CXApp Inc. (NASDAQ:CXAI) Q2 2024 Earnings Call Transcript

CXApp Inc. (NASDAQ:CXAI) Q2 2024 Earnings Call Transcript August 12, 2024

Operator: Good afternoon, and welcome to the CXAI Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that this call is being recorded. And now I would like to turn the conference 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, pronounced Sky. I plan to discuss CXAI’s financial results for the second 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. By now, everyone should have access to our earnings press release announcement. We have also filed our quarterly earnings report, our 10-Q for Q2 2024 with the SEC today. This information will also be found on our website. www.cxapp.com. With that, I’m going to move to show some disclaimer slides, which people can review at their own leisure. So now let me tell you a little bit about the company, CXAI.

We are listed on NASDAQ. As you know, we’re an AI plus enterprise software company, creating a new segment and software called Employee Experiences. We’re headquartered in the San Francisco Bay Area, where we have design and development resources all over the globe with main hubs in Toronto and Manila. More importantly, we have customers that are globally situated, although all our customers are headquartered in North America, where we’re deployed in around 200-plus cities in 50 countries in all five continents, where we tell you the depth and breadth of our capability and our span across the globe. Our customers are Fortune 1000 customers that have great enterprise capabilities globally. The reason why the true CXAI or Sky is because we have a great technology platform that’s built on 37 filed and 17 granted them.

And this team of 80 innovators globally has made mostly of engineers, so more than 2/3 of the team is engineering. But all our colleagues are great collaborators, innovators and design thinkers that are creating the next generation of the future work. So, this is where we’re super excited to share with you the progress we made, the outcomes we have. And I’m going to start by — before I go forward, I’m going to talk a little bit about the market and see what we’re — what’s shaping the market, what’s happening in the market, as you can see. But first of all, it’s very obvious that the world is going to an AI-centric world, where transformation is happening across all states of the industry, and we are the company that is changing the transformation or transforming the workplace as we speak.

So let me talk about the market, what is happening in the market, what do we see in the market right now. It’s obvious that the — that work-from-home was the predominant use case during the pandemic. And work-from-home is now stabilizing at around 25% of days, which is around one to two days a week, which is still a five-floor jump from 2019 when we had less than 5% people working from home. The work-from-home is staying, it’s not going away. It’s also becoming more stable, more predictable. Now as you look there, there’s also a trend happening in terms of what’s happening with the office occupancy. During COVID and post-COVID, there was a rising occupancy in the marketplace. It’s flattening out for the last number of years. So, the last two years is that we flattened for around 50% of 2019 levels.

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This data shows that now we’re in a position of stability or at least a new work norm is being implemented. This data that I showed you is from courtesy of Professor Nick Bloom at Stanford, who is the leading thought leader in this space. And as you can see, there’s a lot that has changed, but now there’s a new norm, which is called Hybrid Work. So, what is Hybrid Work? And why is Hybrid Work is more important? As you can see, 37% of U.S. companies have now embraced a structured hybrid model, which is up from 20% in Q1 of 2023. If you look carefully at this chart, it’s obvious that the world is going towards a structured hybrid model. There are people that are fully flexible. There are companies still doing full time in the office, but the structured hybrid seems to be the most successful and most useful model out there.

And managers have shown that have reported that there’s an increase in productivity, there’s increase in work like balance and there’s reduced burn out. Employees want to be given the opportunity to have that flexibility. That flexibility is key to the success of new workers experience. As we move forward in this structured hybrid world, what does that entail? That entails all of these large customers of our large Fortune 100 and 1000s, they’re adopting that more and more. As you can see, more than 67% of the companies with 25,000-plus employees are using structured hybrid. And most of our customers are in that same footprint, either 25,000 or in the 5,000 to 25,000 range. At the same time, this phenomenon in this trend is going to grow over and over across all the segments.

So, we believe that this is going to be the way of the future and structural hybrid is where the world is going. And there’s no going back on this. This is the way industry is performing in terms of how enterprises are expecting workers to come back to the office or work from the home. We’re actually working from anywhere, and giving the capability and the tools and technologies to allow them to be successful in any environment. So, when we think about the challenges of hybrid work, this is where the biggest thing that’s come out is the hybrid coordination tax. And the hybrid coordination tax is tied to the fact that as these employees are trying to figure out their new working arrangement, there are still a lot of things to work out. The challenges to get the most out of the return to office and remain productive, at the same time, the logistics of actually meeting with people you need to do when some are working in person, others are working virtually.

It’s an effort. It requires coordination. It requires consultation and all of that can be enabled by technology. No longer phone calls only or e-mails only. It has to be the ability to coordinate successfully across all digital platforms. That’s the power of communication. That’s the power of intelligent platform. And that’s what CXAI does, and we’ll talk about that in a bit. The other part that’s important is the time taken with these co-ordinations and the setting up these meetings and conferences and others is becoming a bare on people, taking 30% of their time, which, in some cases, is costing companies tens of thousand dollars per employee. So that’s a huge cost issue. More importantly, the return to office mandates have really not worked out for a lot of the employees and the employers.

And what we call is a new vernacular called HushHybrid where coffee badging and shadow policies are in place. Coffee badging means that you could go into your office, you bag yourself in, you put a couple of coffee and you walk out five minutes later because they’re only checking you when you check in, they don’t know when you’re checked out. Well, that’s happening a lot. And there’s data out there showing 15% of hybrid workers are coffee badging. And then they’re having shadow policies where they’re talking to the manager to allow them to have flexibility to do things differently or to allow them some flexibility in the timing. All that is good as long as there’s awareness, there’s transparency, visibility to understand what is happening and how to actually manage that.

So, it’s important to note this hush hybrid is happening across the workplace and we’re seeing it with our customers, too. And we’re finding out that these customers need solutions to that. So, when you think of the challenges, this world has gone to the hybrid world, we have to find solutions to that. So, coming over to now, what are we doing? Why are we doing this? And why is an AI-centric solution so critical to this? So, with CXAI, we have built this for this real purpose. And the purpose we built it for is to create transformational employee experience end-to-end. And when we think about the transformation, it’s happening all the way from the time the employee starts the day to the time they hang up their phone for the day. So CXAI is a unique enterprise employee experience platform that powers seamless connections across people, places and things and enables a best-in-class workplace environment your people will love.

It is true enterprise solution design for millions of users. It provides enterprise-grade security and supports our 100 integrations with corporate systems. These integrations enable large amounts of experiential data and feed CXAI’s powerful analytics, suggesting new ways to improve employee productivity and engagement. As you can see, the way we’ve thought about CXAI is a shift towards an AI-centric approach and workplace integration, tie seamless integrated customer experience CX, with artificial intelligence, AI, focus around the employee to deliver solutions and transform the way work capital, making workspaces more intuitive and efficient leading to happier and more productive employees. As you look at the solution, it starts with this branded immersive mobile or web app.

So, think about any large customers are using their logos, their content, their look and feel to enable the users to feel like they’re at home or they’re at their work environment in their work home environment. And similarly, when you look at the analytics and the data, it’s all in a trusted environment where we’re collecting the data from the users in an enterprise environment and providing trusted advice to both the users as well as the employers, and creating an end-to-end architecture that is really multi-cloud. So, we are right now in all cloud systems, supporting all of that, and we plan to do that. Moving forward, is extended with our Google Cloud partnership. We are working with other cloud providers. And more importantly, we’re also looking at multi-OS and multi-devices because these interactions happen everywhere, not just on the mobile phone.

They happen on a laptop, they can happen on a kiosk. It could happen on a watch, they could happen on any digital device that you can connect to. So that’s why the CXAI vision is really tied towards the data and making sure that data is available on all devices in all capabilities for all our customers globally. So peeling the onion a little bit more, what is underneath this CXAI platform? What are the key technology and capabilities that we’ve enabled? Number one, we’re AI native, and we were a mobile-first and cloud-first technology platform. Now we’re focused on centering it around the employee first experience, meaning this is all tied to increasing the employees’ capability and employees’ ability to be successful. So, the first pillar is the unified employee experience where as a central platform that integrates various workplace functionalities and a unified workflow reflecting CXAI’s emphasis on a unified mobile force approach to Workspace technology.

CXAI’s platform creates a consistent personalized workflow specific experience across mobile and web powered by over 100 integrations with enterprise back-end system. It covers the complexities providing the users with a clean, easy to navigate context-specific UI to complete their task. The second part of this is Spatial Intelligence. Spatial Intelligence is a key part of CXAI’s technology stack, focusing on optimizing physical spacing and enhancing interactions within the workplace through location-based technologies, providing contextual awareness. The third part of our pillar is really on the experiential analytics. The use of AI to drive insights into employee engagement and work space utilization is a core component of CXAI, emphasizing the value of data in making decisions as well as measuring productivity.

Finally, generative AI. Generative 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. Leveraging the most advanced multimodal large language models, LMs we are adding responsible, secure and reliable Gen AI capabilities through a retrievable augmented generation RAD model that uses internal enterprise data to support intelligent planning and using interactions to text patient video. So, as you can see, this is a stated VR solution that really enables the most advanced capabilities in the marketplace today.

And we’re so proud to have this solution available to most of our customers today and the generative AI pieces in data that’s coming out soon with our customer base as well as new customers. So why do enterprise leaders to CXAI. Why do we have these 20-plus large Fortune 1000 customers? Why do we have these great expansions that we’re going to talk about? Well, number one, it’s an engaging all-in-one app. It’s an intuitive user experience with all these seamless integrations and with immersive content. There’s no solution out there today that’s all-in-one app in the enterprise space. Secondly, we turn complexity into productivity. We’re asked for providing automated workflows where there’s one click, one view and then one voice command to an action, requiring enterprise-grade security and providing their trusted adviser capability so that where all your complex functions become simplified and easy to use.

And last and most import, we’re delivering insights both to the employee and employers that make their lives easier and better. These AI-powered analytics provide predictable outcomes and provide insights that will allow users to become more productive in the environment, and for employers to figure out ways to make their workspace and more intelligent and more engaging. So that’s a little bit about the market and about what we have been doing from a technology perspective, from a customer engagement perspective. Let’s talk about the results. I know a lot of you have come here today to learn about what is our results. But I want to first give you a little bit of highlights of what happened this quarter, right? So, the biggest announcement for us today is that we signed our largest expansion deal ever.

This is one of the largest financial services customer in the world. They have global sites all over and they are growing dramatically with us. They started off with two sites at their headquarters and the second, lot site. And those pilots have been super successful in this last quarter, and they have now decided to sign on for 25-plus sites globally as well as add on more and more capabilities based on the success of those pilots. So that is our largest financial deal in terms of the size of an expansion and it validates our land and expand strategy. Secondly, our bookings growth this quarter is driven by renewals and expansion by five enterprise customers. And these five enterprise customers are across all major verticals. They’re not just in financial services, they’re in financial services.

They’re intact. They’re in consumer. They’re in all the different — in health care, all the different verticals that we have. So, we’re super excited about having those customers renew with us and scale up with us. The third big highlight for this quarter is our multiyear, multimillion dollar agreement with Google. I’m going to talk a lot more about it in detail in the coming slides. But essentially, it provides an overarching agreement where we get access to the most latest AI infrastructure products and monitoring for our CXAI platform and allows Google in us, Google Cloud in us to be driving together in the workplace transformation. This is significant because it shows commitment on both sides on enhancing the capabilities but also changing the way people work.

We believe that Google Cloud is a strategic partner to us. And we are super excited to work with them and to enable new capabilities on our platform. On the last call, I had mentioned about the new CXAI platform, which is being launched with a brand-new customer in the financial services, where that development is going really well. And I’m happy to announce that we are doing a pilot in Q3 here in the coming months, where we’re going to launch it with their internal pilot customers, meaning that this is a subset of their full employees that are going to be testing this. And the plan is to deploy it in Q4 globally to major sites. So, this new platform, as I said earlier, is multi-tenant, multi-OS, multi-cloud, allowing you to do many of the interactions I showed earlier in terms of analytics as well as in terms of the simplicity of the architecture for A native.

And we’re the first in the industry to implement this, and we’re super excited that this is on track for deployment in Q4. And last but not least, I think we announced last time was CXAI VU capability, which is our analytics platform based on AI. I’m happy to report that we’ve been working with our existing customer base, and we are now in three pilots in Q3 here, with diversified customers, one is in consumer, one is in the tech space and one is in financial services. We believe that diversity of these trials is important to see what are the use cases and capabilities that they want, and we’re finding really great insights on those pilots. I’m going to show you a couple of charts in the end where we talk about what are the insights and capabilities we can provide.

But this is the future for us. The future is CXAI platform with CXAI VU is going to be the full solution that solves the hybrid work problem that I shared in the start. So let me go further deeper into the results. So, let’s talk about the financial numbers. What are those highlights translating to financial numbers. So, for Q2 2024, we had $1.91 million of bookings. And those bookings are really tied to the expansion deal that I talked about as well as the four other renewals. So that’s a total amount of bookings that happened, which is significantly higher than last year, same quarter. This expansion deal is groundbreaking for us because it is the validation of our land expense strategy. This customer is going from the current ARR to 112% growth, which is massive in terms of the size as well as the opportunity for us.

And as I said earlier, this is not the end game for them. They have many more sites and many more capabilities they want to enable. But this is a stepping stone in the right direction, and we’re super proud of this achievement this quarter. On the subscription to onetime revenue split, we are — we performed at 85% recurring, which is much, much better than what it was last year. And this is trending in the right direction. And with the gross margin consistently trending in the 80% and north of that. We really had a really great quarter in terms of the metrics trending in the right direction as well as this large expansion deal. This is the first quarter — first full quarter where we can compare to a year ago after the company did the business combination.

So, from a stand-alone basis, this is the first time we can compare from what we were last year at this time of the quarter to now because before that, we had being part of another entity, there was a lot of financials that were mixed together. So anyway, the biggest news item I will tell you from last year financial results, we have completed a full business transformation. And what do I mean by that? The business transformation is really driving to an AI-native SaaS model with continued positive trending of T SaaS metrics. This quarter saw a massive increase of 78% in renewal and expansion bookings from the same period last year. The company reported its largest expansion deal with a major enterprise customer in the financial sector that is now scaling its footprint globally after the initial pilots.

And as I said earlier, discuss with the annual recurring revenue growth grew by 120% as a result of this expansion. And the other piece that was important is the onetime subscription revenue that we had is from 85% this quarter, it was 79% a year ago. So that’s six basis point increase. Similarly, gross margins of 5.5 basis points increase from last year. More importantly, when you combine all of these capabilities and these metrics, the net retention rate from last year to now is 105%, which is trending really positively, and this is really driven by those five renewals and the record expansion deal. And last but not least, we’re focused on the bottom line. Our OpEx reduction from the time last year is more than 15%, and that has really been a combination of restructuring that we did earlier, but more importantly, we’re using AI and AI tools to lower our cost structure.

So that has been a big highlight for the team as we are a technology organization, really focused on improving our productivity and capability with that. So, in a nutshell, I can tell you we’re much better off than we were a year ago. We’re in the right trending in the right areas. We’re scaling up really well. I know that when you look at the financial spreadsheet, you would look at the onetime revenue that was in the past. Think of this as a recurring revenue business now that is transformed to a SaaS model and that is growing dramatically in terms of customer penetration as well as customer engagement to scale up. It’s super important that we have our customers really using our products effectively. Actually, the last week, I was in New York City visiting with our customers, and it was amazing to see the amount of activity at the customer site.

I was at four or five different sites and I can see different kind of use cases where people are coming into the office, wanting to use our application to allow them to book a room, book an office, order food, use it for their daily activities from one app, one solution, one action and we’re done. So, this is the power of the technology. And as I visited different campuses, it’s obvious that we have so many different use cases, and we’re shaping the way people behave, and we’re using technology to enable much, much better outcome from them. With the analytics platform, it’s right because now, as we showed earlier, people are coming back to the office. And if they’re not, they want access to the office remotely from their home, so their distributed architecture is important.

And this is why the not only using a mobile app, they’re using a web app when they’re in home. So, all those trends are leading us to — now we have an engaged set of customers where users are wanting this capability to enable their workforce productivity. And now we need to provide them insights and analytics and keep improving that to go higher in the food chain in terms of productivity and engagement for the employees. So now I’m going to talk a little bit about our Google agreement, right? And you could ask you to say, well, we did announce a Google partnership last quarter. This is a significant step forward from that because this is now a real multiyear, multimillion dollar agreement where we are reinforcing our commitment to leveraging the cutting-edge technology to drive innovation growth.

The number one thing that is important is as we’re growing our customer base, and we are now extending ourselves from being just a nice to have to a must-have. It’s super important that we have infrastructure that’s reliable, that’s scalable and that allows us to provide that seamless experience across the board. This is why it’s super important to have Google Cloud as a partner helping us as we scale our customers from hundreds of thousands to millions of users. Secondly, security is a big, big factor in our — with our customers just because they’re large enterprise customers. And given the fact they trust us with their data, they trust us with their employees, it is super important that we provide all the safeguard industry to manage that data and ensure compliance with industry standards.

And as you’ve seen in the market, there’s been a lot of challenges with security. We’re super proud to say that we are really working hard with our customers and with Google Cloud as well as with Azure and AWS to allow for their fully secured enterprise footprint. AI is at the heart of the CXAI platform and integration with Google’s AI and machine learning tools to accelerate the deployment of our CXAI apps is super critical. And you will be seeing in the coming weeks and months, some of these announcements as we’re doing pilots with Google Cloud, testing the technology. We have access to the latest technology faster than anybody else in the world in this space, and we’re going to take advantage of that to drive innovation to our customer base.

As I mentioned earlier, some of our customers are using our product, not just for nice to have, it would be good to have an app. They’re actually using it for critical functions, be it ordering food, be it researching about their campus or navigating when they have to get to a meeting right away. So, becoming a must-have requires that we make sure the health of the CXAI system is continuously monitored. And with this agreement, Google is co-investing with us in parking to provide that monitoring capability across the board globally with all our customer sets. And finally, as we look at infrastructure and the growth of these applications with AI, it’s very obvious that the cloud cost infrastructure is super critical. And with this multiyear agreement, we have a significant leverage in our costing with Google in terms of our cost structure as well as our ability to scale faster with AI.

So, I’m super happy about this agreement, and we are working with other cloud partners, but naturally, most of our customers are today on Google Cloud, and we look forward to further advancements with them. So let me talk a little bit about what are we seeing with CXAI VU. And I think the way we think about it is again, the life of users. And with CXAI VU, we’re embracing every single interaction they’re having with the app as well as the myriad of integrations that we have integrated in our portfolio. This allows us to provide really a great activity time line to our employers as well as provide them all of the data that they need to know what are the top engagements, what are the things that they like doing, what are the things they enjoy and what are the things they don’t like.

And so we kind of see the behavior of what is useful in the work environment. And we also see the session duration. We see that if they could do a booking in two seconds, that success if they were on a podcast or put minute that success, we look at different kinds of metrics that drive the value at the campuses, and this has been already enlightening experience for us, learning about our customer base, but more importantly, our customers are super excited because they want access to their data. They want to know what can they do to make their employees more productive. I’ll show you another chart that we talked about spatial intelligence. And one of the key things that we do with our private tool is to really provide that 3D visualization of all the KPIs, the key performance indicators.

So, think about trying to the spatial distribution of activity and spatial utilization metrics and knowing which rooms are being utilized and when and how, not just giving percentage numbers and metrics, but metrics that really are defined by the space give you contextual awareness, allow you to make decisions better and faster. A lot of our customers, as they see the office occupancy changing as they see people coming back to the office, they want to provide an experience as a world-class. They want to be able to provide the same experience they have when they go back to the home office. Actually, when I was at one of our campuses here in New York, it was interesting to see that some of the new workplace designs are just like the home office, like you have your little small covered space that has a plant has bookshelf, has the same lighting that you would have in your home office.

So, we’re replicating the home office in the workspace. And those users want when they’re in the office, they want the same environment, and they want it for the whole day. So, managing that user experience, providing that space utilization is super critical and scheduling that, predicting that is even more important. So, with our tool, you can do all of these things. And in the coming weeks and months as we go from a pilot to deployment, you’re going to see a lot of value being created for our customers.

Operator: So, with that, I’m going to take a look at some of the questions that was sent over and make sure that I address some of these questions. I think one of the questions was, is the business with Google set for big growth or slow growth? Well, if we’re going to work with Google Cloud, we are set with growth naturally. We’re looking to work with them closely, and we are also working on another initiative that we’re going to be announcing soon that will be driving on the go-to-market side. So, we are definitely working with them for the growth. Another question that came in was regarding the S-1 that was filed on Friday and want to make some clarification on that. I just want to be clear that the shares that were announced for selling shareholders were actually a refiling of our initial S-1 that was done at the business combination because of a delay of our 10-K, though that S-1 went sale.

So, we had to refile that. So, you see that filing. And plus, as you all know, in May, we had done a debt equity deal. And for that debt deal, there’s a potential of conversion to share. So, we had signed some shares for potential conversion. So, this is not something that’s new. This is already in place before. We just had to refile it because the last is for estimate stale. So those are the two main questions. I see a question around could CXAI app partner with Palantir in the future? I have not talked to Palantir, but I’m happy to engage with them. They could be potential customers. They’re a large enterprise. We are really focused on enterprises right now. We’re not in the government sector if the question was we’re going towards the government sector.

But we’re really focused on enterprises, and we believe there is a huge opportunity for scale up here still. So anyway, I’m going to end with why CXAI? Why should you look at CXAI, what is the reason why this company is the right company to scale up in this space. And when I think about what the journey we’ve been on, it’s a journey of transformation is a journey of providing probably the most advanced solution in the marketplace. We are shaping the future of work with leading-edge technology, defining a new category in enterprise software in play experience. The future of work is one of the biggest issues of our century, and every single enterprise globally is looking to find solutions for the digital workplace and workforce. So, we are at the cusp of an amazing transformation.

We have great customers that are in all large verticals, financial services, health care, entertainment, consumer and tech. And we’re growing dramatically with deeper penetration to those accounts. And we believe that these solutions become the norm, every other enterprise in the space will be adopting that. We’re diversified globally in 50-plus countries in 200-plus cities. This is not about us hiring salespeople in those countries, we are able to scale them up by just getting the accounts in North America, we tell you the power of the technology. We’re innovation-driven, experienced management team. We have a great Board who is based in Silicon Valley here, and we have great partners now, including Google Cloud and others that we’ll announce in the coming months and years that are really helping us scale up.

So, I’m super excited about the opportunity here. I really believe that we are at the cusp of creating something amazing, and we’re really focused on delivering shareholder value by executing on our business plans, delivering great experiences to our customers and going to the CXAI and beyond.

Khurram Sheikh : So, thank you, everybody, for listening to the call, and I look forward to sharing with you results on the next call and the upcoming Annual Shareholder Meeting, which is August 29. Hopefully, you all got the proxy for that and we will be in touch soon as we progress in transforming the workplace. Thank you. Take care.

Operator: Thank you. This concludes today’s conference, and you may disconnect your lines at this time, and we thank you for your participation.