Earnings Call Transcript
CXApp Inc. (CXAI)
Earnings Call Transcript - CXAI Q1 2025
Operator, Operator
Greetings. Welcome to the CXApp First Quarter 2025 Earnings Call. 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, Chairman and CEO
Thank you, operator. Good afternoon, everybody. I'm joined by our CFO, Joy Mbanugo as well on this call, and we are both excited to share with you our earnings for the first quarter of 2025. We will also provide an overall business update on our progress in shaping the future work and creating transformative employee experiences with our state-of-the-art CXAI, pronounced SKY, platform. By now, everyone should have access to our earnings PR announcement as well as the 10-Q that we are filing with the SEC. This information will also be found on our website www.cxapp.com or www.cxai.ai. I'm going to go through the next couple of slides, which are the disclaimer slides, which you can read at your own leisure. Okay. Dear shareholders, the CXAI platform anchored on customer experience (CX) and artificial intelligence (AI) is the most advanced technology solution transforming people, places, and things in the workplace. We are solving the biggest problems in our industry post the pandemic, to return to office (RTO), and employee engagement. And as we've been saying since the start of the company post-IPO that we are shaping the future of work. The start of 2025 has been very interesting. Technology giants like Amazon, Salesforce, and Dell have called all employees or specific teams back to the office five days a week, which has reignited conversations about how and where people can best do their work. Even companies that don't have a 5-day RTO plan see their leadership wanting employees to spend more time together. Sergey Brin, co-founder of Google, said the company could lead the industry in artificial general intelligence when machines match or become smarter than humans, if employees just worked harder. He said in a memo that was viewed by The New York Times, 'I recommend being in the office at least every weekday.' He added that 60 hours a week is the sweet spot of productivity, and the registered employees who work on Gemini, Google's lineup of AI models and applications. As leaders, we see firsthand that the workplace is undergoing one of the most significant transformations in decades. Hybrid work is the new operating model, and the stakes are really high. And yet many organizations are still trying to manage it with legacy and disconnected systems. The reality is clear: mandates alone won't bring employees back; spaces alone won't foster collaboration; and amenities alone won't guarantee engagement. The organizations that will thrive are those that rethink the workplace experience fundamentally and holistically to meet new expectations and business needs. Business leaders like Amazon CEO, Andy Jassy, say that in-office work offers a level of energy, collaboration, and speed that is missing when employees work from home. Executives at Dell echoed this in a memo calling all sales staff back to the office full-time. All data shows that sales teams are more productive on-site. Similarly, although leadership in Microsoft and Google have ruled out a 5-day RTO mandate anytime soon, the productivity caveat is hard to ignore. In a hybrid world, yesterday's solutions create today's gaps. Conference rooms sit empty while desk neighborhoods overflow, and no one knows why—underutilized spaces. Leaders lack real-time visibility into how people work, collaborate, and engage—disconnected leadership. Without intuitive, seamless experiences, employees feel friction, leading to disengagement, quiet quitting, or attrition, and employee frustration. The root of it is a lack of actionable insights. We can't measure what we can't see. Leaders need systems that don't just connect devices; they need to connect people to meaningful experiences using intelligent insights to optimize space based on real user patterns, personalizing the employee journey in real time, and anticipating needs instead of reacting to frustrations. And that's what CXAI does, and we do it with Agentic AI. So we are CXAI, we're shaping the future of work, and we're excited to share with you the progress we made in our journey. So I'll go to the next slide to talk about the company. I do that every quarter because I want to make sure we give you updates that allow you to see the progress we're making. There are a lot of common things to note. We are still headquartered in the San Francisco Bay Area with regional tech hubs globally. Our global presence and diversity of experience give us a leading edge as we shape the future of work everywhere. Of the 70-plus team members at CXAI, more than 70% are engineers, and we have doubled the staff in Silicon Valley focused on building Agentic AI solutions and maintaining our technology and product leadership. We believe that employees are at the center of this multibillion-dollar growing workplace experiences market, and we are creating a new category in software—employee experiences. The CXAI platform is based on 39 filed patents, with 17 of them already granted. This substantial intellectual property not only establishes our company as the technological frontrunner but also secures our position as the pioneer in the industry. We have two new patents published this quarter, both tied to spatial intelligence, which we'll talk about later as we invest in that technology. We're proud to have some of the largest logos in the world as our customers that are at the leading edge of employee experience transformation. Our focus is the technology. Technology is the transformation factor. One of the key differentiators of our business is that we have strong security and compliance credentials globally. We have both ISO 27001 and SOC 2 compliance certifications. That is the reason why you see so many logos from regulated industries. They use CXAI because they know they can trust us with their data and their enterprise security goals. As I mentioned earlier, we have a global team. The team is located in the Bay Area, in Toronto, Canada, and in Manila, with other contracted workers globally. The reason for that is also to leverage the fact that we are deploying right now, at the small scale we're at, in 200-plus cities across more than 50 countries on five continents. That gives us diversity of experiences and relationships, as well as users, and the users are a key part of this equation as we move forward. Last year, we built a culture at CXAI that 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 of digital transformation of the enterprise focused on employee experiences. 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 in the world as our customers that are at the leading edge of workplace transformation. When you talk to our clients, they're all at the C-level; they are CIOs, Heads of Workplace Experiences, CROs, and some of them are actually the CEOs of these companies who have taken it upon themselves to drive this transformation. So we're super excited to work with them. These customers are sophisticated buyers of technology solutions and do not compromise on quality, performance, security, reliability, scalability, and actually the technology roadmap. As I think about 2025, the management team and the Board sat down to build our 2025 plan, we said what are the top three priorities for 2025. We have a lot on our plate, and a lot of things we can do better, but the most important thing is customer success. Customer success is not just about getting customer contracts, but really about user engagement and adoption. We're focused on enhancing the life of users at these large clients and how those user experiences will make them more productive, save time, and engage with their fellow employees. For us, we're working on great features that are must-have features. We already have a lot of them in place, but we're constantly evolving the technology roadmap. More importantly, we're getting this immersive engagement with employees who want to use CXAI every day, all the time, on all the things that matter for their work. Now, how do you make that all happen? There are a lot of solutions out there in the marketplace that have not been successful. I mentioned at the start about the disconnected systems, but we're building an Agentic AI solution. The Agentic AI is the way humans interact and collaborate with AI in a dramatic leap forward. The Agentic AI system understands the goal or vision of the user and the context of the problem they are trying to solve, and then it takes action to solve the problem versus just assistance, designing thinking into the journey of a user or driving to gain the life of the user into actionable outcomes. We're building automated workflows, and you'll see some examples demonstrated today showing some of the progress we made. We saw it in the last quarter when I shared the Agentic booking example. More importantly, we're trying to build a platform that becomes a trusted adviser for our customers. Our customers are not just our large enterprises; it includes the end users, the employees of these large companies. Last but not least, the big differentiation we provide is spatial intelligence, offering contextual insights using our 2D and 3D technologies as well as our AI-based application platform to allow for AI-powered action and predictable outcomes. It's really focused on analytics that will provide more value to the end user. So from a big picture, when we think about 2025, we focus the engineering team on driving these key initiatives: technology lifters, and ultimately, our sales and customer success team drive user adoption and user engagement, which we think will make this product so sticky that it will be indispensable for employees. Let me talk about what those employee experiences entail and what makes them distinguished. When we think about employee experiences, the first thing that comes to mind is what platform you've built and how you built it, right? The CXAI platform, as we've talked about, is AI native—it's the first mobile and cloud-based technology platform in this space. We've thought about it from the end user; it’s not just an application, but a platform. We think about the three different pillars that make up the CXAI platform. One pillar is the CXAI Apps. The CXAI Apps are based on Android, iOS, and web applications, but we're building them to be not only multi-OS but also multi-device—all the way from your watch to your smartphone, laptop, desktop, and even kiosks and larger devices. We have it now in place with many of our clients. In order to make this application intelligent and smart, we have to have a rules engine. We need something that provides content, pricing access control, and decision-making—that's the brains of our system, the CXAI BTS. Coming out of this are all the great insights and analytics and recommendations that CXAI VU—our analytics platform. This trifecta creates an end-to-end platform that provides the best-in-class employee experiences. With our partnership with our cloud providers, we’ve had a great relationship with Google for a number of years. We are a strategic partner at Google, where we've signed agreements with both Microsoft and Azure platform, which we've deployed, and we're planning to work with them on a deployment with AWS. We are multi-cloud and enabling the capability from device to cloud for our clients. Our clients see us as the—call it the Intel Inside for their application, or you could call it the Apple outside, but we are providing the end-to-end application that our clients use, but they're using their own branding and content to drive it, but we provide the brains behind the solution. So with that platform in mind, you could say, well, you've got great technology; what problem are you solving? I'm going to share a slide that our friends at Gartner put together; they did an assessment of what the motivation to return to office is. Return to office is one of the biggest issues of our century. Every single enterprise globally is looking to find solutions for the digital workplace and workforce. Both leaders of enterprises and employees are navigating unchartered waters related to hybrid work in the post-pandemic and encountering significant challenges. Company C-suite executives want employees back in the office to be more productive, engaged in the corporate environment, and better utilize the workspace. Employees, on the other hand, want the flexibility to work from their home or the office and have high expectations when it comes to easy access to their workplace tools, finding information, and the ability to collaborate with peers from anywhere. If you look at this chart, it's kind of obvious: why do employees want to come back? They're not just coming back because it is a mandate; they're coming back because they want to reconnect with their colleagues and collaborate with their fellow employees. They want to have face time with their senior leaders; they want to be able to connect with their environment and their colleagues. That is the real reason why they want to come back, and we need a solution to that. That is where we have built this end-to-end platform. I'll give you a little bit more detail on it: on the left, you'll see immersive UI that we have with one-click actions to make actions. You have a very immersive mapping technology capability that allows you to connect inside the building to any place, navigate, and connect to book things and drive engagement. End-to-end, we provide this full solution. The key part of the application includes all these integrations that we do with the enterprise tools and services into one application platform, allowing employees one seamless experience to connect to anything they do in their workplace. We also do that with 2D and 3D mapping technologies enhanced by AI to put intelligent interaction with space and things. The CXAI VU is the experiential analytics that provides insights on what needs to get done, how, and how to make it happen. Finally, we automate all these workflows to provide answers through natural language commands in trustful domains: any question you have, you get an answer; any action you want, you get it done; any meeting you want to change or booking, you want to redo—we can do that with Agentic AI. The first three pillars are deployed with global customers today. I'm proud to say we are best in class. I'm more excited about the Agentic AI because that's going to be groundbreaking and transformational to the whole workplace. So, let me talk about what people do when they come back to the office. What are the main things they like doing? This is another Gartner chart, so it's not just from what we see, we'll show you what we see. The biggest issue when you want to come back to the office is, can I find a space where I can sit? Can I get a desk? Can I get a meeting room? Can I connect with all the people in the office? Can I have a virtual assistant using AI to help me get my tasks done? All those things have increased demand, and as I said earlier, with the start of 2025, there has been a renewed interest due to mandates, but also among the younger generation to be more social, to be more connected with their workplace. We have been working with all these clients. We have more than 1 million users globally out there that use our product. When you think about space utilization analytics, the biggest problem is space, right? Initially, in these markets, you got to think about how you're going to utilize the space. This example shows you desk bookings. We can show you how desks were booked; whether they were booked in advance, how far in advance they were, and what the booking ratio is and what the cancellation ratio is. A lot of interesting statistics and the insights that come out of it. It’s clear: people are coming mostly on Tuesdays, Wednesdays, and Thursdays; Monday is coming back a little bit, but mostly Tuesday, Wednesday, and Thursday, and it drops off very quickly on a Friday. However, despite this planning capabilities, there's a lot of just-in-time booking—people are booking within the hour to get a desk or meeting room. Just having that mobile connectivity is immensely useful, which is where our CXAI Kiosk comes in handy, situated in the front of your office; you can walk in, click one button to get a desk, click a button to get a room, and know where your colleagues are. Without this technology, people feel lost and disorganized. This is why our recent data shows a lot of activity and usage with our application—because people need spaces, which is the primary factor for this market initially. As people get used to being in the space and working with it, they also need to connect with their fellow employees and internal systems to be productive. This is showing the usage of our product through the different days with various applications. It highlights that colleague booking has become immensely useful. If I am coming to the office next week on a Tuesday, it would be great to know Jack and my mentor, John, are also there, which incentivizes me to be there too. That visibility has become a key feature across our client base, and it's super successful. We can document every single interaction and show the “gain the life of user” as they progress through their work life. We can also show you location-based activity; people in one part of the world are very active, while others are not. This may be due to varying needs for desk booking or the absence of necessity for the app itself. Our job is to provide capabilities and toolkit for different use cases that are useful in different locations. This gives you an idea of the progress we're making, having the technology available, but the insights we're collecting are also super useful to drive our product roadmap, innovation cycle, and our engagement with clients. They love having the data sources and fusion of what's seen from employees and the spaces. This is truly insightful. With that, I want to give you an example of our CXAI VU Smart Expert. This shows how you can ask a question instead of going through 500 charts. If I'm responsible for RTO, I need to see booking counts before and after the 4-day RTO policy came in or for space planning, I want to know how frequently people use the app or the types of sessions they are engaging in. Rather than going through a BI tool and spending hours analyzing data sets, I need quick answers. We can show insights showing patterns in desk bookings, displaying strong preferences for individual workspaces. Similarly, we can indicate what desks have been utilized more than others and any regional preferences or heatmaps showcasing where employees want to be—like quieter zones or proximity to amenities. With this technology and application platform, we can provide those insights, and that generates excitement among our users. Additionally, we can conduct forecasting to perform predictive analytics. This is the holy grail—we can help organize your workplace culture with the right data insights. Agentic AI, as stated earlier, has been our focus from the start. We're not about providing AI just for the sake of it; we are presenting collaborative AI agents that allow multiple workflows to collaborate towards actionable outcomes. To achieve this is a Gartner chart showing how Agentic AI is progressing. It has evolved from simple AI assistants and co-pilots to now collaborative AI agents undertaking multiple workflows leading to actionable outcomes. Our Agentic AI focuses on completing actions versus just providing assistance; it acts as a proactive trusted adviser offering problems and insights. Last quarter, I showed you the Agentic booking; we've been working on various different use cases. Let me give you an example of Agentic workshop. A lot of our clients want to set up events or workshops in their offices, calling for ample coordination. They need help to book a location, invite necessary attendees, including visitors and employees, order food, and so forth. Our solution allows all that to happen simply and efficiently in a matter of minutes. For example, you can set up a meeting, book the room, order refreshments based on preferences, and ensure everything gets communicated to attendees. This smooth workflow minimizes frustration and enhances productivity. In summary, our Q1 successes speak volumes about our position and growth. We are on track with a majority of our objectives, and expansion renewals with Fortune 500 companies demonstrate our platform's capabilities and stickiness. We’re excited about the coming months with new innovations and developments like our Kiosk, further enhancing employee experiences.
Joy Mbanugo, CFO
Thank you, Khurram. If we could go to the next slide, I'll walk us through our Q1 results, starting with headline metrics, and then dive into operational details, our income statement, and conclude with our overall liquidity position, which is pretty strong. We're happy to report that while we have seen some expected pressures, the underlying improvement in our margins and continued cost discipline are driving meaningful progress. As Khurram mentioned in the previous slide, we did have three large logos that increased their expansion and pushed ARR up 130% of the original contract value, which clearly validates our platform's stickiness and our team's focus on customer success, these include Fortune 500 customers in financial services and tech verticals who have expanded their footprint with us and continue to do so. Subscription revenue saw a huge increase here from Q1 2024, where we were at 87%, rising to 99%, demonstrating our overall commitment to recurring revenue. Although we don't expect it will be this high every quarter, we do anticipate continued increases in subscription revenue compared to one-time revenue as we've seen in previous quarters. Our gross margin has increased up to 88% from 82% in Q1 2024. We've successfully reduced cash operating expenses by $300,000 year-over-year while absorbing some one-time costs, which we'll discuss in the next slide. Our earnings per share has improved from negative $0.34 to negative $0.08 from Q1 2024. So overall, we have great highlights for Q1 2025. Moving to the next slide, let's dive deeper into our income statement. We did experience a decline in revenue, which I know may prompt questions, but I want to clarify that this decline mainly resulted from two of our large customers, who typically would have renewed in Q1 but were pushed to Q4. While our performance was steady in Q4, these two clients’ renewals shifted timing and impacted our Q1 results, but it's not an indication of any long-term decline. We are witnessing resilience in gross profit despite lower revenue and continue to maintain approximately 80% gross margins. Our partnership with Google Cloud has helped us save $177,000 year-over-year by reducing our cloud costs. We did see an increase in operating expenses, specifically, a slight decrease in research and development spending but a notable decline in marketing efforts year-over-year. Our increase in G&A expenses relates to one-time costs associated with professional services fees and new hires. Our operating loss is narrowing slightly, yet it widened a little mainly due to a lack of revenue stemming from those previously mentioned renewals. Moving to the next slide, I'm going to discuss liquidity and our overall cash position, as it has been a topic of discussion in our last earnings call. Our net cash used in operating activities decreased to $979,000 from $2.7 million in Q4 2024, reflecting our tighter control on working capital. Our cash balance was approximately $3.98 million at quarter-end, but following subsequence events, we drew on a new convertible note granting us access to $20 million. On April 8, we have already drawn down $4 million of that funding. With that funding and our previous convertible note taken into account, we have liquidity for at least 18 months at our current operational run. Additionally, with our filings today and our K submission, we have qualified for S3 eligibility. These results reflect our focus on three strategic priorities that Khurram earlier laid out: customer success, deeper AI adoption, and analytics usage alongside the stickiness of some of our product capabilities and offerings like our Kiosk. Each renewal, cost decision, and platform investment is aligned with these goals. To summarize, the decline in revenue is timing-related and not a reflection of anything structural; our margins are achieving record highs due to operational diligence, and we are maintaining strong control over costs despite the one-time expense impact. Our cash position remains strong with multiple avenues for continued growth. With that, I'll turn it back to Khurram.
Khurram Sheikh, Chairman and CEO
Thank you, Joy. To summarize why CXAI matters, I want to highlight our financial performance as we are transitioning from a traditional model to a new one. CXAI is more than just an app; it is a comprehensive platform looking to create workplaces that are dynamic, versatile, and exceptional, just like our workforce. We are not just enhancing how work gets done; we are reimagining it for a brighter, more connected world. With CXAI, you do not just build a 'work for you' culture; you shape a community and architect the future. Without employees, there is no work, no office, and no culture. That’s our focus—putting employees first and watching everything else fall into place. Our CXAI platform solution, anchored in AI, positions us to provide this capability to all our clients. We've successfully shifted from nearly 70% or less recurring revenue when we first acquired the business to hitting 99% this quarter, which is incredible. This is not something we specifically targeted, but is a testament to our talented customer success and engineering teams creating recurring revenue products that our customers have increasingly adopted, showcasing their desire for ongoing features. As Joy mentioned, our improved cost structure is due to our partnership with Google Cloud, allowing profitable scaling in AI and data sets. As a result, our gross margins have significantly improved from around 78% to 88% over the past year and a half. We have engaged amazing clients who wish to work with us, including CIOs and Heads of Workplace Experiences, looking for AI-enabled solutions. Our work with clients encourages a culture of design-thinking that is proactive and intentional, resulting in innovative applications in the months ahead. Furthermore, our operations are in Silicon Valley, working with top disruptors in the market, and our strategic partnership with Google offers us both cost management and innovation access. I also want to mention that today we held our Annual Shareholder Meeting, and I’m thrilled to announce that two of our directors, Camillo Martino and Shanti Priya, were re-elected. We're privileged to have a strong Board supporting our efforts over the past years, fostering innovation, mentoring our management team on scaling the company, and leveraging their insights and expertise. We're excited about the partnership and collaboration. Given our collaborations with major industry disruptors, we have tight access to the leading technologies. We’re committed to creating unique, differentiated solutions that focuses on employee experiences, leading to a new software category. Lastly, we are confident about our pathways for success as we confront a market with several fragmented competitors, and we're focused on our singular vision—creating the best employee experience for all. I look forward to any questions and insights you may have about our progress.
Operator, Operator
Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.