CXApp Inc. (NASDAQ:CXAI) Q1 2024 Earnings Call Transcript

CXApp Inc. (NASDAQ:CXAI) Q1 2024 Earnings Call Transcript May 24, 2024

Operator: Good afternoon, and welcome to CXAI Q1 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. And now, I would like to turn the conference call over to Mr. Khurram Sheikh, Chairman and CEO of CXApp Inc. Please go ahead, sir.

Khurram Sheikh: Thank you, operator, and thank you, everyone for joining the quarterly earnings call for CXAI. I plan to discuss CXAI’s financial results for the first quarter of 2024. I will also provide an overall business update on our progress in shaping the future of work and creating transformative employee experiences using AI technology. By now everyone should have access to our earnings PR announcement, as well as our new product launch in collaboration with Google Cloud. We’ll also be filing our annual 10-K for 2023 shortly. All of this information will also be found on our website www.cxapp.com. And now, I’m going to go through a couple of disclaimer slides. You can read them at your leisure and we’ll get to our first slide about the company and what we’re doing.

Dear shareholders, I’m super excited to share our Q1 2024 results and the incredible progress we have made in shaping the future of work. At the heart of CXAI lies a simple yet powerful belief, put the employee first and everything else follows. It’s not just about the work, it’s about the people who do it, the places where they come together, and the things they need to succeed. CXAI redefines how we think about work, life and the seamless interplay between the two. And we do all of this using the latest AI technology. We’re super excited about this opportunity here. So let me give you a little quick snapshot of where we are now as a company this quarter. We are headquartered in the San Francisco Bay Area with regional tech hubs globally. The global presence and diversity of experience gives us a leading edge as we shape the future work everywhere.

Of the ADT members at Sky, we’d like to call CXAI at Sky, more than two-third are engineers and we have doubled the engine (ph) staff over the course of the last year at the same time as reducing overall operating expenses efficiently. AI is changing the world and we are the — we are an AI first enterprise software company. We believe the employees is the center of this multi-billion dollar growing workplace experiences market and we’re putting a new category in the software employee experiences. The CXAI platform is based on 37 file patents with 17 of them already granted. This substantial intellectual property not only establishes our company as a technological frontrunner, but also secures operation as a pioneer in the industry. This platform has been developed in collaboration with leading AI companies in the tech ecosystem in Silicon Valley and we’re super excited to be partnering with Google Cloud as we scale our business to the next level.

We have — we are proud to have some of the largest logos of the world as our customers that are the leading edge — they are the leading edge of workplace transformation. More than 20 of Fortune 1000 companies who are scaling with new deployments globally every day. And as you see on the chart, one of the key differentiator for our business is that we have strong security and compliance credentials globally. And that is the reason, you see us with so many logos from regulated industries. They use CXAI because they know they can trust us with their data and their enterprise security and compliance. If you look from our last presentation, we’ve grown to now 60 countries. We’re in 200 plus cities. We’re globally deployed. We’re shaping the future of work as we scale up this business.

Q&A Session

So now let me talk about our mission statement, as you know, which we’ve been saying since we took the company public last year. The Sky platform is anchored on the intersection of customer experience CX and Artificial Intelligence AI providing digital transformation of workspaces to enhance experiences across people, places and things. That has been the mission for us and that is what’s driving our journey of transformation. And the journey as we talked on our last call has really been through a transformation of our business model and our technology platform. Our technology platform is state-of-the-art anchored on AI and that is what’s driving all this innovation. And the transition empowers us to deliver unified work experience to our Workplace SuperApp by leveraging AI and personalize the user experience, automate task and provide valuable data driven insight to our customers.

The shift towards the platform model that you see in 2024 plus with recurring revenue stream positions CXAI for long-term sustainable growth. Ultimately, it’s a win-win for both CXAI and our customers. We gain scalability and efficiency, while our customers benefit from platform that leverage the software capabilities at scale, as well as provide more engaging productive work experience. So as you look at this chart, you can see the trajectory of where we started and where we’re at today. I’m very proud to say, the team has delivered on a number of initiatives that have made this possible both on the technical side as well as the business side. More importantly, our customers are adopting this strategy of a SaaS platform with microservices of data analytics that’s core and to the offering.

And finally, it’s based on value based pricing, which is really resonating with our customers as they look at the net scaling of their business. So when we thought about what are we going to do in 2024, the Board and I discussed what are the key objectives of the company moving forward. And since we focused on AI that was our initial raising the flag that we are the leaders in AI. We really focused on that AI first technology business model, because it really revolutionized that employee experience segment. When we think about employee experience, we think about consulting all the tools in the mobile-first work SuperApp, streamline the workflows, boosting efficiency and productivity, our AI powered approach goes beyond basic automation. It’s designed to create an intuitive and personalized work experience of reducing friction and promoting employee collaboration, key factors for driving engagement, affinity and productivity.

So that’s been our first case, let’s get this AI first technology business more right and I’ll talk about that later as well. Secondly, with a great set of customers that we had in 2023, we want to grow those existing customers and those new Fortune 100 customers to scale. That has been a key initiative and we are making a lot of progress as you will see in the Q1 results. This has been our largest growth in NRR and this is because of a lot of these customers have stepped up and doubled down with us. Thirdly, we wanted to launch the Sky platform to our key customers. The Sky platform is built on AI first. We’re deploying our first new Fortune 1,000 customer this summer and it’s going on track very well. So we’re proud of that, that achievement.

And then, what today we announced is our AI based analytics product. This has been launched in concert with Google Cloud collaboration with that. And it’s really a revolutionary product. I’m going to talk a lot more about it later, but this is a key achievement for the team. And last but not least, we have been focused on strategic partnership. You saw the announcement with Google last quarter, actually last month in April and since then we made rapid progress in terms of launching our first product with them, but also with the broader ecosystem in Silicon Valley in the world. We are working with the best and brightest AI technologists and partners to bring this capability to the workplace experience market. So I’m really excited that we’re making a lot of strides in creating this category leading segment called employee experiences.

That to us is a first in the market. So you may ask what is the solution? What are the key parts of the solution that differentiates us from the rest? Because a lot of people have been talking about AI experiences. So let me talk about, sorry, went a little too fast. Let me talk about the employee experience solution. This is at the intersection of CX and AI. These are features that power your data. Think about the life of an employer or user across the data and what we can do for them. The first one, the most important one is this AI experience analytics. The use of AI to derive insight into employee engagement and workspace utilization is a core component of SKY, emphasizing the value of data and making decisions as well as measuring productivity and we’re going to talk a lot about that later in the presentation.

The second pillar, of course, is our Workplace SuperApp, which we’ve already deployed with tens of customers and also deployed globally in hundreds of locations. This is a central platform that integrates various workplace functionalities reflecting SKY’s emphasis on a unified mobile-first approach to workspace technology. Our key differentiator is spatial intelligence, that’s the key part of Sky’s technology stack focusing and optimizing physical spaces and enhancing interactions within the workplace through location based technologies providing contextual awareness. This is the way we differentiate among any other booking engine that’s out there. And finally generative AI, we’ve been talking about generative AI for the last year. We’re actually implementing it right now in our platform both on the back end side as well as the front end side.

Gen AI and CXAI boost efficiency and productivity by enabling voice and text activated tasks, like, scheduling meetings with a simple command and features like search and discovery. This streamlines administrative duties, driving efficiency and convenience for employees as well as personalization for on demand knowledge augmentation. You’re going to see a lot more of these applications in the coming months as we launch the full Sky platform, but this is the cornerstone of the differentiation and the growth for the company. So let me talk about from the business side or from the customer side, why is this so important? Why is this really relevant to an enterprise? The reason why it’s important is the world has changed. The world has changed dramatically in terms of how the modern workforce operates.

Society as a whole is redefining what it means to be productive, engaged and fulfilled professionally. The future of work is not place dependent. It’s happening in a space of endless possibilities with technologies enabling work and life to be blended, integrated seamlessly and augmented with intelligent personalization. And employees are the center of this universe. When you look at that Sky, Octagon, employees are the center of that. The future is here. The future is now. This being led by the CXAI platform focused on transformational employee experiences. Sky is just not a SuperApp, it’s a catalyst for transformation. Businesses that embrace Sky unlock the potential for more efficient, collaborative and engaged workforce. In doing so, they set the stage for a future where work truly knows no bounds.

We have architected our solution as a platform that solves problems for both employees and employers as they navigate their work life. And we have built a grounds up anchored on artificial intelligence. AI is transformative to the future of work, creating massively scalable offerings that create the flywheel effect of automating the workflows, driving engagement, enabling collaboration and productivity, leading to immense affinity in the employer employee relationship. We’ve been strong believers in this technology and now to be the first in our industry to offer solutions to our customers and who are those great customers of ours. Now our primary business is the SaaS platform that we sell to enterprise customers as an annual subscription for three to five years.

Today customers deploy our cloud hosted software across their enterprise [indiscernible] to allow employees to connect with their workplace for a myriad of use cases, examples being desk room booking, collaboration, navigation, food ordering and internal communications. Our large enterprise customers are mainly divided into following top five verticals: Financial Services, Technology, Media and Entertainment, Healthcare and Consumer. We are proud to have some of the largest logos of the world as our customers that are at the leading edge of the workspace transformation. We have healthy distribution across all verticals and we see the adoption trend developing from technology sector focused companies to the larger Fortune 100 portfolio. Our customers are sophisticated by the technology solutions and do not compromise on quality, performance, security, reliability, scalability and of course, technology roadmap.

So as you can see, we’ve kept increasing the logos that are adopting the Sky platform. We’re also increasing the value of the different technology aspects in their platform. We’re working very closely with them on the analytics platform that you’ll see that is driving immense affinity, immense data sets that were helping them be more productive in their work experience. So that’s kind of like an overview of where we are at, what we’ve accomplished and things we’re doing overall from a product and business side. But let me talk about the financial results of this quarter. So this slide highlights several key metrics demonstrating our continued momentum in Q1 from last year. Let’s take a closer look at each of the metrics. Between January 1 and March 31, 2024, we had record increase in net retention rate NRR to 108%, that was accomplished primarily by renewing expanding seven of our largest Fortune 1000 customers across all five verticals.

These large renewals are very important because this signals to the market that these customers are now ready for the scale up. In ARR annual renewals that’s north of $2 million which is significant part of our ARR portfolio. So very, very happy with that. And we’re also happy that these customers are now looking at the Sky platform and the SkyView, which is the analytics platform we’re going to talk about as the next generation platform they want to scale up to. The other more important metric for SaaS business is the subscription-based revenue. And I’m happy to report that our subscription based revenue for this quarter was 87% of the total revenue, a metric which has been trending upward quarter-after-quarter and this quarter marks the highest ever in our history increased 6 points from last quarter.

This is because of the work we’ve been doing on the planning of the business in terms of working with our customers to provide value-based solutions, recurring solutions and then has minimizing project work, which traditionally has been done in a manual way, but automating those task using AI technology has really helped us get to this really high subscription to one-time revenue number and I’m very proud of the team’s hard work in achieving that. The other metric that we’ve been trending upward is the gross margin. The gross margin was 82% for this quarter, which is higher than the previous quarters and it’s inching up and up. We’re all in the right direction, all tied to the fact that we’re getting more subscription revenue, we’re getting less one time revenue and we’re also increasing the profitability of the company towards that.

And part of all of this is really driven by our land and expand strategy, which continues to be a key contributor to growing subscription revenues with our existing customer base and with the new SkyView analytics product offering, we are looking to ramp up these product expansions, which will really increase the ARR, the NRR and also the gross margin. And lastly, we’ve been super focused on creating value for our investors and for that sense we’re really focused on optimizing the operational cost structure, leveraging our investments in AI and headcount rationalization, which we did for — in late Q4 and Q1 resulting in a net north of 20% operating expense reduction from Q4 ‘23 to Q1 ‘24. This was done as part of a plan to really scale up the business in 2024 with a much lower cost structure.

Looking ahead, I’m very confident there are increasing ARR bookings, strong customer acquisition and focus on subscription revenue will drive sustainable growth. We’re committed to continuously innovating the Sky platform and delivering value to our expanded customer base. All right. So that’s our financial information for this quarter. Let me talk about the exciting new announcement that you probably have seen and hit the press announcing SkyView and we pronounce it SkyView, so it’s an extension of our Sky platform. It’s the AI based analytics platform for employee experience. It’s the world’s first in this area. We’re really proud of the revolutionary work we’ve done to enable this. And I really want to commend the Google Cloud team that really supported us in this effort.

It’s been at breakneck speed in terms of getting the platform up and running and now it’s in beta with lots of great customers who are working with us day-in, day-out and we want to launch this at the end of Q2 for general availability. And what does this SkyView platform do? So the SkyView platform is actually revolutionizing the workplace environment by measuring work efficiency and providing actionable insights, driving employee engagement, collaboration and productivity. So let me give you a little flavor of what that means and the key attributes that we focus on. And the interesting thing is, we actually work with our customers pretty closely over the last year in building this platform, which came from a lot of interaction with our customers.

The SkyView platform is really driven towards providing the first piece of space optimization, really playing those spatial analytics that allows you to understand the key space utilization data, including heat maps and historical trends, which are instrumental in optimizing workspaces and resource allocation becomes the most efficient workplace business planning tool out there. The next thing that’s important is, what are the people doing with the app and in the workplace? And with our platform, we can trace usage of application function utilized by the users to gain valuable insights on user behavior, which will drive engagement and productivity and also integrations with corporate infrastructure that tells you what kind of technology assets that people use and how they use it gives a really good profile of how the enterprise is working.

More importantly, when you look at all these pieces together, it provides a comprehensive view of the enterprise. The data that we fuse from our integrations as well as the data we’re getting from space and people information is driving these actual outcomes, which are really data driven. And this makes life very easy for Enterprise manager, Workplace Experience manager or an IT manager to really decide and even an HR manager decide what is really happening and what can we do to make things better. And last but not least, the most cool thing about this is the predictive analytics. This is part of the tool that really reimagine the whole enterprise with customizable dashboards, you can create your own dashboard and get key predictions for KPIs with a very intuitive user interface.

I’m going to show you a quick slide view of that. But this is kind of like the four cornerstone pillars of our analytics platform and it’s really driven by this, by our customers who really wanted to see what are we actually doing with the app, what is the real value of the app. So let me talk about a little bit on some examples of this platform. So the first chart will show you, a little bit when you enter the platform, you get this global view of the work experience. This shows you a global view of the campuses around the world. So you kind of have at the tip of your fingertips, you build it to see what’s happening in different regions of the world, whether you’re in Dubai or you’re in Singapore or you’re in LA or New York, you can actually see what the utilization per region is, what the bookings have happened, what things are happening in different markets, what functions have been utilized that gives the Enterprise manager a really SkyView of the world of their world.

And as you move forward, we talk about what is most important to them, right? And one of the things is the Workspace Optimization to see how many bookings are happening, what is the trend line between different years or different months as well as different spaces in different locations. So this gives you a very good view of statistical analysis of the data, the data sets out there. But more importantly, you can scroll in and you can change the filter to allow you to give you different insights. So this gives really a tool that allows a workplace experience manager to really drive optimization of their assets and drive efficiency and productivity of those assets. The next exciting part is employee engagement and this is where it gets very exciting whereas and we will optimize the solutions for that, as a workplace manager or workplace experience manager, you can actually profile yourself and see what things are important to you.

You can understand what events are happening at different places in your organization. You can see the trends in terms of who’s coming in, who’s coming out, what are they doing, what features in the app they’re using and really understanding what integration are they using. Are they using a locker? Are they using the food service that you offer or other amenities you offer? So it gives you a holistic view of what people are doing, why they’re doing it, what matters to them, what’s most important. And this has been driven by our largest customers who are actually using our app for really things that are mission critical. And mission critical is ordering lunch every day, mission critical is getting to the office on time. Mission critical is to find a parking spot.

Mission critical is to get home at a reasonable time. And mission critical is to get your work done faster, better, and cheaper. This is all happening because now we can tell you exactly what friction points are for the users, what are they liking, what are they not liking, and what’s going to make them more productive. This is simply awesome. And if you get to play with the tool, we’re going to do some demos of this as we launch it with our customers on the next calls and you’ll see how powerful this is in terms of providing that intuitive nature. And to that goes to my next chart on the data driven piece, right. The fact that now you can have opinions on what’s right, what’s wrong, why is this market working this way. You can actually get real data sets to understand what are the critical things, you can compare data sets between different locations.

You can also decide what active users are using, where they’re using it. Infusing that data will give you actionable insights, meaning that once you know that how many people are actually coming into the office, how many people are actually using the product, how many people are actually being productive in some of the work function, you can fuse the data together to create more actionable insight. And this is all data driven. So that way there’s no opinions on whose site is better or whose campus has got better amenities. It all will show up very clearly on where the decisions are to optimize, to improve, to enhance the workspace and also the employee engagement. And lastly, the way we’ve thought about all of this stuff is really to make it in the hands of the employer to really decide how they want to create their own dashboards.

People talk about lots of different dashboards. We talk about just create your own dashboard, which is the interactive predictive analytics. You can ask a question and you get an answer that satisfies your question and gives you insights on what else could you have been asking or what else do you see in that space. We’re using the latest Gen-AI models for this and we’re creating really all these questions can be asked in native language and create these custom dashboards containing really relevant information and using these predictive analytic capabilities, you can estimate the potential impact on future programs. So this is really the most advanced solution out there that provides that intuitive user experience. So all of these tools are really cool and they’re getting deployed with our customers who are embracing them because without this, there’s no real value for the full app.

Unless you have the analytics tied together, you can’t really realize the full value of the workplace experience. So let me talk about our friends at Google, who’ve been parking with us and really it’s been a great experience working with them most prominently because they are the leaders in the AI infrastructure space. And when we think about that, it’s not just Google Cloud capability, it’s also these other capabilities that I mentioned in the slide, in terms of providing these different user interactions, whether it’s through voice or images or other sources, whether it’s natural language processing to really understand user intent and deliver more relevant and personalized results. Location is super important to us. As you know, we are the spatial intelligence company.

We provide really good location data inside the enterprise, but a lot of things around the enterprise or right near the enterprise. So we provide that full location intelligence, we call it places and things and the regional variations, localization around different markets. We’ve got a really great platform play with Google on that, that’s really helping. One of the key things of our business has always been about integrations. We do around 100 plus integrations with different customers. With Google’s API management platform, we’re able to do those integrations much, much faster. Think about months become days and we can also enable lot more applications around it. So this is a key differentiator for us compared to our competition. And lastly but not least, all our major customers really care about security.

Security is the prime factor for the reason why they chose us. And so for us to be at the top of the league on security is super important and that’s why we’re leveraging all the features on the Google Cloud platform for security and compliance. And last but not least, believe it or not, this business is getting to become not just a nice to have, but a must have. And when you have a must have business, you need high reliability, high quality, high availability and our customers are demanding that. Our customers are not happy if they can’t order something on the app because they’re depending on it. So we have to pride those really high levels of reliability and quality and availability and this is where really partnering with Google’s AI infrastructure has really helped us in enabling that and we really are looking forward to driving more and more innovation with this AI infrastructure.

So anyway, let me close off by talking about why we are important, why Sky, why you as an investor should think about it? Number one, AI is changing the world. You’re seeing that in every segment. I think in our space, AI is not just the future, its present right now. And with our solution, we’re going to be transformation to the market. We have a patented leading edge enterprise AI SaaS platform, the first in the world, very proud of that and we’re going to launch it in the summer after our first deployment with all our existing customers. And this existing customer base is growing, it’s very strong, very loyal to us and willing to go scale up to the next level. Most importantly, when you think from an AI perspective, we’ve got diversified deployments globally in 60 countries and 200 plus cities.

Those datasets are precious because they give you real datasets that allow these AI models to perform better and provide better training and better outcomes. That’s what our customers want. They just don’t want AI for the sake of AI. They want AI to create actionable results that will be meaningful to their business. We believe we are delivering that with this new SkyView platform as well as overall Sky platform. We are an innovation team. We’re based in Silicon Valley. Our heritage is about transformation. We’re super excited about this area. We’re super excited about the challenges we see in the market. But more importantly, we have an experienced management team and our board is very focused on delivering value to our investors. And we’re not going to do everything ourselves.

We’re partnering with leading innovators. You’ve seen the Google Cloud announcements. We’ll see further announcements with other folks in the coming months years. And we are working very closely in the whole ecosystem to find the best-in-class to provide it. And lastly, as I started this journey a year plus ago when we took the company public, we want to create this new software category. We really believe in employee experiences. We’ve been validated in the market that this is the right offering, this is the right capability. Now we just have to deliver and we believe that we are at the tipping point of delivering the capabilities, getting the customer adoption and scaling to the next level. So with that, that’s all I have to say today. We really believe that this is — the company is ready for the next phase of innovation.

As we like to say, to the sky and beyond, thank you everybody. We love to have you connect with us on our next earnings calls and we would welcome interactions with you. You can go to our website, www.cxapp.com and we can share with you all the details about the offering that we did today in terms of the SkyView platform as well as any other investor documents. Thank you very much. Have a great evening. Bye.

End of Q&A: Thank you. This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.