive. We face intense competition from both large and regional providers.

We purchased Allegiant Networks, LLC (“Allegiant”) on November 1, 2022. In addition to telecommunications services, Allegiant provides Managed IT Services and Support. While those revenues do not represent a significant portion of our overall revenues, the managed services market is a highly competitive industry. Managed Service contains the same risks as detailed in the risk factors including the additional risks detailed herein. 

Managed service is the practice of outsourcing on a proactive basis certain processes and functions intended to improve operations and cut expenses. It simplifies IT operations, increases user satisfaction, and improves service quality while reducing operating costs. Industry requirements, standards, applications, automation, and client needs are changing daily.