CXApp (CXAI) Q1 2025 Earnings Call May 20, 2025 05:00 PM ET Company Participants Khurram Sheikh - Founder, Chairman & CEOJoy Mbanugo - Chief Financial Officer Operator Greetings. Welcome to the CX App First Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. Please note, to ask a question, please click on the Ask Question button on the left side of your player. Type in your question and hit send. Please note, this conference is being recorded. I will now turn ...

Financial Data and Key Metrics Changes - Subscription revenue increased significantly from 87% in Q1 2024 to 99% in Q1 2025, indicating a strong commitment to recurring revenue [63] - Gross margin improved from 82% to 88% year-over-year, reflecting better cost discipline [63] - Earnings per share improved from negative $0.34 to negative $0.08, showing progress in financial performance [64] Business Line Data and Key Metrics Changes - Three large Fortune 500 customers expanded their contracts, pushing annual recurring revenue (ARR) up by 130% of their original contract value [62] - The company successfully deployed the SkyView Analytics platform across all clients, enhancing data insights and analytics capabilities [57] Market Data and Key Metrics Changes - The company is deployed in over 200 cities across 50 countries, indicating a strong global presence [14] - The demand for hybrid work solutions has increased, with many organizations seeking to improve employee engagement and collaboration [5][27] Company Strategy and Development Direction - The company is focused on customer success, deeper AI adoption, and enhancing analytics usage as part of its strategic priorities for 2025 [70] - The introduction of the AgenTeq AI solution aims to provide collaborative AI agents that enhance user experiences and streamline workflows [48][49] - The company is positioning itself as a leader in the employee experience software category, leveraging its technological advancements and partnerships [80] Management's Comments on Operating Environment and Future Outlook - Management noted that the decline in revenue was timing-related due to the shift of two large customer renewals from Q1 to Q4, rather than a structural decline [64] - The management expressed confidence in the company's ability to navigate current economic challenges and emphasized the importance of providing cost-effective solutions to clients [77] Other Important Information - The company has filed for S3 eligibility, enhancing its liquidity position and access to capital [69] - The partnership with Google Cloud is expected to drive further improvements in cost efficiency and scalability [75] Q&A Session Summary Question: What is the current shares outstanding? - The current shares outstanding are approximately 19,800,000 [82] Question: How much total debt is currently outstanding? - The total debt, including the recent $4,000,000 drawn, is about 10,000,000 [82] Question: Will the company share who its clients are? - The company has case studies available on its website, but some clients prefer confidentiality [83][84] Question: After soft Q1 revenue results, do you expect total revenue growth or subscription revenue growth year-over-year in '25 versus '24? - The company is not providing official guidance at the moment but is focused on ARR growth [86][88] Question: Do the three large customer renewals include the six renewals mentioned in 2024? - No, these are three new renewals in addition to the six mentioned previously [92]

Revenue Performance - Revenue for the three months ended March 31, 2025, was $1,224 thousand, a decrease of $594 thousand compared to $1,818 thousand for the same period in 2024[189]. - Subscription-based revenue represented 99% of total revenue for the three months ended March 31, 2025, up from 87% in the same period in 2024, indicating a 12% increase in revenue mix[190]. Profitability and Expenses - Gross profit margin improved to 88% for the three months ended March 31, 2025, compared to 82% for the same period in 2024, driven by higher-margin AI-enabled services[181]. - Operating expenses decreased to $4,819 thousand for the three months ended March 31, 2025, down from $5,078 thousand in the same period in 2024, reflecting cost management initiatives[192]. - Net loss for the three months ended March 31, 2025, was $1,616 thousand, an improvement from a net loss of $5,170 thousand for the same period in 2024[187]. Cash Flow and Liquidity - Cash and cash equivalents were $3,893 thousand as of March 31, 2025, with an additional $3,990 thousand available from a Securities Purchase Agreement[179]. - The company has a working capital deficiency of approximately $4,017 thousand and cash of approximately $3,893 thousand as of March 31, 2025[212]. - Net cash used in operating activities for the three months ended March 31, 2025, was $979 thousand, with a net loss of $1,611 thousand[212]. - The company incurred net cash flows used in investing activities of approximately $5 thousand for the three months ended March 31, 2025, compared to $18 thousand in 2024[215]. - The company has a net cash decrease of $987 thousand for the three months ended March 31, 2025, compared to a decrease of $672 thousand in 2024[213]. - The company believes that the funds from the Pre-Paid Purchase agreements are sufficient to meet its working capital needs for the next 12 months[202]. Strategic Focus and Market Outlook - The global employee experience market is projected to grow at a 20% CAGR, presenting significant opportunities for the company to expand its market presence[188]. - The company is focused on AI-driven innovation, market expansion, and financial discipline to ensure long-term profitability and growth[176]. Financing and Agreements - The company entered into a SPA with Avondale to issue and sell up to $20,000 thousand of Pre-Paid Purchase agreements, with the initial tranche of $4,200 thousand received on April 8, 2025[202]. - The company has not provided any cash flows from financing activities during the three months ended March 31, 2025[216]. Accounting and Compliance - CXApp is classified as an emerging growth company and has elected to take advantage of the extended transition period for complying with new or revised accounting standards[225]. - The financial statements of CXApp may not be comparable to those of companies that comply with new or revised accounting standards due to the extended transition period[225]. - The decision to not opt out of the extended transition period for accounting standards compliance is irrevocable[225].

Product and Technology - CXApp's flagship product, the CXAI Platform, integrates AI-driven tools to enhance employee productivity and engagement [25] - CXApp has filed 37 patents, with 17 granted, to protect its innovative technologies in employee experience solutions [36] - CXApp's platform aims to create a seamless and engaging workplace experience, leveraging AI-driven personalization and real-time insights [39] - The company plans to integrate AI capabilities into its product offerings, which may incur substantial costs and present competitive risks [150] - The company is expanding its AI-driven capabilities with a generative AI analytics platform to enhance workplace decision-making [214] Market Trends - The digital workplace market was valued at $27.4 billion in 2022 and is projected to grow to $90.5 billion by 2030, reflecting a compound annual growth rate (CAGR) of 21.4% [40] - The global virtual events market is projected to expand at a CAGR of 21.4% from 2022 to 2030, indicating a growing demand for collaboration tools [41] - The occupancy analytics market in commercial office space is expected to rise from $2.17 billion in 2019 to $5.73 billion by 2024, growing at a CAGR of 21.5% [43] - The global employee experience market is projected to grow at a 20% CAGR, providing strong growth opportunities for the company [218] Financial Performance - The company incurred recurring net losses of approximately $19.4 million and $53.6 million for the fiscal years ended 2024 and 2023, respectively [80] - Revenue growth is dependent on increasing sales to existing customers and acquiring new customers, which may be limited by competition and market conditions [88] - Recurring revenue increased to 87% from 78%, reflecting a successful transition to a recurring revenue model [214] - Total operating expenses decreased to $19,598 thousand from $58,204 thousand, indicating effective cost optimization initiatives [214] - Cash and cash equivalents at year-end were $4,880 thousand, with an additional $3,500 thousand available from a Securities Purchase Agreement [213] Customer Base and Competition - CXApp's customer base includes Fortune 1000 enterprises across various industries, enhancing its market presence and revenue potential [50] - The company faces competition from specialized SaaS providers and large technology-driven entrants like Microsoft and Cisco, which are integrating employee experience offerings [45] - The top three customers accounted for approximately 25% and 22% of gross revenue during the years ended December 31, 2024 and the period from March 15, 2023 to December 31, 2023, respectively [77] - The company relies on a limited number of key customers, with one customer accounting for 10% of gross revenue in 2024 and another for 12% in 2023 [77] Risks and Challenges - The company is subject to risks associated with early-stage and emerging growth companies, including potential difficulties in obtaining financing and integrating acquisitions [60] - The company may require additional cash financing to support growth, and failure to secure such financing could limit operational capabilities [90] - Delays in collecting receivables could adversely affect cash flow and working capital, impacting overall business operations [91] - The company faces significant price competition, which may force it to reduce prices and impact profitability [156] - The company faces risks related to cybersecurity threats that could disrupt operations and adversely affect revenues and profitability [144] Regulatory and Compliance - The company is required to comply with SEC and Nasdaq regulations, which increases operational costs and may affect its ability to attract qualified board members [129] - The evolving regulatory landscape regarding data practices may impose burdens on the company's operations and profitability [174] - The company is subject to data protection regulations such as GDPR and CCPA, which could impose fines up to $7,500 per violation, potentially affecting service demand [176] - The uncertain regulatory environment may inhibit customer data sharing, affecting the company's service utilization [178] Corporate Strategy and Governance - The company’s corporate strategy includes potential future acquisitions, which may require effective planning and management processes to integrate new operations [82] - The company has never declared or paid cash dividends and does not intend to do so in the foreseeable future, focusing on retaining funds for operations [204] - The Board of Directors actively oversees the company's information security program and evaluates current cybersecurity policies [195] - The company has implemented a risk management program aligned with ISO 27001 and SOC 2 frameworks to address cybersecurity risks [186] Stock and Market Performance - The market price of the company's common stock may be volatile, influenced by various factors including operational results and strategic actions by competitors [108] - The company has experienced a sustained depression in its stock price from October to December 2023, which could impact its market capitalization and financial condition [123] - Future sales of common stock may cause substantial dilution to existing shareholders, potentially harming the market price [117] - The trading market for the company's common stock relies on research and reports from analysts, and any negative evaluations could lead to a decline in stock price [116]

Financial Results - The company announced its financial results for Q4 2024 and the fiscal year ended December 31, 2024 during a conference call on April 3, 2025[6]. - The earnings press release and presentation are attached as exhibits to the current report, providing detailed financial results[16]. Restatement and Accounting Deficiencies - The company identified technical accounting deficiencies in previously issued financial statements for the quarters ended June 30, 2024, and September 30, 2024, leading to a restatement of those financials[7]. - The restatement does not reflect changes in business performance, revenue recognition, or operational execution, indicating core financial results remain unchanged[7]. - A deficiency was identified in the accounting for a convertible debt instrument, which was not in accordance with ASC 815, necessitating a revision of its accounting treatment[9]. - The restated financial statements did not impact the company's liquidity, cash flows, or operating expenses for the affected periods[13]. - The company plans to provide further specifics on deficiencies in internal control over financial reporting and its remediation plan in the upcoming Restatement Filing[14]. Internal Control and Compliance - The company has acknowledged a material weakness in its internal control over financial reporting[12]. - The company is classified as an emerging growth company under the Securities Act[3]. Legal and Financial Adjustments - The company recorded an accrual for legal expenses that was subsequently adjusted to reflect the actual amount due, indicating a prior understatement[8].

Financial Data and Key Metrics Changes - The company achieved double-digit ARR growth, supported by six major logo renewals in Q4, indicating strong customer satisfaction and product value [51] - Subscription revenue accounted for 87% of total revenue, up from 78% in 2023, driving a gross margin of 82% compared to 78% last year [52] - The net retention rate reached 100%, significantly up from 73% in 2023, showing reduced churn and expansion within the existing customer base [52] - Q4 revenue was $1.66 million, down slightly compared to Q4 of 2023, while gross profit increased to $1.43 million [53] - Full-year revenue slightly declined year over year, but subscription revenue grew 10% year-over-year, totaling over $6.2 million [58] Business Line Data and Key Metrics Changes - The company completed the transformation to a single code base with Sky 1.0%, enabling feature upgrades and stability across all applications [44] - A significant expansion customer achieved over 100% increase in their ARR, indicating strong growth potential [45] - The Sky Kiosk product has been deployed with a large technology company in Silicon Valley, enhancing the return-to-office experience [47] Market Data and Key Metrics Changes - There was a 34 basis points increase in return-to-office across industries from 2023 to 2024, reflecting a growing trend in in-office usage [21] - Employee satisfaction and productivity rates are relatively lower across working models, highlighting the need for improved employee experiences [23] Company Strategy and Development Direction - The company is focused on investing in Agentech AI to reshape the market for employee experiences, positioning itself as a pioneer in this new software category [11] - The strategy includes enhancing AI capabilities for deeper product stickiness and maintaining tight cost discipline while investing in long-term growth [63] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, anticipating significant expansion demand from existing customers and new enterprise clients in 2025 [72] - The company aims to leverage cutting-edge AI technology to enhance productivity, engagement, and efficiency in the enterprise [71] Other Important Information - The company has filed an extension for its 10K and plans to file before the extension deadline [4] - The company is preparing for an annual investor day in May 2025 to provide further details on new product offerings and customer case studies [73] Q&A Session Summary Question: Insights on strategic initiatives and partnerships - Management indicated a focus on building AI capabilities and investing in tools, with a positive outlook for the company [75] Question: Why wait until earnings to post updates - Management acknowledged the need for improved communication and plans to provide more updates leading up to the investor meeting in May [77] Question: Future challenges and opportunities - Management highlighted competition from large companies but emphasized their unique differentiation in user experience and partnership approach with clients [79][80]

Financial Data and Key Metrics Changes - The company achieved double-digit ARR growth, supported by six major logo renewals in Q4, indicating strong customer satisfaction and product value [51] - Subscription revenue accounted for 87% of total revenue, up from 78% in 2023, driving a gross margin of 82% compared to 78% last year [52] - The net retention rate reached 100%, significantly up from 73% in 2023, showing reduced churn and expansion within the existing customer base [52] - Q4 revenue was $1.66 million, down slightly compared to Q4 of 2023, while gross profit increased to $1.43 million [53] - Full-year revenue slightly declined year over year, but subscription revenue grew 10% year-over-year, totaling over $6.2 million [58] Business Line Data and Key Metrics Changes - The company completed the transformation to a single code base with Sky 1.0%, enabling feature upgrades and stability across all applications [44] - A significant expansion customer achieved over 100% increase in their ARR, indicating strong growth potential [45] - The Sky Kiosk product has been deployed with a large technology company in Silicon Valley, enhancing the return-to-office experience [47] Market Data and Key Metrics Changes - There was a 34 basis points increase in return-to-office across industries from 2023 to 2024, reflecting a growing trend in in-office usage [21] - Employee satisfaction rates across working models remain relatively low, indicating a need for improved employee experiences [23] Company Strategy and Development Direction - The company is focused on investing in Agentech AI to reshape the market for employee experiences, positioning itself as a pioneer in this new software category [11][12] - The strategy includes enhancing AI capabilities for deeper product stickiness and maintaining tight cost discipline while investing in long-term growth [63] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about 2025 being a banner year, anticipating significant expansion demand from existing customers and new enterprise clients [72] - The company is well-prepared to deliver on commitments to shareholders and clients as the era of agentic AI for employee experiences is realized [72] Other Important Information - The company has filed an extension for its 10K and plans to file before the extension deadline [4] - The company is collaborating with Gartner on thought leadership regarding the evolution of human interaction with AI [30] Q&A Session Summary Question: Insights on strategic initiatives and partnerships - The company will continue to build out AI capabilities and invest in tools, with a positive outlook for the market of employee experiences [75] Question: Why wait until earnings to post updates - Management acknowledged the need for improved communication and plans to provide more updates leading up to the investor shareholder meeting in May [77] Question: Future challenges and opportunities - The company competes with large enterprises but differentiates itself through engaging UI and full-stack solutions, emphasizing the importance of partnerships with clients [79][80]

Financial Data and Key Metrics Changes - The company reported revenue of $1.9 million for Q3 2024, marking an 8% increase from $1.77 million in Q3 2023 [43][50] - The net retention rate stands at over 106%, indicating strong client retention and upselling success, a 43% increase year-over-year [51] - The company achieved a gross margin of 80% and an 18% growth in recurring revenue [43][44] Business Line Data and Key Metrics Changes - The company has transitioned to a subscription-based revenue model, with recurring revenue increasing to 88% from 80% year-over-year [50] - The first paid customer for the Skyview analytics platform was secured this quarter, indicating traction in new product offerings [45][59] Market Data and Key Metrics Changes - The return to office (RTO) mandates have increased, yet employee engagement remains low, with Gallup reporting significant productivity losses due to disengaged employees [11][13] - The company is positioned to address the challenges of hybrid work environments through its AI-driven solutions [19][24] Company Strategy and Development Direction - The company is focused on becoming an AI-first organization, leveraging Agentic AI to enhance workplace experiences [20][22] - Partnerships with major cloud providers like AWS, Google Cloud, and Microsoft Azure are crucial for scaling operations and enhancing service delivery [29][62] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of employee engagement and the need for innovative tools to improve workplace experiences [12][18] - The company is optimistic about its growth trajectory, driven by advancements in AI and cloud partnerships [60][74] Other Important Information - The company has successfully launched its platform on the AWS Marketplace, following a previous launch on Google Cloud [44][61] - A new product, Sky Kiosk, was introduced to enhance real-time space availability and booking capabilities [38][39] Q&A Session Summary Question: How has new management impacted growth at SKY? - Management noted that new leadership has positively influenced growth, particularly through financial strategy and partnerships [67][68] Question: Could you partner with Palantir to implement AIP? - Management acknowledged the suggestion but emphasized a focus on commercial solutions rather than government contracts [69] Question: Can you detail how your partnership with Google Cloud is progressing? - Management reported strong collaboration with Google Cloud, leading to enhanced product offerings and market engagement [71][72]

Revenue Performance - Revenues for the three months ended September 30, 2024, increased to $1,897 thousand, reflecting a 7% quarter-over-quarter growth driven by new enterprise clients and deeper integration of platform solutions [184]. - For the nine months ended September 30, 2024, revenues were $5,481 thousand, compared to $4,027 thousand for the same period in 2023, reflecting a continued growth trajectory [194]. Subscription Revenue - Subscription-based revenue constituted 87% of total revenue for the three months ended September 30, 2024, up from 80% in the same period of 2023, indicating a shift to a full SaaS model [185]. - Subscription-based revenue for the nine months ended September 30, 2024, was 87%, up from 79% in the same period of 2023, indicating an 8% increase in the revenue mix [195]. Profitability and Loss - Gross profit margin remained stable at 80% for the three months ended September 30, 2024, compared to 80% for the same period in 2023 [186]. - Net loss for the three months ended September 30, 2024, was $5,004 thousand, compared to a net income of $1,441 thousand for the same period in 2023 [182]. - The company reported a net loss of approximately $15,430 thousand for the nine months ended September 30, 2024, compared to a net loss of $10,531 thousand for the same period in 2023 [216]. - Adjusted EBITDA for the nine months ended September 30, 2024, was $(6,105) thousand, compared to $(5,977) thousand for the period from March 15, 2023, to September 30, 2023 [205]. Operating Expenses - Operating expenses decreased to $4,851 thousand for the three months ended September 30, 2024, down from $5,641 thousand in the same period of 2023, primarily due to reductions in sales and marketing expenses [188]. - Operating expenses for the nine months ended September 30, 2024, were $14,992 thousand, compared to $11,501 thousand for the same period in 2023, reflecting increased investment in operations [197]. Cash Flow and Liquidity - Net cash used in operating activities during the nine months ended September 30, 2024, was $(4,629) thousand, compared to $(8,937) thousand for the period from March 15, 2023, to September 30, 2023 [215]. - Net cash flows provided by financing activities during the nine months ended September 30, 2024, were approximately $3,480 thousand, compared to $4,674 thousand for the same period in 2023 [219]. - Cash flows used in investing activities during the nine months ended September 30, 2024, were approximately $(30) thousand, compared to $9,956 thousand for the period from March 15, 2023, to September 30, 2023 [218]. - The company believes its current liquidity position is sufficient to meet its working capital needs for the next 12 months [214]. - As of September 30, 2024, the company had a working capital deficiency of approximately $7,404 thousand and cash of approximately $5,082 thousand [213]. Other Financial Information - Other income/expense for the nine months ended September 30, 2024, was a loss of $5,380 thousand, compared to a loss of $5,090 thousand for the same period in 2023 [199]. - The income tax benefit for the nine months ended September 30, 2024, was approximately $513 thousand, down from $2,958 thousand for the same period in 2023, primarily due to the release of valuation allowance [200]. - The company incurred interest expense and other income of $274 thousand for the three months ended September 30, 2024 [205]. - The company reported non-cash adjustments of approximately $9,826 thousand for the nine months ended September 30, 2024 [216]. Accounting and Compliance - The company is classified as an "emerging growth company" under the JOBS Act, allowing it to take advantage of certain reporting exemptions [227]. - The company has elected to utilize the extended transition period for complying with new or revised accounting standards, which may affect the comparability of its financial statements [228]. - There have been no significant changes to critical accounting estimates during the nine months ended September 30, 2024, compared to the previous year [226]. - The company’s financial statements are prepared in accordance with U.S. GAAP, requiring assumptions and estimates that could materially impact reported amounts [224]. - The company has not yet decided whether to take advantage of all exemptions available under the JOBS Act, which may affect investor perception of its common stock [227]. - The company’s significant accounting policies are detailed in Note 2 of the unaudited condensed consolidated financial statements [225]. - The management regularly reviews accounting policies and estimates to ensure fair presentation in accordance with GAAP [224]. - The company’s decision regarding the extended transition period for accounting standards compliance is irrevocable [228]. - The company’s critical accounting estimates are considered complex and may significantly impact financial statements [225].

Group 1: AI Market Overview - The global AI market size is currently $184 billion and is projected to grow to $826 billion over the next six years [2] - Major technological shifts, such as the AI revolution, historically unfold over years, not months, indicating ongoing investment opportunities [2] Group 2: Investment Opportunities in AI - Smaller, lesser-known AI companies have significant growth potential compared to established giants like Microsoft and Alphabet [4] - CXApp focuses on making websites accessible for people with disabilities, showcasing a niche market within AI [5] - AEYE has partnered with Nvidia for its LiDAR technology and has seen a stock increase of 363% over the past year, indicating strong performance and profitability [6] - SoundHound AI has gained attention due to Nvidia's investment and its strategic partnership with Perplexity, with revenue expected to grow at over 70% annually into 2025 [8][9] Group 3: Conclusion on AI Investment - The AI revolution is still in its early stages, with several obscure AI companies presenting multi-bag potential for investors in the coming years [10]