Q3 2023 CXApp Inc Earnings Call

Good afternoon, and welcome to D. C X AI 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. Com shape.

Chairman and CEO of CX App incorporated please go ahead Sir.

Thank you operator, and thanks to everyone for joining the quarterly earnings call for <unk>.

I plan to discuss <unk> financial results for the third quarter 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 Dot C dot com.

Like you two reviews from disclaimer slides here the next couple of slides.

You can read on your own leisure.

Dear shareholders as you reaffirmed our mission and purpose is a SaaS platform anchored on the intersection of customer experience.

And the artificial intelligence AI, providing digital transformation of the workplace for enhanced experiences across people places and things.

The country of CX innovation focus with three core values purpose passion and positivity.

We are passionate about solving 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 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 the <unk> is.

Well positioned to assume a dominant role in the rapidly expanding market of employee experiences.

The future work is one of the biggest issues with both century and every single enterprise globally is looking to find solutions for the digital workplace and workforce.

Both leaders of enterprises and employees.

Navigating unchartered waters relative to hybrid work in the post pandemic world and encountering significant challenges and new opportunities in a weird and augment their experiences.

As you break down the so called Otsego returned to office problem it fits into the three buckets right.

Mission statement was founded on people places and things.

Losing employees due to due in part to disengagement or Akio mandate is a massive loss for any company.

It's not enough for a company to set rules for Wayne employees should be at the office. They must also provide a bridge between employees to facilitate collaboration innovation conversations and connections.

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 employee.

Work has always been about the ability to feel connected to employees mission and be able to feel fully productive in your office environment.

Okay that connectedness is inherent in successful workplace cultures now extends beyond the four walls of the office and the physical devices that company for why isn't it now needs to include the transform the workplace solutions.

Now employees to express their full work lifecycle from anywhere.

Lastly, we live in a world, where we have conflicting priorities and having the tools to create a flexible lifestyle and optimize work life balance is critical for employee engagement and retention.

Also its occupancy is down more than 30% globally since the pandemic as employees want the flexibility of work from home <unk> auctions.

The five day a week.

In office experience is not coming back and companies will potentially lose over a trillion.

And by 2030 in the value of their commercial space because space does not get utilized as intended.

But these are looking to resize and redesign their spaces and to provide higher levels of effectiveness of the organization.

To combat this engagement and drive retention and space utilization companies need top amenities and technology solutions that allow for a more efficient workplace environment as well as the superior user experience where employees can collaborate for higher levels of productivity employers are seeking analytics center, one employee application usage awfully sick.

The prudency space reservations facilities upgrades and other key metrics that help with managing refining and even optimizing to help them hybrid workplaces.

Fueled by a significant shift in 2023 from a mostly remote working model to a hybrid working model.

Turning to office trend has solidified the need for organizations to have tools that are adaptable to the dynamic of a changing workplace eloquently.

Literally bridged the gap up they're converging needs relative to asset management facilities management company communication physical virtual collaboration onsite visits the amendment among a host of other digital and physical needs.

In addition to remote work has to become more simple efficient and seamless as work from anywhere becomes the expectation that north.

This is the biggest problem.

For our industry the big arterial problem and we are you know.

Uniquely positioned to lead the category and shifting employee workplace experience landscape given the ongoing digital transformation of meeting all enterprise organizations.

Yeah.

So what is the solution for the problem.

And so we have architect our solution.

As a platform that solves problems for both employees and employers as they navigate their workplace and we have built a grounds up anchored on artificial intelligence.

The solution, we call it our sky platform PX AI platform is a scheduled VR technology platform anchored in New York.

But our focus has really been the employee and 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.

Artificial intelligence is transformative to the future of work, creating massively scalable offerings.

The flywheel effect of automating workflows, driving engagement, enabling collaboration productivity leading to immense affinity in the employer employee relationship. We are strong believers in this technology and now proud to be the full external industry.

Offer solutions to our customers.

So what is our solution what is the offering.

<unk> platform is built upon our mobile first cloud flows workplace Super App.

The workplace Super App provides a full stack solution that allows employees to express all of their workflows in a single application will provide our customers employees.

Simplified immersive user interface natural language processing inputs and the assistance to D C navigate and automate their workday.

All seamlessly from anywhere.

Creating a more human centric work model.

On the <unk> platform, we are developing category, leading horizontal and vertical generative AI applications.

We believe these AI native applications will become the norm for the new knowledge economy, and generally a transformational employee experiences everywhere.

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 the ability to innovate faster.

Virtualization of employee preferences as well as the workflow task pretty 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 long as the data collection of billions of data points from our enterprise App.

This new area of spatial intelligence <unk> opportunity to personalize their workplace experience at the same time as we define the workplace environment.

The key output of our amazing EIA application is it data and analytics engine Defuses, the user based and things data to create what we our colleague experiential analytics.

These are the key insights and outcomes that will try to help solve the future work problems, we will be showcasing some key examples in a bit here.

But I wanted to continue with showing the architecture of our solution for full stack platform.

This next slide described that Si bookstack platform that we have built.

This simplified scalable in the AI native platform provides the most comprehensive solution in the enterprise workplace market.

We also plan to use an open API approach on the <unk> platform to integrate more than 100, plus third party solutions using micro services that we will try to that we provide to our customers today and their enterprise functions under one umbrella as well as full visibility into the entire workplace environment.

The Sky platform <unk> platform is based on 37 filed patents with 17 of them already granted this substantial intellectual property not only establishes our company is the technological front runner, but also secures our position as a pioneer in the industry.

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 scheduled to launch in December with a special webcast for investors. We look forward to sharing that with you in December.

The details of their launch.

So let's talk about our current business and are not current customers. Our primary business is a SaaS platform that we sell to enterprise customers as an annual subscription for normally three year peers.

Today customers deploy a cloud hosted software across their enterprise campuses.

Now employees to connect with their workplace for a myriad of use cases examples being desk slash room booking collaboration navigation food ordering and internal communications.

Our largest enterprise customers are mainly the way into the quality talk quite verticals financial services technology media and entertainment healthcare and consumer.

We are proud to have some of the largest googles of the world as our customers.

At the leading edge of the workplace transformation, we have a healthy distribution across all verticals and we see the adoption trend developing from technology sector focused companies to 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 Road map. These are the main reason why we will and why you've been successful in keeping them as happy customers.

The great diversity of our customer base across different industries in many geographies around the world provides us with rich data sets that enabled the most insightful experiential analytics and generative AI applications.

EBITDA driven insights provides the strongest foundation and how to shape the future of work.

One of our first offerings from the Sky platform is our AI based analytics engine.

Quality analytics are the lifeblood of the employee experience as they provide a predictable outcome for our customers and also feed the data source with a value based application I will walk through some interesting tools in malls that we are building.

Just as a.

As a starting point and we're going to share more details in December, but starting long discharge with user analytics, we can characterize the user behavior with our application. We can show usage as a function of sessions during interactions per day to feature utilization. These datasets can lead to major insights 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.

Tied to.

Space data from a single buildings on our campus to the global footprint.

You as an employer can see the performance and experiences that your employees are seeing across the whole enterprise.

This can demonstrate the overall utilization of assets and use it as a function of location, where real indicators of behavior that may be local to region or tied to certain policies and.

And processes as you can see from this chart, we have a rich dataset of great.

<unk> in different locations and different attributes and this gives us really great insights from the same company, having an office in in the middle east or having it in Europe or how do we get in the U S and seeing the differences as well as the similarity in some of the user behavior and experiences. This is super Super excited and Super insights.

Paul.

So last year and I'll show you is on the analytics piece is to show the fusion of user space and things to provide a contextually aware 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.

<unk> insight based on user query and can also rapid forecasting and prediction of outcomes. This is really being implemented today with us with our existing customers. We're super excited about these opportunities.

These applications are also demonstrating how we had been a deliberate value based offerings to our customers.

Value based applications.

So, let's talk about the financials and as we move to discussing our financial results for Q3.

I would like to remind you audience. Following Q3 results should serve as an initial baseline for the business structure of the new <unk>.

I'd like to caution that while our business is showing great signs of progress and growth.

Early stage of this multibillion dollar opportunity and want to be careful not to put undue influence on any given metrics until our scale increases and the data points become more meaningful.

With that said, we're making great strides in the right direction in a number of proof points, demonstrating our customer traction, which I'd like to share.

<unk> land and expand is.

As our key strategy, which is our compass for growing subscription revenues within our existing customer base and beyond.

We are winning large multinational enterprise customers and expect this pace to increase in the coming months as you win new customers and expand within existing customers I expect to demonstrate this progress through kpis such as the remaining performance obligation growth or our appeal.

And annual recurring revenue or <unk>.

Finally, I believe we have the right cost structure in place to generate strong operating leverage as revenue builds.

To go a little deeper on the quarterly highlights and share. Some details we've demonstrated a record growth in our backlog as we grew our pure double digits sequentially by continuing to win new customers, we expanded across verticals, while also demonstrating strong expansion growth within existing customers.

Customer wins, our primary measure of success in our early ramp stage on this point a key highlight of Q3 was being selected by one of the world's largest media organizations for seven figure agreement.

After a rigorous due diligence process with the customer evaluated multiple solution providers. We were ultimately awarded a large subscription based contract for initial three year term.

There is also attractive growth potential expansion and value based application 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 <unk> technology platform and our partnerships which are increasing.

<unk> paced with the technology ecosystem.

In the meantime, this growth in customers and subscription revenue helped us generate strong growth in New York double digit growth since the beginning of the year as we continue to add customer commitments to our subscription based SaaS platform.

At the same time, we are highly focused on managing costs and we believe we got the right operating structure to execute on our plan.

Due to our continued growth in subscription and away from professional services as we transition to a standardized sky platform.

Our visibility and margin profile continued 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 solutions at the same time, we have optimized your 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 were growth led SaaS based business and these metrics are are in the right direction and as with AI that we're implementing not only for our customers or for our own operations, you're going to see higher performance gains in all of these metrics and with <unk>.

We're 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 is.

Better investor understanding.

Our focus and why we're so bullish on our on our cost structure today.

So we have provided here a non-GAAP expense reconciliation.

I recognize the difficulty of merging the company through the successor premises of statements. So I think it's important for investors to get a solid understanding of the cost structure. So one can get a feel of how or how we can begin to generate cash and progress as the topline grows.

We have reduced operating expenses by over 56% year over year now our expense base is roughly $4 million per quarter with an ample investment in R&D to generate that type of growth. We expect next year as we continue to transition away from professional services and towards the 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 and new fish to scale the business.

And as you can see on the chart from September 32022.

Around nine point.

3 million of operating expense and we've now reduced that to north a little north of $4 million and as I said earlier, we are 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 coming quarters.

So I want to sum up here.

I want to recap what we just mentioned in terms of our investment highlights.

The world unfolding in front of us.

We are shaping the future of work with leading edge technology solutions defining a new category in the enterprise software while employee experiences.

We are at the center of solving employee experience problems and cost issues for our customers.

Our solutions increased engagement and effectiveness of the workforce.

Providing the tools and insights that assistant optimizing physical office space users along with the things people rely on to perform their best This helps enterprises manage office occupancy declines, while improving remote work and the return to office.

<unk> 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 <unk>.

<unk> traded pure play solution provider in the space with a differentiated patented SaaS platform and critical integrations with key technology partners.

Our land and expand growth strategy pursues near term customer adoption with an upsell path AI features and analytics, which is poised to drive rapid usage.

Our EA focus enables rapid adoption potential users within the installed base can rise quickly and we are rapidly approaching the release of our AI ops in the coming months.

Which we expect to drive a meaningful bump in unit economics as we 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.

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 flow to future work built on AI.

You for your continued interest in <unk> and we will keep you informed as we achieved major milestones in our journey.

Thank you and back to you operator.

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

Okay.

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