CXApp Q3 2023 Earnings Call Transcript

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November 14, 2023

There are 2 speakers on the call.

Operator

Good afternoon, and welcome to the CXAI Q3 Earnings Conference Call. At this time, all participants are in a listen only mode, and please be advised that this call is being recorded. And now, I would like to turn the conference call over to Mr. Karam Shaikh, Chairman and CEO of CXA Incorporated. Please go ahead, sir.

Speaker 1

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 Q3 of 2023 and provide an overall business update on our progress in shaping the future of work and creating transformative employee experiences. Everyone will have access to our earnings announcement and our 10 Q filing, which will be released shortly. Information may also be found on our website, www.cxapp.com. Like you to review some disclaimer slides here, the next couple of slides that you can read on your own leisure.

Speaker 1

Dear shareholders, as we reaffirm our mission and purpose, CXAI is a SaaS platform anchored on the intersection of customer experience, PX and artificial intelligence, AI, providing digital transformation of the workplace to enhance experiences across people, places and things. The culture of CXAI is innovation focused with 3 core values: purpose, 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. We are headquartered in the San Francisco Bay Area Regional Tech Hubs globally. The global presence and diversity of experience gives us a leading edge as we shape the future work everywhere. We believe that CXAI is well positioned to assume a dominant role in the rapidly expanding market of employee experiences.

Speaker 1

The future of work is one of the biggest issues of our century and every single enterprise globally is looking to find solutions for the digital workplace and workforce. Both leaders of enterprises and employees are navigating uncharted waters relative to hybrid work in the post pandemic world and encountering significant challenges and new opportunities to innovate and augment their experiences. As you break down the so called RTO, return to office problem, it fits into the 3 buckets that our mission statement was founded on: Losing employees due in part to disengagement or RTO mandate is a massive loss for any company. It's not enough for companies to set rules for when employees should be at the office. They must also provide a bridge between employees to facilitate collaboration, innovation, conversations and connections.

Speaker 1

Employee engagement is mission critical for the hybrid workplace and is the true measure of the productivity of the enterprise as well as the happiness of the employees. Great work has always been about the ability to feel connected to your employees' mission and be able to feel fully productive in your office environment. That connectedness Is inherent in successful workplace cultures now extends beyond the four walls of the office and the physical devices the company provides them. It now needs to include the transformative workplace solutions that allow employees to experience their full work life cycle from anywhere. And lastly, we live in a world where we have conflicting priorities and having the tools to create the flexible lifestyle and optimize work life balance is critical for employee engagement and retention.

Speaker 1

Office occupancy is down more than 30% globally since the pandemic As employees want the flexibility of work from home WFH options, the 5 day a week and office experience is not coming back and companies will potentially lose over $1,000,000,000,000 in by 2,030 in the value of their commercial space because space does not get utilized as intended. Companies are looking to resize and redesign their spaces and to provide higher levels To combat disengagement and drive retention and space utilization, companies need top amenities and technology solutions that allow for a more efficient workplace environment as well as a superior user experience where employees can collaborate for higher levels of productivity. Employers are seeking analytics centered around employee application usage, office occupancy, space reservations, with series upgrades and the other key metrics that help with managing, refining and even optimizing the health of hybrid workplaces. Fueled by a significant shift in 2023 from a mostly remote working model to a hybrid working model, the return to office trend has solidify the need for organizations to have tools that are adaptable to the dynamics of a changing workplace and can elegantly bridge the gap of their converging needs relative to asset management, facilities management, company communication, physical and virtual collaboration, on-site visitor management, among host of other digital and physical needs.

Speaker 1

In addition, remote work has to become more simple, efficient and seamless as work from anywhere becomes the expectation and norm. This is the biggest problem of our industry, the big RTO problem and we are uniquely positioned to lead the category and shape the employee and workplace experience landscape given the ongoing digital transformation of maybe all enterprise organizations. So what is the solution And so 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. The solution We call it our Sky platform, CX AI platform is a state of the art technology platform anchored in AI.

Speaker 1

Well, our focus has really been the employee and the employee experience. So we've architected and designed it to have the employee at the core in terms of the design requirements and the attributes. AI or artificial intelligence is transformative to the future of work massively scalable offerings that create the flywheel effect of automating the workflows, driving engagement, enabling collaboration and productivity, leading to immense affinity in the employee relationship. We have been strong believers in this technology and now proud to be the 1st in our industry To offer solutions to our customers. So what is our solution?

Speaker 1

What is the offering? Our AI native platform is built upon our mobile first, cloud first Workplace Super App. Workplace Super App provides a full stack solution that allows employees to experience all their work tools in a single application We'll provide our customers' employees with a simplified immersive user interface, natural language processing inputs and the assistance to digitally navigate and automate their workday, all seamlessly from anywhere, we have created a more human centric work model. On the CXAI platform, we are developing category leading horizontal and vertical generative AI application. We believe these AI native applications will become the norm for the new knowledge economy and generate transformational employee experiences everywhere.

Speaker 1

Our AI powered tools will enhance the overall workplace experience by fundamentally automating all routine tasks to create new levels of productivity and efficiency. With enhanced tools like augmented reality and data visualization, Teams can collaborate more effectively and increase their ability to innovate faster. Personalization of employee preferences as well as the workflow task for the new Digital Twin model for employees and employees as they save precious time and create a new dynamic for engagement and job satisfaction. Our AI tools and models are built on the strong foundation of our full stack Software solution that provides contextual awareness using indoor mapping and on device positioning technology as well as the data collection of millions of data points from our enterprise app. This new area of spatial intelligence creates the opportunity to personalize the workplace experience at the same time as we define the workplace environment.

Speaker 1

The key output of our amazing AI applications is a data And analytics engine that fuses the user base and things data to create what we are calling experiential analytics. These are the key insights and outcomes that will drive to help solve the future work problems. We will be chasing some key examples in a bit here. But I want to continue with showing the architecture of our solution of our full stack platform. This next slide describes the CXI full stack We also plan to use an open API approach on the CXCI platform to integrate more than 100 plus third party solutions using microservices that we will provide to our customers today in their enterprise functions under one umbrella as well as full visibility into their entire workplace environment.

Speaker 1

The Sky platform, CX AI platform is based on 37 file 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 are excited to partner with them. We are looking forward to unveiling the platform to select customers this quarter and we will be scheduling the launch in December with a special webcast for investors. We look forward to hearing that with you in December, The details of the launch.

Speaker 1

So let's talk about our current business and our current customers. Our Primary business is a SaaS platform that we sell to enterprise customers as an annual subscription for normally 3 year periods. 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, examples being deskroom booking, collaboration, navigation, food ordering and internal communication. Our largest enterprise customers are mainly divided into the following top 5 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.

Speaker 1

We have a healthy distribution across all verticals and we see the adoption trend developing from technology sector focused companies to the larger Fortune 500 portfolio. Our customers are sophisticated buyers of technology solutions and do not compromise on quality, performance, security, reliability, scalability and technology roadmaps. These are the main reasons why we win and why we've been successful in keeping them as happy customers. The great diversity of our customer base across different industries and many geographies around the world provides us with rich datasets that enable the most insightful experiential analytics and generative AI applications. Data driven insights provide the One of our first offerings from the Sky platform is our AI based analytics engine.

Speaker 1

Quality analytics are the lifeblood of the employee experience as they provide predictable outcomes for our customers and also feed the data I will walk through some interesting tools and models that we are building, just as Starting point and we're going to share more details in December. But starting on this chart with user analytics, we can characterize the user behavior with our application. We can show usage as a function of sessions to interactions per day to feature utilization. These data sets can lead to major impacts on what are the real pounds for consumption and productivity. On the next chart, I'm going to talk about another set of analytics Tied to face data from a single building on a campus to the global footprint.

Speaker 1

So you as an employer and see the performance and experiences that your employees are seeing across the whole enterprise. This can demonstrate the overall utilization of assets and usage as a function of location were real indicators of behavior that may be local to region or tightest in policies and processes. As you can see from this chart, we have a rich data set of great customers in different locations and different attributes And this gives us really great insights from the same company having an office in the Middle East or having it in Europe or having it in the U. S. And seeing the differences as well as similarities in some of the user behavior and experiences.

Speaker 1

This is super, super exciting and super insightful. The last chart I'll show you is on the analytics piece is to show the fusion of user space and things to provide a contextual visualization of experiences. As I said at the start, it's all about people, places and things and the data around it. And as you can see, there can be super intuitive application that can create customized insights based on user query and can also provide rapid forecasting and prediction of outcome. This is RealAI being implemented today with us with our existing customers.

Speaker 1

We're super excited about these opportunities. And these applications are also demonstrating how we are going to deliver value based offerings to our customers that will create massive increase in cost savings, Efficiency and productivity. The goal again as I started with the problem is those 3 big things, people, places and things for the RTO. We're solving those today with our existing customers with our great analytics capabilities and we're going to continue with the AI platform as it scales up to offer those value based applications. So let's talk about the financials.

Speaker 1

And as we move to discussing the financial results of Q3, I would like to remind the audience that following Q3 results should serve as an initial baseline for the business structure of the new CXAR. I'd like to caution that while our business is showing great signs of progress and growth, we are in the early stage of this multibillion dollar opportunity and want to be careful not to put undue influence on any given metric until our scale increases and the data points become more meaningful. With that said, we're making great size in the right direction and a number of proof points demonstrate our customer traction, which I'd like to share. PXAI's land and expand is our key strategy, which is our compass for growing subscription revenue within our existing customer base and beyond. We are winning large multinational enterprise customers and expect this pace to increase in the coming months.

Speaker 1

As you win new customers and expand within existing customers, I expect to demonstrate this progress through KPIs such as remaining performance obligation growth or RPO and annual recurring revenue or ARR. Finally, I believe we have the right cost structure in place to generate strong operating leverage as the revenue goes. To go a little deeper on the quality highlights and share some details, we demonstrated record growth in our backlog as we grew RPO double digit sequentially by continuing to win new customers. We expanded across verticals while also demonstrating strong expansion growth within existing customers. Customer wins are a primary measure of success in our early ramp stage.

Speaker 1

On this point, a Key highlight of Q3 was being selected by 1 of the world's largest media organizations for a 7 figure agreement. After a rigorous due diligence process where the customer evaluated multiple solution providers, we were ultimately awarded a large subscription based There is also attractive growth potential to expansions in value based applications as we launch the first deployment. This builds upon our momentum of large customer wins in Q2 and I believe this demonstrates that despite our small size, Large companies are excited about our current solution, our path to AI with our CXAI technology first platform and our partnership, which are increasing at an increasing pace with the technology ecosystem. In the meantime, this growth in customer and subscription revenue helped us generate strong growth in AR, double digit growth since the beginning of the year as we continue to add customer commitment to our subscription based SaaS platform. At the same time, we're highly focused on managing costs and we believe we got the right operating structure to execute on our plan.

Speaker 1

Due to our continued growth in subscription and away from professional services as we transition to our standardized Ti platform, Our visibility and margin profile continue to improve. Gross margin for Q3 was 80%, up from 75% in the prior quarter. We expect this trend to accelerate as we launch our AI solution. At the same time, we have optimized the operational cost structure with a 56% operating expense reduction as compared to Q3 2022 prior to the acquisition. As you can see, we are marching forward with really great metrics for a growth led SaaS based business and these metrics are in the right direction and as with AI that we're implementing not only for our customers So for our own operations, you're going to see higher performance gains in all these metrics.

Speaker 1

And we're super excited about leveraging AI across the enterprise. On the cost structure, I actually want to spend a little bit more time because I want to make sure there's better investor understanding of our focus and why we are so bullish on our cost structure today. So we have provided here a non GAAP expense reconciliation. I recognize the difficulty of measuring the company To the successor or predecessor statement, so I think it's important for investors to get a solid understanding of the cost structure, so one thing get a feel of how for how we can begin to generate cash and progress as the top line grows. We have reduced operating expenses by over 56% year over year.

Speaker 1

Our expense base is roughly $4,000,000 per quarter with an ample investment in R and D to generate the type of growth we expect next year. As we continue to transition away from professional services and towards a subscription based SaaS platform, we expect our revenue growth to accelerate next year. With our new cost structure and healthy balance sheet, the company is well positioned to accelerate its growth initiatives to scale the business. And as you can see on the chart from September 30, 2022, we had around $9,300,000 of operating expense and we've now reduced that to Just north a little north of $4,000,000 And as I said earlier, we're implementing AI based capabilities across the enterprise That will allow us to be more productive, more efficient and lower cost. So this is the baseline for our cost structure and it will be more efficient and more productive in the So I want to sum up here about I want to recap What we just mentioned in terms of our investment highlights today and I see the world unfolding in front of us.

Speaker 1

We are shaping to future work with leading edge technology solutions defining a new category in enterprise software called employee experiences. We are at the center of solving employee experience problems and cost issues for our customers. Our solutions increase engagement and effectiveness for the workforce who are providing the tools and insights that assist in optimizing physical office space users along with the things This helps enterprise manage office occupancy declines while improving remote work and the return to office. EX Staff is well positioned with our AI based SaaS workplace analytics platform to assist with these challenges by providing employers with the data they need to make decisions. We are the only publicly traded YourPay solution provider in the space with a differentiated, talented SaaS platform and critical integrations with Our land and expand growth strategy pursues near term customer adoption with an path to AI features and analytics, which is poised to drive rapid usage.

Speaker 1

Our AI focus enables rapid adoption potential As usage within the installed base can rise quickly and we are rapidly approaching the release of our AI apps in the coming months, which we expect to drive a meaningful bump in unit economics as we talked earlier. Organizationally, the teams have been restructured to align with our goals to focus on customer retention, expansion and value based new business acquisition. We've got the right platform built by the right team and we are well positioned for significant growth ahead. I look forward to showcasing our Sky platform this December so everyone can see the amazing future of work built on AI. Thank you for your continued interest in CXAI, We will keep you informed as we keep major milestones in our journey.

Speaker 1

Thank you and back to you, operator.

Operator

This concludes today's conference.

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Earnings Conference Call
CXApp Q3 2023
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