CXApp Inc. (NASDAQ:CXAI) Q4 2023 Earnings Call Transcript

CXApp Inc. (NASDAQ:CXAI) Q4 2023 Earnings Call Transcript April 16, 2024

CXApp Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings. Welcome to the CXApp Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to your host, Khurram Sheikh, Chairman and CEO. You may begin.

Khurram Sheikh: Thank you, operator. Thank you, everyone, for joining the quarterly earnings call for CXAI. I plan to discuss CXAI’s financial results for the fourth quarter of 2023 and for the full year 2023 as well. I will also provide an overall business update on our progress in shaping the future work and creating transformative employee experiences. I want to first start off by thanking everybody for joining the call. I know that unfortunately, yesterday, there was a hiccup with our webcast system, which has nothing to do with the company, but the webcast provider we were working with, unfortunately, the system was down. And because this was such an important call, sharing the results for Q4, as well as the full year, and some really exciting announcements we want to make, we decided to do it today.

And we really appreciate your patience in that. By now, everyone should have access to our earnings PR announcement that went out on the wire a few minutes ago. This information will also be found on our website, www.cxapp.com. So now I’m going to move to the next two slides which you can review at your leisure. This is the disclosure statements or disclaimer statements. Okay. Well, dear shareholders, today is an exciting day for our company as we announce the strategic rebranding from CXApp to CXAI, pronounced Sky. It has been just over a year that we went public on Pi Day, March 14, 2023. And we have made incredible progress in shaping the future of work. I want to share a short video that describes this amazing transformation that our team is leading.

Listen in. [Video Presentation] Well, that was exciting. At the heart of CXAI, or what we like to call CXAI, lies a simple yet powerful belief. Put the employee first and everything else will follow. 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. CXAI offers a unique proposition for both employers and employees. For employers, it offers a streamlined, integrated work SuperApp that caters to the needs of a modern mobile-first workforce, simplifying daily operations while amplifying efficiency and innovation. For employees, CXAI promises a workday transformation, envisioning a scenario where every tool, every task, and every interaction is tailored to individual preferences, facilitated by a single user-friendly platform.

CXAI is more than a SuperApp. It’s a platform to create in workplaces that are as dynamic, versatile, and remarkable as the people who inhabit them. We’re not just enhancing how work gets done. We’re reimagining it for a brighter, more connected world. With CXAI, you don’t just build a workforce, you cultivate a culture. You shape a community, and you create an architect of future. Because at the end of the day, without the employee, there is no work, no office, no culture. Let’s put the employee first together and watch everything else fall into place. So who is CXAI today and the evolution of our company? So I want to give everybody a snapshot of where we are today, where we were a year ago. We are headquartered in the San Francisco Bay Area with regional tech hubs globally.

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Q&A Session

The global presence and diversity of experiences gives us a leading edge as we shape the future of work everywhere. We have a development team in Toronto, and we also have a development team in Manila, and we have resources globally supporting us as we scale our architecture. Of the 75 team members at CXAI, more than two-thirds are engineers, and we have double the engineering staff over the course of the last year, at the same time as reducing overall expenses significantly, as you’ll see in the financial information we’ll share. We believe the employees are the center of this multi-billion-dollar growing workplace experiences market, and we’re creating a new category in software, employee experiences. That’s who we are. The CXAI platform is based on 37 filed patents, with 17 of them already granted.

This substantial intellectual property not only establishes our company as a technological frontrunner, but also secures our position 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 excited to partner with Google Cloud as we scale our business to the next level. We’re excited to report a 24% increase in annual recurring revenue from 2022 to 2023. This has been fueled through our major customer wins this last year, especially those two Fortune 1000 wins this last quarter. We’re proud to have some of the largest logos of the world as our customers and our partners that are at the leading edge of the workplace transformation. More than 20 of them are Fortune 1000 companies who are scaling with us with new deployments globally every day.

A key differentiator for our business is that we have strong security and compliance credentials globally. And that is the reason you see so many logos from regulated industries. They use CXAI because they know they can trust us with their data and with their enterprise security and compliance. Finally, I’d like to say the culture of CXAI, the company that we have now, is innovation focused with three core values – purpose, passion, and positivity. We are passionate about solving the big problems in the future of work using AI, and we are super positive about creating a new paradigm for digital transformation of the enterprise focused on employee experiences. As I look over the last year, it’s amazing to see how we’ve been deployed in our 59 countries and 218 cities.

That’s an amazing accomplishment for the team as you’ve grown the business across all dimensions. We will share you more the technology and the financial results in a little bit, but just at a high level, super proud of the team and thank them for doing an amazing job in 2023. So let me talk about what’s happening in the market and what I see in terms of where we are at. So when we think about the CXAI solution, it really creates this affinity flywheel. And what’s happening in the market is there’s a paradigm shift that’s underway and it’s impacting the modern day workforce. 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 where technology is enabling work and life to be blended, integrated seamlessly and augmented with intelligent personalization.

And employees are at the center of this universe. The future is now and it’s being led by CXAI platform focused on transformational employee experiences. As we said earlier, CXAI isn’t just a SuperApp, it’s a catalyst for transformation. Businesses that embrace CXAI 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 lives. And we have built a grounds up anchored on artificial intelligence, AI. AI has transformed into 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 proud to be the first in our industry to offer solutions to our customers. So what is our solution? What do we have and what have we developed over the last year? The four pillars of our employee experiences solution are, the first is AI experiential analytics. The use of AI to derive insights into employee engagement and workspace utilization is a core component of CXAI, emphasizing the value of data in making decisions as well as measuring productivity. The second pillar is the work SuperApp and you see a version of that, the latest one on the screen here. It’s a central platform that integrates various workplace functionalities, reflecting CXAI’s emphasis on a unified, mobile first approach to workplace technology.

The third pillar is spatial intelligence. It’s a key part of CXAI’s technology stack, focusing on optimizing physical spaces and enhancing interactions within the workplace through location-based technologies. And we have a lot of IP on that, as you all know. But finally, the most killer app for us is the Generative AI. Generative AI in CXAI boosts 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. So as we look at the life in the day of an employee or the life in the day of an employer, we’re powering your data through CXAI with this great employee experience solution that impacts them globally and all the things you do at work and beyond.

So who’s using this product and why is this so transformative? We’re blessed to have really great customers across many enterprise verticals. The primary business now is a SaaS platform that we sell to enterprise customers and an annual subscription for normally three-year periods. Today, customers deploy our cloud-hosted software across their enterprise campuses to allow employees to connect with their workplace for a lot of different use cases, examples being desk room booking, collaboration, navigation, food ordering, and internal communication. Our large enterprise customers are mainly divided into the 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 workplace transformation.

We have a healthy distribution across all verticals and we see the adoption trend developing from technology sector focused companies to larger Fortune 1000 portfolio. As you can see, some of the new logos that we’ve had are coming from the financial services, from health tech, and from media and entertainment. A lot of regulated industries are adopting our technology because they see the value of the mobile first application that we have. But all of our customers are sophisticated buyers of technology solutions and do not compromise on quality, performance, security, reliability, scalability, and technology roadmap. So that’s why we – as we compete in the market, we find us to be at the leading edge of all these large enterprises. So let me talk about the transformation we’ve done overall as a company.

As we think about the business, the predecessor business that we acquired was the custom design services for enterprise clients business. While this approach provided customized solutions, it limited our scalability and ability to solve a broader market and heavily weighted the business to one-time revenues. Upon taking over the business last year, we immediately recognized the need to evolve. That’s why we made a strategic shift to become an AI first, subscription-based SaaS platform. This transition empowers us to deliver a unified work experience to our workplace SuperApp. By leveraging AI, we can drive personalized user experience, automate tasks, and provide valuable data insights to our customers. This shift towards a platform model with recurring revenue streams 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 a platform that leverages the software capabilities at scale, as well as by more engaging productive work experience. So when you look at our today’s business, we are signing multi-year AR licenses. We are going to multi-cloud now. Besides Google Cloud, we have deployments with AWS, as well as with Azure. And then we are now building feature based releases with engineering. So you’re seeing a much, much more refined engineering team, as well as a much more clear product focus in driving scalability. As you look to the future and all the work that we’re doing with CXAI platform, we’re really moving the value chain into the value to the user and to the end user experiences, as well as providing a SaaS platform with microservices.

And lastly, but most importantly, the data analytics and the Gen AI applications are where we’re headed. So we’ve gone through this transformation in year one. We’re ready for year two in terms of scaling of this business. And we’re super excited that we’re achieving a lot of success with our customers and our partners in achieving that mission. So I want to just recap our mission statement, which I know that when we acquired the business, we’ve had it and we’re going to stick with it because it is the right mission and vision. The CXAI SaaS platform is anchored on the intersection of customer experience and artificial intelligence, providing digital transformation of the workplace to enhance experiences across people, places and things. So that’s our mission.

That’s been our focus. And I’m really proud that the team has executed this year to get us to this phase. So now I’m going to flip over to the financial section and financial results. We’re going to talk about Q4 first and then we’re going to talk about the year, comparing from year to year. So let’s get into it. On Q4, it’s been a great, amazing Q4 for us. We’ve had double-digit growth in our ARR, which is annual recurring revenue, which is a key metric for us. We saw the significant increase due to some really large wins. Our team pulled through these deals after lots of scrutiny and testing, as well as fierce competition. And this transferred to robust future subscription revenue and a healthy pipeline. Additionally, subscription revenue continues to increase and is now 81% of our total revenue.

This again reinforces our successful transition to a recurring revenue model. And we continue to increase that percentage. If you recall, this was – at the time of transaction, it was in the 60s to 70%, but now it’s north of 80%. Our gross margins remain strong at 80%, indicating operational efficiency and healthy profitability potential as we scale our business. On the customer acquisition side, we proudly have secured two enterprise clients, NBC Universal, one of the largest media entertainment companies in the world, and a greater than $5 billion investment management company in the financial services has been the two big wins for this quarter. This further validates the market demand for our solution with the world’s biggest enterprise companies.

We’re super excited to work with them. And with these clients, we are going to deploy it with CXAI and with our newly formed Google Cloud partnership. Finally, we have achieved a 56% net reduction in operating expenses comparing to Q3 2022. This proactive cost optimization will position us for sustainable growth and strategic investment. So as you’ve done that restructuring, we have, as I mentioned earlier, doubled the number of engineering staff that’s supporting it. We’ve taken out a lot of the G&A costs and other costs in sales and marketing that were not productive for us, but we’re now really at a tipping point of scaling up with the right technology, right platform, and the right focus of the business. Now I’m going to move to 2023. How do we do there?

And if you think about our results that we announced here, it’s been a record banner year for us for ARR growth perspective. First and foremost, we achieved a remarkable 80% increase in ARR for new bookings for our SuperApp product in 2023 compared to 2022. Exceptional growth underscores the surging demand for our subscription-based offerings and validates our strategic shift towards a recurring revenue model. Also, the overall annual recurring revenue was up 24%, which shows great resilience within our existing customer base, as well as new clients who were at the beginning of their CXAI journey. As you read the financial statements, you’ll see that the total revenue was down, but that was because of our strategic shift to this annual recurring model, where we have given up one-time revenues for these multi-year deals, which are more beneficial for us, both from our customer engagement as well as from our valuation perspective and for our scalability.

So that was a determined move by us, and I’m pretty happy that we’ve seen this level of ARR growth in our business. Furthermore, our yearly subscription revenue mix has increased from 65% to a strong 78%. As I said earlier, Q4 was at 81%, so we’re really on a strong path of getting more subscription revenue, and this successful shift away from one-time fees to a more predictable and sustainable revenue model is the right path for us. On the customer acquisition front, we’ve added many new Fortune 500 companies as our customers, highlighting the market appeal of our SuperApp solution. The key, marquee ones, as you can see in financial services, Visa and BNY Mellon and NBCUniversal are really leaders of their segments, and so we’re super excited working with them.

We’re working on really great products for them and really great solutions that I think will be launched in 2024 and will be scaled up dramatically. And so, all in all, we really are pretty happy with the end-of-the-year performance. When you look at the GAAP OpEx reduction from when we acquired the business, we’ve had a 37% reduction year-over-year in OpEx, which ultimately accounts for around $13.2 million in cost-cutting measures. And as I said earlier, we reinvested in the business, so we cut deeper, but still we’ve managed to maintain the quality of our product, maintain the performance of our engineering team, actually double the number of engineers, like I said, and more importantly, we have kept the cost structure to a point where it’s really tied to scalability in 2024.

Looking forward, or looking ahead, we’re confident that our increasing ARR bookings from customer acquisition and focus on subscription that we will drive sustainable growth. We’re committed to continue innovating our CXAI platform, delivering value to our expanded customer base. So let me talk a little bit more about 2024, our initiatives in 2024. Our strategic initiatives are focused on five key pillars. First is land and expand. We plan to scale our existing logos with deployments globally as we won some very large clients at the starting point of their journey. Secondly, given that we have successfully deployed these solutions, there’s demand from new clients to build a future for them faster. We’re seeing a lot of new demand coming in for the CXAI platform.

And working with Google and others, we think that that expansion will definitely happen. Product expansion. To optimize customer retention and deliver exceptional value, we’re relentlessly focused on continuous product innovation on the CXAI platform. These innovations are driven by our customer requests for increased engagement tools to drive employee satisfaction and productivity. So we’re continuously adding new features to the existing platform to allow for new innovations and new experiences. As you look forward, the CXAI platform is built on AI. The focus of AI is really on the AI automation. This positions us to revolutionize the employee experience in 2024 and beyond. By consolidating tools into a mobile-first work SuperApp, we streamline workflows, boosting efficiency and productivity.

Our AI-powered approach integrated with Google Cloud goes beyond basic automation. It’s designed to create an intuitive and personalized work experience, reducing friction and promoting employee collaboration, key factors driving engagement and affinity. And last, but not least, we also have our analytics in the CXAI Platform. These experiential analytics offer businesses unprecedented access to data-driven insights about their workplace and employee interactions. By harnessing the power of spatial intelligence and Generative AI, CXAI provides actionable recommendations for optimizing workplace utilization, enhancing collaboration, and improving overall workplace effectiveness. These insights will allow companies to make informed decisions that align with their strategic goals, leading to better resource allocation, higher operational efficiency, and a more engaging work environment.

The continuous loop of feedback and improvement fosters an innovative culture that is responsive to change, positioning businesses as leaders in creating future-ready workplaces. And last, but not least, our strategic partnership will be the cornerstone of our growth strategy over the year. We’re actively expanding our network of partners from the cloud to the device, and providing the best end-to-end experiences for employees and employees. This will enable us to offer fully integrated end-to-end workplace solutions, certifying our position as the go-to platform for managing the entire employee experiences. Through these partnerships, we’ll unlock new and innovative use cases for our SuperApp. They will drive both market expansion and deepen our relationship with existing customers.

We’re confident that strategic partnership will be a key driver of accelerated growth and market leadership in 2024. And one of the ones that we’ve announced today, a couple weeks ago, and in today’s PR you’ll see that, is our work with Google Cloud team. Our strategic partnership with Google Cloud is a major catalyst for growth. It reinforces our dedication to pushing the boundaries of the future work, enhancing the power of our workplace SuperApp. And so, the first initiative that they’ve worked with us is they’re co-investing in our CXAI platform organization, which is really developing this next generation solution and providing the right set of capabilities around it. We think that’s really important to work with a partner that has a lot of capabilities in AI and security and all the different capabilities.

So we think that’s super important. So that’s one part of the relationship is really driving the product development and product innovation to deploy things faster, deploy things at scale, and deploy things with the latest set of tools. The other part of the relationship is really our listing of the CXAI platform on the Google marketplace. This will really expand our reach to the Google Cloud’s vast customer base in excellence adoption and delivery of solutions and access to customers. We think that’s a huge opportunity for growth. And I talked a little bit about the technology pieces early. AI and security are really core focus of our customers that we’re targeting. So as we move forward, we are using the capabilities from Google to help us with enhancing that capability.

And lastly, we are focused on joint go-to-market sales and marketing, amplify the awareness of our product, create new growth opportunity to accelerate our growth, as well as work together as we solve the problems for our joint customers. So this is an exciting partnership. It signifies a commitment to innovation scalability. Our integrated solution will be a competitive adventure for CXAI while delivering unmatched value to our clients. So now I’m going to just sum up in terms of why CXAI, why should you be thinking about this company? And the reason is because we’re a transformation solution built on CX and AI. We have a patented leading edge enterprise AI SaaS platform. We have a great customer base of Fortune 1000 logos across five large verticals.

And we have diversified deployments globally in 59 countries and 280 cities. We’re an innovation-driven experience management team. And our partnership with leading innovators in the Valley is testament to how we’re transformational in the technology, but also in the business side. And our goal from the start has been to define this new software category called employee experiences. We really are excited about that. We really believe that this is the future and we’re already ahead of the game in developing the solutions for that future. So in summary, I would say, amidst the industry’s rapid growth, CXAI stands uniquely positioned to lead the category and shape the employee and workplace experience landscape, given the ongoing digital transformation of nearly all enterprise organizations.

So I welcome you to learn more about the company, to track the company. We’re going to be sharing a lot more information on our website with the new CXAI platform and the new CXAI branding. And we want your input and your partnership and investment as we move forward. We look forward to sharing more results, more information in the coming weeks and months. And to the sky and beyond. Thank you, everybody.

Q -:

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