Earnings Call Transcript - CXAI Q1 2024

Operator, Operator

Good afternoon, and welcome to the CXAI Q1 2024 Earnings Conference Call. I would like to turn the conference call over to Mr. Khurram Sheikh, Chairman and CEO of CXApp Inc. Please go ahead, sir.

Khurram Sheikh, Chairman and CEO

Thank you, operator, and thank you, everyone, for joining the quarterly earnings call for CXAI. I plan to discuss CXAI's financial results for the first quarter of 2024. I will also provide an overall business update on our progress in shaping the future of work, including transformative employee experiences using AI technology. By now, everyone should have access to our earnings PR announcement as well as our new product launch in collaboration with Google Cloud. We'll also be filing our annual 10-K for 2023 shortly. All of this information will also be found on our website, www.cxapp.com. And now I'm going to go through a couple of disclaimer slides. You can read them at your leisure. And we'll get to our first slide about the company and what we're doing. Dear shareholders, I'm super excited to share our Q1 2024 results and the incredible progress we have made in shaping the future of work. At the heart of CXAI lies a simple yet powerful belief: put the employee first and everything else follows. It's not just about the work, it's about the people who do it, the places where they come together, and the things they need to succeed. CXAI redefines how we think about work life and the seamless interplay between the two. And we do all of this using the latest AI technology. We're super excited about this opportunity here. So let me give you a little snapshot of where we are now as a company this quarter. We are headquartered in the San Francisco Bay Area with regional tech hubs globally. The global presence and diversity of experience give us a leading edge as we shape the future of work everywhere. Of the 80 team members at CXAI — we like to call CXAI as Sky, more than 2/3 are engineers, and we have doubled the engineering staff over the course of the last year while simultaneously reducing overall operating expenses efficiently. AI is changing the world, and we are an AI-first enterprise software company. We believe the employees are at the center of this multibillion-dollar growing workplace experiences market, and we're creating a new category in software, employee experiences. 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 front-runner but also secures our operation as a pioneer in the industry. This platform has been developed in collaboration with leading AI companies in the tech ecosystem in Silicon Valley, and we're super excited to be partnering with Google Cloud as we scale our business to the next level. We are proud to have some of the largest logos of the world as our customers at the leading edge of workplace transformation, with more than 20 of Fortune 1000 companies scaling with us with new deployments globally every day. And as you see on the chart, one of the key differentiators for our business is that we have strong security and compliance credentials globally. That is the reason you see us with so many logos from regulated industries. They use CXAI because they know they can trust us with their data and their enterprise security and compliance. If you look from our last presentation, we've grown to now 60 countries; we're in 200-plus cities; we're globally deployed; we're shaping the future of work as we scale this business. So now let me talk about our mission statement, as you know, which we've been saying since we took the company public last year. The CXAI platform is anchored at the intersection of customer experience, CX, and artificial intelligence, AI, providing digital transformation of workspaces for enhanced experiences across people, places, and things. That has been a mission for us, and that is what's driving our journey of transformation. The journey, as we talked on our last call, has really been through a transformation of our business model and our technology platform. Our technology platform is state-of-the-art, anchored on AI, and that is what's driving all this innovation. The transition empowers us to deliver a unified work experience through our workplace SuperApp. By leveraging AI, we can personalize the user experience, automate tasks, and provide valuable data-driven insights to our customers. The shift towards the platform model that you see in 2024, along with the recurring revenue stream, positions CXAI for long-term sustainable growth. Ultimately, it's a win-win for both CXAI and our customers. We gain scalability and efficiency while our customers benefit from a platform that leverages the software capabilities at scale as well as provide a more engaging and productive work experience. So, as you look at this chart, you can see the trajectory of where we started and where we're at today. I'm very proud to say the team has delivered on a number of initiatives that have made this possible both on the technical side as well as the business side. More importantly, our customers are adopting this strategy of a SaaS platform with microservices of data analytics that's core to the offering. And finally, it's based on value-based pricing, which is really resonating with our customers as they look at the net scaling of their business. So, when we thought about what we were going to do in 2024, the Board and I discussed what the key objectives of the company moving forward would be. Since we focused on AI, that was our initial declaration that we are the leaders in AI. We really focus on that AI-first technology and business model because it revolutionized the employee experience segment. When we think about employee experiences, we think about consolidating all the tools in the mobile-first Work SuperApp, streamlining workflows, boosting efficiency and productivity. Our AI-powered approach goes beyond basic automation. It is designed to create an intuitive and personalized work experience, reducing friction in promoting employee collaboration, which are key factors for driving engagement, affinity, and productivity. So that's been our first case. Let's get this AI-first technology and business model right. And I'll talk about that later as well. Secondly, with the great set of customers that we had in 2023, we want to grow those existing customers and build new Fortune 100 customers to scale. That has been a key initiative, and we're making a lot of progress, as you see in the Q1 results. This has been our largest growth in net retention rate, NRR, and this is because many of these customers have stepped up and doubled down with us. Thirdly, we wanted to launch the CXAI platform to our key customers. The CXAI platform is built on AI-first; we're deploying our first new Fortune 1000 customers this summer, and it's on track really well. I'm very proud of that achievement. And then what we announced today is our AI-based analytics product. This has been launched in consultation with Google Cloud, collaborating with them. It’s a revolutionary product. I'm going to talk a lot more about it later, but this is a key achievement for the team. And lastly, we have been focused on strategic partnerships. You saw the announcement with Google last quarter, actually last month in April. Since then, we've made rapid progress in launching our first product with them, but also with the broader ecosystem in Silicon Valley and the world. We are working with the best and brightest AI technologists and partners to bring this capability to the workplace experience market. So, I'm really excited that we're making a lot of strides in creating this category-leading segment for employee experiences. That, to us, is the first in the market. So, you may ask, what is the solution? What are the key parts of the solution that differentiate us from the rest? A lot of people have been talking about AI experiences. Let me talk about the employee experience solution. This is at the intersection of CX and AI. These are features that power you to think about the life of an employee or a user throughout the day and what we can do for them. The most important one is this 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 and making decisions as well as measuring productivity. We're going to talk a lot about that later in the presentation. The second pillar, of course, is our workplace SuperApp, which we've already deployed with tens of customers and is also deployed globally in hundreds of locations. This is a central platform that integrates various workplace functionalities, reflecting CXAI's emphasis on a unified mobile-first approach to workspace technology. Our key differentiator is spatial intelligence. That's the key part of CXAI's technology stack, focusing on optimizing physical spaces and enhancing interactions within the workplace using location-based technologies that provide contextual awareness. This is the way we differentiate from any other booking engine that's out there. And finally, generative AI. Everyone's been talking about generative AI for the last year; we’re actually implementing it right now in our platform, both on the back-end side as well as the front-end side. GenAI and CXAI boost efficiency and productivity by enabling voice- and text-activated tasks like scheduling meetings with simple commands and features like search and discovery. This streamlines administrative duties, driving efficiency and convenience for employees and personalization for on-demand knowledge augmentation. You're going to see a lot more of these applications in the coming months as we launch the full CXAI platform, but this is the cornerstone of differentiation and growth for the company. Let me talk about, from the business side or from the customer side, why this is so important. Why is this really relevant to an enterprise? The reason why it's important is the world has changed. The world has changed dramatically in terms of how the modern workforce operates. Society as a whole is redefining what it means to be productive, engaged, and fulfilled professionally. The future of work is not place-dependent. It's happening in a space of endless possibilities, with technologies enabling work and life to be blended and integrated seamlessly and augmented with intelligent personalization, with employees at the center of this universe. When you look at our CXAI Octagon, employees are at the center of that. The future is here. The future is now. It is being led by the CXAI platform focused on transformational employee experiences. CXAI is not just a SuperApp; it's a catalyst for transformation. Businesses that employ CXAI unlock the potential for a more efficient, collaborative, and engaged workforce. In doing so, they set the stage for a future where work truly knows no bounds. We have designed our solution as a platform that solves problems for both employees and employers as they navigate their work life. We have built it from the ground up, anchored on artificial intelligence. AI is transformative to the future of work, creating massively scalable offerings that create the flywheel effect of automating workflows, driving engagement, enabling collaboration and productivity, leading to immense affinity in the employer-employee relationship. We've been strong believers in this technology and now to be the first in our industry to offer solutions to our customers. Now, our primary business is a SaaS platform that we sell to enterprise customers as an annual subscription for 2 to 5 years. Today, customers deploy our cloud-hosted software across their enterprise campuses to allow employees to connect with their workplace for a myriad of use cases, for example, guest room booking, collaboration, navigation, food ordering, and internal communications. Our large enterprise customers are mainly divided into the following top 5 verticals: financial services, technology, media and entertainment, healthcare, and consumer. We have onboarded some of the largest logos of the world as our customers at the leading edge of workspace transformation. We have a healthy distribution across all verticals, and we see the adoption trend developing from technology sector-focused companies to the larger Fortune 100 portfolio. Our customers are sophisticated buyers of technology solutions and do not compromise on quality, performance, security, reliability, scalability, and of course, technology roadmap. As you can see, we've kept increasing the logos that are adopting the CXAI platform. We're also increasing the value of the different technological aspects of their platform. We're working very closely with them on the analytics platform that you'll see is driving immense affinity, immense data sets that are helping them be more productive in their work experience. So that's an overview of where we are at, what we've accomplished, and the things we're doing overall from a product and business side. But let me talk about the financial results of this quarter. This slide highlights several key metrics demonstrating our continued momentum in Q1 from last year. Let's take a closer look at each of the metrics. Between January 1 and March 31, 2024, we had a record increase in net retention rate, NRR, to 108%. That was accomplished primarily by renewing and expanding 7 of our largest Fortune 1000 customers across all five verticals. These large renewals are very important because they signal to the market that these customers are now ready to scale up. In annual recurring revenue, that's north of $2 million, which is a significant part of our ARR portfolio, making us very happy. Additionally, we're pleased that these customers are looking at the CXAI platform and the CXAI VU, which is the analytics platform we're going to discuss as the next-generation platform they want to scale up to. Another important metric for a SaaS business is the subscription-based revenue. I'm happy to report that our subscription-based revenue for this quarter was 87% of the total revenue, a metric that has been trending upward quarter after quarter, and this quarter marked the highest ever in our history, increasing 6 points from the last quarter. This is due to the work we've been doing on the planning of the business regarding working with our customers to provide value-based solutions, recurring solutions, and then minimizing project work, which traditionally has been done manually but automating these tasks using AI technology has really helped us achieve this high subscription-to-onetime revenue ratio, making me proud of the team's hard work. Another metric that has been trending upward is the gross margin. The gross margin was 82% for this quarter, which is higher than previous quarters, and it's inching up. We're all headed in the right direction, linked to the fact that we're getting more subscription revenue and less onetime revenue while also increasing the company's profitability. Part of all of this is driven by our land-and-expand strategy, which continues to be a key contributor to growing subscription revenues with our existing customer base. With the new CXAI VU analytics product offering, we are looking to ramp up these product expansions, which will significantly increase the ARR, NRR, and gross margin. Lastly, we've been very focused on creating value for our investors. In that sense, we're concentrated on optimizing the operational cost structure, leveraging our investments in AI and headcount rationalization, which we implemented in late Q4 and Q1, resulting in a net north of 20% operating expense reduction from Q4 '23 to Q1 '24. This was part of our plan to scale up the business in 2024 with a much lower cost structure. Looking ahead, I'm very confident that our increasing ARR bookings, strong customer acquisition, and focus on subscription revenue will drive sustainable growth. We're committed to continuously innovating the CXAI platform and delivering value to our expanded customer base. All right. So that's our financial information for this quarter. Let me talk about the exciting new announcement that you probably have seen hit the press announcing CXAI VU, which we pronounce as Skyview. So, it's an extension of our CXAI platform. It is the AI-based analytics platform for employee experience. It is the world's first in this area; we're really proud of the revolutionary work we've done to enable this. I want to commend the Google Cloud team, who have supported us in this effort. It's been at breakneck speed regarding getting the platform up and running. Now it's in beta with many great customers who are working with us day in and day out, and we want to launch this at the end of Q2 for general availability. What does the CXAI VU platform do? The CXAI VU platform is revolutionizing the workplace environment by measuring work efficiency and providing actionable insights, driving employee engagement, collaboration, and productivity. Let me give you a bit of flavor about what that means and the key attributes that we focus on. Importantly, we worked closely with our customers over the last year in building this platform, which came from a lot of interaction with them. The CXAI VU platform is driven toward providing the first piece of space optimization, really employing those spatial analytics that enable you to understand the key space utilization data, including heat maps and historical trends, instrumental in optimizing workspaces and resource allocation, becoming the most efficient workplace business-planning tool available. The next aspect that is important is understanding what people are doing with the app and in the workplace. With our platform, we can trace the usage of application functions utilized by users to gain valuable insights into user behavior, which will drive engagement and productivity. Additionally, integrations with corporate infrastructure inform what technology assets people use and how they use them, giving a clear profile of how the enterprise is operating. More importantly, when you look at all these pieces together, it provides a comprehensive view of the enterprise. The data we collect from our integrations, combined with spatial and people data, drives these actual outcomes based on real data. This makes life easier for enterprise managers, workplace experience managers, or IT managers to decide what's happening and what can be improved. Lastly, the most exciting feature is predictive analytics. This is part of the tool that reimagines the entire enterprise with customizable dashboards; you can create your own dashboard and receive predictions for KPIs with a very intuitive user interface. I'm going to show you a quick slide view of that, but these are the four cornerstone pillars of our analytics platform. They are driven by our customers who want to see the real value of the app. Let me discuss a bit regarding some examples of this platform. The first chart shows the global view of the work experience when you enter the platform. This provides a global perspective of the campuses around the world, enabling you to see what's happening in different regions, whether in Dubai, Singapore, L.A., or New York. You can see the utilization per region, what bookings have occurred, and what functions have been utilized—giving the enterprise manager a 'sky view' of their world. We also discuss what is most important to them. One of these is workspace optimization to assess how many bookings are happening, trends across different years or months, and varied spaces in multiple locations. This gives an excellent view of technical analysis of the available data, allowing you to scroll in and change filters for different insights. This tool empowers workplace experience managers to optimize their assets and drive efficiency and productivity. The next relevant part is employee engagement, where things escalate. We will optimize the solution so that workplace managers can profile themselves and assess important events occurring in different parts of their organization. They can identify trends in attendance, features in the app being used, and what integrations are utilized, providing a holistic view of behaviors, preferences, and key drivers for productivity. Addressing mission-critical tasks such as ordering lunch and timely office arrival, we now have a better understanding of user friction points—what users enjoy and how to enhance productivity. This capability is remarkable. We'll be conducting demos as we launch with customers on our next calls to showcase this powerful tool. This brings us to the data-driven aspect. Now, decision-makers can have evidence on what's right, what's wrong, and why specific markets behave in certain ways. Real data sets reveal critical insights, allowing comparison between different locations and determining how many active users engage with our product, which in turn influences actionable insights. When it comes to understanding office attendance, product use, and employee productivity, fusing this data produces concrete evidence for decisions about optimization, improvement, and enhancement of the workspace and employee engagement. The last aspect we focus on ensures that the employer is empowered to decide how to create their own dashboards. While many dashboards are available, we're promoting an interactive dashboard for customization—asking questions and receiving answers that satisfy these needs, while using the latest GenAI models to facilitate these inquiries in natural language, creating custom dashboards with relevant information. Using predictive analytic capabilities, the potential impacts of future programs can be estimated. This advanced solution provides an intuitive user experience. All of these tools are impactful and are being deployed with customers who are embracing them. Without analytics tied together, the full value of the workplace experience cannot be realized. Let me discuss our collaboration with Google, as they've been an excellent partner. Most prominently, they lead in AI infrastructure. This partnership isn't solely about Google Cloud capabilities; it also involves the various user interactions regarding voice, images, and other sources, including natural language processing to understand user intent and deliver more relevant and personalized results. Location plays a significant role because we're a spatial intelligence company. We provide exceptional location data within enterprises and around them, incorporating full location intelligence. We have an impressive platform tie-in with Google, enabling rapid integrations with numerous clients—reducing implementation time from months to days—allowing for more applications to be fitted seamlessly. This is a crucial differentiator compared to competitors. Notably, all our major customers care deeply about security. Security is a critical factor; it's why many choose us. Being top-tier in security is paramount for us. Hence, leveraging features on the Google Cloud platform for security and compliance is essential. Lastly, this business is evolving from being a luxury to becoming a necessity. When it shifts to being indispensable, high reliability, quality, and availability become mandatory. Our customers require this reliability, and satisfaction is linked to their ability to utilize the app effectively. Hence, we must provide outstanding reliability, quality, and availability levels. Partnering with Google's AI infrastructure supports us in that alignment, and we're eager to drive further innovation together. In closing, I want to highlight why CXAI is important and why you, as an investor, should consider the company. AI is transforming the landscape—we’re witnessing it across every segment. I think in our domain, AI isn't just the future; it's already here. Our solution is going to be transformational for the market. We have a patented, leading-edge enterprise AI SaaS platform—the first of its kind globally. We take pride in that, and we’re excited to launch it this summer after our initial deployment with existing customers. Our customer base is strong, loyal, and ready to scale to the next level. Importantly, we've achieved diversified deployments globally in 60 countries and 200+ cities. These data sets are valuable because they enhance these AI models, delivering superior performance and outcomes. Our customers want actionable results, not AI for the sake of AI. We're committed to delivering this through the new CXAI VU platform and the overall CXAI platform. As a team based in Silicon Valley, we're committed to transformation, excited about market challenges, and have an experienced management team and Board focused on delivering investor value. We won't do everything alone; we're partnering with leading innovators, as seen with the Google Cloud announcement. Expect further collaborations with other stakeholders in the months and years ahead. We’re actively engaging with the ecosystem to identify best-in-class providers. Lastly, since our journey began over a year ago when we public, we want to create this new software category. We genuinely believe in transforming employee experiences, validated in the market. Now, we just need to deliver it, and we believe we’re at a tipping point for capabilities, customer adoption, and scaling. So, with that, that's what I have to share today. We really believe that this company is ready for the next phase of innovation. As we like to say, to CXAI and beyond! Thank you, everybody. We'd love to connect with you on our next earnings call, and we welcome interactions with you. You can go to our website, www.cxapp.com, where we can share all the details regarding today's offerings, particularly the CXAI VU platform and any other investor documents. Thank you very much. Have a great evening. Bye.

Operator, Operator

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