Good morning, everyone. I'd like to introduce the next presenter of the day, Doug Gaylor. He is COO and President of Crexendo. Welcome.
Thanks, Dina. Greatly appreciate it, and thanks for joining us. Let me dive right into who Crexendo is. Safe harbor statement that I'm sure you've seen all week. We're a unified Communications- as- a-S ervice company. What does that mean? Cloud communications. We basically do telecom services for businesses, but we're kind of unique in the fact that we do it in two different flavors. We have a wholesale offering where we sell our Software-as-a-Service platform to other technology and telecom companies to use as the foundation for their offering, and then we take that same software platform that we sell to others, and we use it internally for our retail offering, where we sell to small and mid-sized businesses.
If you look at the slide up here, on the top side here, let me see where my little highlight is here. On the software side of the house, we're the third-largest software platform provider in the country behind Cisco and Metaswitch. Cisco bought BroadSoft about seven years ago. BroadSoft is the largest telecom software platform out there.
Metaswitch was owned by Microsoft. Microsoft, two years ago, announced end of life on the platform, and then they, about six months later, did a complete 180 and decided that they were just going to sell Metaswitch licensees, got nervous, started looking for alternatives, and in the last two years, we've picked up a lot of licensees jumping ship from Metaswitch, and a lot of licensees jumping ship from BroadSoft over to Crexendo. In fact, Frost & Sullivan last year came out and announced us as the fastest-growing UCaaS platform out there. As number one and number two were shrinking in market share, Crexendo's picking up that market share. Pretty excited.
28% organic growth in that segment of the business in 2025 alone. We're seeing a lot of traction with the catalyst being created by number one and number two, kind of ignoring that segment of the business. As I mentioned, that same software platform that we sell to other companies, and we currently have 250 licensees using that platform, so 250 telecom companies using Crexendo to power their solutions. That same platform that we sell to others, we use internally for our own retail offerings. We compete against the likes of the RingCentrals and the 8x8s and the Vonages of the world, selling that solution to direct end user businesses.
We also compete against some of the older legacy providers out there, the Avayas, the Mitels, the Nortels, in providing that solution. The nice part there is that there's still a lot of runway. Only about 65%-70% of the businesses in the U.S. are currently on the cloud today. That means about 30%, 35% of the businesses in the country today still are using older legacy premise-based equipment. It's not a matter of if they move to the cloud, it's when, and Gartner shows that over the course of the next three years, that transition is going to happen pretty rapidly. There's still a lot of runway left for opportunity there.
Why Crexendo? Just a couple of highlights, and then we'll dive a little deeper into each. Fastest-growing UCaaS platform. We currently support over 8 million end users on our platform, both through our retail and through our wholesale offerings. 8 million end users. Last year when we did this presentation, we were at 7 million. We're adding about 120,000 users to our platform each and every month, so pretty considerable growth there. Last quarter in Q2, we had 49% growth over Q2 of last year. That does include an acquisition.
We'll talk about the acquisition here coming up. Last quarter, Q2, was our 12th consecutive GAAP profitable quarter. Not only are we growing the top line, but we're growing the top line profitably, and that's a major factor as we go through the presentation here. As we continue to grow, all of our customers, whether it's a wholesale customer or a retail customer, is on long-term contracts with us, typically three years or five-year agreements. That continues to grow our remaining performance obligation. Our remaining performance obligation is a cumulative total of all of our contracts over the course of the next five years as they run out.
That remaining performance obligation's now at $139 million. That's up 90% from Q2 of last year. The last part that we'll talk about in our presentation today is AI and how AI is contributing to the revenue stream that we've got. All of our existing customers out there are now able to take advantage of some of our AI solutions that we'll talk about here in a few moments. How do the two segments compare? The wholesale side of our business is about 30% of our revenue. Right now, we're on right at about $100 million run rate for this year.
If you look at the software solution side of the business, about 30% of our revenue is coming from the wholesale side of the house. About 70% is coming from the retail side of the house. Again, on the wholesale side of the house, 250 licensees selling our platform as their own to their end user customers. That's where we get that 8 million users on the platform. On the retail side, we've got about 200,000 customers that are our direct customers that we sell directly to. How does all that translate into the financials? Tremendous growth. We've been doing LD Micro now, I think this is our eighth year at LD Micro.
Dina's had the opportunity to introduce me for eight years in a row now. We do both LD Micro shows, so probably 16 LD Micro shows. If I go back eight years ago, our story was not nearly as fantastic as it is today. We were a smaller company eight years ago, losing money, trying to grow and get to where we are today. Three years ago, we committed that we would be at $100 million run rate at the end of 2026. We are going to meet that commitment. Now by the end of 2028, we think we will be at $150 million run rate and continue that same profitable growth.
We will talk about how we get there. Through the first half of this year, $45 million in total revenue through the first half. Q2 revenue up 49%. That includes an acquisition that we will talk about. Strong adjusted EBITDA, and 12 consecutive GAAP profitable quarters. As we continue to grow, we continue to add to the profits. As you look at the revenue stream growing, this is just on annual basis through 2025. Those adjusted EBITDA numbers continue to grow and extreme strong cash flow within the business.
How does that strong cash flow relate to the balance sheet? As we continue that profitable growth, with $18.3 million cash on hand at the end of Q2. A big highlight there. At the end of last year, we had $31 million cash on the balance sheet. We spent $27 million of that on the acquisition that we did in March. We have replenished those coffers now. Net cash, $13.4 million, only $4.9 million in debt. Really, really strong balance sheet. As we look at our growth, it is profitable growth. We manage the business by the fundamentals. We have highlighted the inorganic growth at 49%. That 49% included the ESI acquisition that we did in March.
You strip that out, still extremely strong revenue, organic growth compared to our competitors out there. 7% organic growth. As you look at that, how we compare to the competition, extremely strong growth with the acquisition. You take that acquisition out, even the organic growth, still much stronger than most of our competitors out there in the market. As we continue that top-line growth, gross profit growing faster than revenue. As we grow the business, we own all that intellectual property. As we continue to see top-line growth, that results in much higher gross margins.
We had a 200 basis-point increase in our gross margins just in Q1- Q2, and we continue to see those gross margins growing tremendously. One of the highlights that we will talk about with the ESI acquisition was the contribution to the top line, but also wanted to point out the acquisition-related cost. Even though we had the acquisition in March, we had $800,000 worth of acquisition costs for that acquisition in March that was absorbed in Q1, $1.2 million in intangible amortization that was recognized in Q2.
Even with those numbers built in, still extremely profitable for both quarters. This really highlights that amortization cost because it is a factor out there when you look at the financials. Unless you dig deeper, that amortization is a big number, $1.2 million just for the quarter. But even absorbing that, still extremely strong adjusted EBIT numbers. We highlighted that remaining performance obligation, $139 million. That $139 million, again, is the contracted revenue that we will see out of all of our customers, and that flows out over the course of the next five years.
A nice number here that you can concentrate on is in 2027, it is still six months away or five months away, we have $45 million already queued up for 2027 with that remaining performance obligation. A couple of KPIs with the two different segments. Again, when we talk about the wholesale side of the house, that is the Software- as- a-S ervice, that is the platform. We have 250 licensees. Those licensees pay us on average about $7,500 a month. A high percentage of that is recurring revenue. About 80% of that revenue stream is monthly recurring revenue.
It is a very locked and loaded revenue stream. Virtually no churn on the software side of the house. When we sell somebody our platform to run their business on, they rarely change. If you look at the churn that we have of 0.05% on a monthly basis, that is less than 2% on an annual basis. That churn that we have had for the first six months of the year was the acquisition we did. We bought one of our licensees. That counted as a churn. If you take that acquisition out of the picture, no churn at all for the first six months of this year. Our licensees rarely leave us once they make that investment to basically build their whole company on our software platform.
Strong gross margins on that side of the business. Again, those gross margins continue to increase quarter-over-quarter. On the retail side, the telecom services side, we sell most of our services there through resellers and agents. We have over 260 active agents and resellers selling our solutions there. A little bit higher churn there. When you are dealing with retail customers and you are dealing directly with customers, small and midsize customers, our average customer on the retail side is about 18 stations.
We see higher churn there because small businesses get acquired, go out of business, whatever the case might be. A little bit higher churn, but still much lower than the industry average out there. Again, very high monthly recurring revenue stream there. About 83% of our revenue on the retail side of the house is on a monthly recurring basis. That average customer, that 18-station customer, pays us about $350 a month. Why that is important, you will see when we talk about what AI is contributing to take that $350 revenue customer up 35% or 40% by adding AI solutions to it. Let us just talk briefly about the acquisition that we did.
I like to refer to our 250 licensees that we have using our platform as our stocked fishing pond for future acquisitions. Our licensees have built their whole business on our platform. If they are a telecom company and they buy our platform, many of these guys have been using our platform for five, 10, 15 years. in March, we acquired one of our licensees. We acquired ESI out of Dallas. ESI was a $26 million revenue organization. Been a licensee of ours for about 14 years, been in business for 35 years. Great acquisition for us. We paid 1.35x trailing revenue, 1.25x future planned revenue. We paid $35 million for that acquisition.
Accretive acquisition right out of the gate. They added about 75,000 direct seats that were already on our platform. We took that revenue stream from the wholesale side over to the retail side. That $26 million in revenue for a $35 million purchase price, about 78% of that was paid in cash, about 22% paid in stock. So great acquisition, accretive acquisition right out of the gate. That is part of our growth strategy, is we look at how we get from $100 million run rate today to $150 million run rate by the end of 2028. It is a combination of that strong organic growth that we already talked about, combined with acquisitions from that stock fishing pond. How do we compete out there?
You saw a lot of names on that first slide. You saw Cisco, and you saw Metaswitch, and you saw RingCentral and Vonage and 8x8 and a lot of other competitors out there. There are thousands of competitors in this space. We really compete by customer service. Not only do we have the strongest and most sophisticated platform out there, but when we are talking about end user retail customers, what they care about is customer service. We continue to rank number one in most categories for voice over IP and for cloud communications.
Our best rivals in these cases are usually way below our numbers. We are real proud of the fact that when somebody decides that they want a cloud communications solution for their business, it is that white glove approach to make sure that we take care of them and give them great service and great support. So what are the future growth drivers? As I mentioned, our industry is continuing to grow tremendously. Right now, Gartner shows the industry at about $31 billion in 2024, so that is about $40 billion today, growing to about $84 billion.
So doubling in size in the next four years. That doubling in size is businesses taking advantage of all of the AI solutions coming down the pipe, along with all of the applications coming down to make businesses more productive, more efficient, and more capable out there. If you think about what our communication solutions do, the old adage of calling into a business, getting an auto attendant, talking to a salesperson, that is how communications has been happening for years and years and years.
Now with AI being infused into that, now we have got AI receptionists, we have got AI recording capabilities, and we will talk about that here in a moment, but those are true revenue drivers, and they are true productivity drivers for small and mid-sized businesses. We see that growth coming from new applications, new AI solutions, but we also see that future growth coming from new software licensees. Again, I mentioned we brought on 11 new licensees in the first half of this year. Of those 11 new licensees, almost 50% of them came from number one and number two.
Cisco was the number one provider. Metaswitch was the number two provider. In the first half of this year, almost half of our licensees came from number one and number two. We are taking market share away from the big guys. Just a great strategy to get us to that $150 million run rate. We talked a lot about AI. How does AI affect our go-forward plan? The nice part about this is that these are deliverables today. We announced in January our Crexendo AI Receptionist Orchestrator, codenamed CAIRO.
When we talk about CAIRO is an application. Again, if you think about businesses today and you call into a business and it says, "Thank you for calling ABC Store. If you want sales, press one. If you want service, press two." I press two for service, and I sit on hold for six or seven minutes until somebody can answer my call. That is the old way of doing things. Now with an AI receptionist, I can have an agentic AI agent answering that call and be able to answer frequently asked questions, be able to schedule appointments, be able to dispatch a technician. An example that I will use is a recent sale that we made in Phoenix.
That is where we are headquartered. In the middle of the summertime, when it is 115, 120 degrees out, that is pretty hot, okay? If your AC goes out in the middle of the day and you call an air conditioning company, you better have them answer quickly, and you better be able to get somebody out there to see that customer, or else they are just going to hang up and call the next air conditioning company. You do not wait around for five or six hours for somebody to maybe call you back when your air conditioning is out and your husband or your wife is complaining. You got to get that fixed. We went to an air conditioning company in Phoenix recently in the summertime, sold them on AI receptionists.
Before they had two or three people answering the calls. They had 15 people in their business. Seven of them were technicians out in the street. They had two people answering calls. On a hot day when the air conditionings go out and they get a lot of phone calls, they can only process two calls at a time because they only had two people answering the calls. Now with an AI receptionist, the AI receptionist can answer that call and have an interaction with that customer. "Hey, what seems to be the problem?"
"My air conditioning is out." "Okay. Is it blowing hot air? Is it blowing no air? Is it blowing semi-cold air?" It can triage that call with a customer, and then it can say, "What kind of air conditioning unit do you have?" "Well, I have a Trane air conditioner." "Great, we handle Trane." "Can I get somebody scheduled to come out?" "How quickly would you like them out?" "Can I get somebody out here immediately?" "Let me look at our schedule." It looks up the scheduling application.
Can send somebody out there at 2:00 o'clock. Does that work for you?" "Yes." It gathers the information, and it does that all automatically. Now I can go to that business owner and say, "Hey, before you had a bottleneck. If you had 10 calls coming in at once and you only had two people answering the calls, those other eight people probably called somebody else. Now with an AI agent, I can answer all those calls, I can process that call, and I can send a technician out. Does that work for you?" That is fantastic. That application adds about $120 a month to that customer's bill. That customer is paying $350.
Now I give them an opportunity for $120 a month to have an AI agent answer their calls, not just during the day, but even after hours. A lot of these businesses, especially service-oriented businesses, they are paying $300 or $400 a month just for an after-hours answering service. This takes the place of all of that. Tremendous opportunity. We just launched this earlier this year. We are seeing tremendous uptake with customers putting that into their systems and seeing a nice revenue uptick on that. In addition of our 250 licensees, we just launched it to our licensee community.
We have already got about 10% of our licensees that have picked up selling CAIRO to their end user customers. We see this being a tremendous driver for us from an AI revenue perspective. Another AI application that we are also going to be talking about is conversational intelligence. AI is really reshaping the way businesses can communicate. If we think about businesses today, call recording has been around for 30+ years.
That same AC company is now using conversational intelligence attached to their AI receptionist. What does that mean? Every call that happens in the business now gets recorded, and again, recording has been around for a long time, but if I had 20 employees and every employee handled 20 calls in a day, that is 400 recordings. As a business owner, I do not have time to listen to 400 recordings. I do not have time to listen to five recordings at the end of the day, if every recording is five minutes long. I do not have time for that.
But with conversational intelligence, now I record all those conversations that happen in my business, and as a business owner, at the end of the day, I get a summary of all of those calls. Here is how many calls you handled. Here is what the sentiment was. Here is what people are saying is great about your business. Here is what people are complaining about. It gives me an X-ray as to what is happening in my business. Tremendous application for us. These are the AI-type applications that can take my five-minute or my five-minute sign there.
These are the applications that can take my $350 a month customer up to a $500 a month customer or a $750 a month customer by taking advantage of these great solutions. Last slide, and then we will open up to a couple questions. Again, strong revenue growth. We finished last year at $68 million. We are on $100 million run rate as we speak today. Strong remaining performance obligation at that $139 million. Strong organic growth and inorganic growth. Great profitability. Strong adjusted EBITDA margins that continue to grow. Strong cash flow.
As we continue to grow, we see ourselves as a diamond in the rough. Stock price was about at $11 two months ago. It has seen a dip down to about $5.85 today. We are out here telling our story because we think we are just a diamond in the rough out there from what we are doing in the communications industry and what we are doing to change the communications industry with AI and all the solutions associated with it. With that, we can open it up to some questions- and- answers. Yeah, Scott.
You mentioned some legacy platforms like Cisco and Microsoft and the ones. Then there is kind of other guys who are kind of keeping up with you, like RingCentral, in terms of the technology race here. Who would you say are kind of your more direct competitors in the higher tech and full service offering space?
Yeah, so when we talk about our retail offering and selling end user businesses, we are growing that part of the business. That telecom services side organically has been growing at about 7% or 8% consistently for the last few years. RingCentral, Vonage, 8x8, and others that were on the previous slide are our biggest competitors out there. What we bring to the table versus a RingCentral or an 8x8 or a Vonage is a lower price point, better customer service, and a feature set that is fairly comparable. So when I talk about our AI receptionist, it is a great solution. It is not unique. RingCentral has got an AI receptionist. 8x8 has got an AI receptionist.
It is how you position that with your end user business. So, we see great traction there and we will continue to see great traction there. If I look fast forward a year from now, why would a business want to have a regular auto attendant when an AI receptionist can do so much more? It is just a no-brainer for a business. Other questions? Oh, there has got to be at least one more question out there. Yes.
Can you talk a little bit more about the ESI acquisition and how it is complementary to the existing platform?
Yeah, absolutely. As we look at that philosophy of our stocked fishing pond, ESI was one of our great licensees. They are already on our platform, so their customers do not notice any change. When we buy an existing licensee's customer base, they are already on our platform. I do not have to migrate them over. Basically, they get a notice saying, "Hey, ESI has been acquired by Crexendo." These are very accretive acquisitions. In this particular instance, ESI, we have got cost savings right out of the bat on any duplicate job overlap. I do not need to have two customer service groups. I do not need to have two accounting groups.
I see cost savings there. They had all of their communications in their own data centers. We use Oracle Cloud Infrastructure for our data centers. We will move their data centers over to OCI. We will see a cost pickup there of about $30,000 or $40,000 a month as those contracts come up on their data centers. We combine benefit programs. We see cost savings there. It is an accretive acquisition right out of the gate. The great part about doing an acquisition from our stocked fishing pond is that when these are successful, as the last two that we have done have been, they tell two of their buddies, they tell two of their buddies.
If they are looking, those 250 licensees, if they are looking for an exit strategy, we are their first door knock. We have our annual meeting with all of our licensees next week in Austin. We will have 600 folks at that conference. Of those 600 folks, 175 of our licensees will be represented. I guarantee I will get pulled aside at least a half a dozen times from folks looking for an exit strategy and starting those discussions. I do not have to go look for my next acquisition.
They are already in my community, and it is just a matter of finding the right acquisition, not the first acquisition. When we look at our acquisitions, we want to make them accretive right out of the gate so we can be very selective. Okay, with that, we are right at the end of our time. I appreciate you guys coming out. If you have got any questions, I will be available for questions afterwards. Thanks.