CXApp Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 3, 2025

There are 3 speakers on the call.

Operator

Greetings. Welcome to the CXAI fourth quarter and annual twenty twenty four earnings call. At this time, all participants are in a listen only mode. Please note this conference is being recorded. I will now turn the conference over to your host, Kuram Sheikh, Chairman and CEO.

Operator

You may begin.

Speaker 1

Thank you, operator. I am joined by our CFO, Joy Benugou on this call as well. And we are both excited to share with you our earnings for the full year 2024. We will also be providing you an overall business update on our progress in shaping the future of 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 press release announcement that just went out.

Speaker 1

And as you are all aware, we have filed an extension for our 10 k, and we plan to file before the extension deadline. This information will also be found on our website, www.cxapp.com or www.cxai.ai. I'm gonna go through the disclaimer slides next. Please read them at your leisure. To shareholders, AgenTek AI is transformational to employee experiences, and 2024 has been a transformational year for the company on both the business and product side.

Speaker 1

The Sky platform anchored on customer experience, CX, and artificial intelligence AI is the most advanced technology solution solving the biggest problems in our industry post the pandemic, the return to office, RTO, and employee engagement. Our team has completed the product transformation to a single code base and streamlined our cost structure, resulting in a profitable CXAI Sky one point o application business, and now we're investing in AgenTeq AI for the massive opportunity to reshape the whole market for employee experiences. I'd like to kinda give you a snapshot of where we are now today versus a year ago. We're still headquartered in the San Francisco Bay Area. We're regional tech hubs globally.

Speaker 1

The global presence and diversity of experiences gives us a leading edge as we shape the future of work everywhere. Of the 75 plus team members at Sky, more than two third 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 also just announced the hiring of Terry Blanket as our new SVP of engineering. Terry's extensive experience at Apple, WhatsApp, and NVIDIA in developing and deploying state of the art application technologies and his natural passion for scaling amazing experiences at at some of the most iconic brands in the technology industry make him a natural fit for Sky. I look forward to working with Terry in building the best in class AgenTek AI solutions for transformational employee experiences.

Speaker 1

And, you know, we we at the start, we've been the believer that the employee is at center of this multibillion dollar growing workplace experiences market, and we are creating a new category in software called employee experiences. The Sky 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 front runner, but also secures our position as a pioneer in the industry. We are proud to have some of the largest logos of the world as our customers that are at the leading edge of employee experience transformation. A key differentiator for our business is that we have strong security and compliance credentials globally, and that is the reason why you see so many logos from regulated industries.

Speaker 1

They use Sky because they know they can trust us with their data and their enterprise security goals. And, you know, look at our deployments. We're in 200 plus cities. We're in 50 plus countries across five continents. We have really great customer experiences all over.

Speaker 1

And the culture of Sky in the last year has really dramatically changed from being a services business to a SaaS, going to an AI application business, focused on innovation. And three core values of the company, 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. So you asked the question, why Sky? Why do Fortune 1,000 leaders choose Sky?

Speaker 1

You know, we are in around five different verticals from financial services to technology, media entertainment, health care and consumer. And the reason why they choose us is, number one, we have the best in class engaging user experience in UI. It's very intuitive, has all the seamless integration, and it provides immersive content to provide that really amazing experience for employees as they connect with their employer and their workplace. Secondly, we solve some of the hard problems in the market in terms of challenging workflows, complexity with the security, as well as integrations within the enterprise. We provide that automated workflow and that enterprise level security as a trusted advisor.

Speaker 1

And most importantly, we're delivering amazing insights. Because of our technology and capability, we're providing spatial intelligence to our our customers, We're providing predictive outcomes and AI powered actions now with SkyView and our new applications. All in all, when you look at us, we are the best in class solution in the market. There are large competitors that we've been competing against. We're winning against them because we provide these three main things that are a key differentiator.

Speaker 1

So I'm going to talk a little bit about the market now. What is the market? What has changed in the last year? Why are we so bullish about Sky and employee experiences? You know, one of the key things over the last year has been a lot of press about return to office.

Speaker 1

And the future 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 unchartered borders relative to a hybrid work in the post pandemic world and encountering significant challenges. Company CEOs and the c suite want employees back in the office to be more productive, engage in the corporate environment, and better utilize the workplace. Employees, on the other hand, want flexibility to work from their home or the office and have high expectations when it comes to having easy access to their workplace tools, finding information, and the ability to collaborate with peers from anywhere. This is the study that McKinsey completed recently that shows the latest talent trends, and it's based on surveys of thousands of employees and employees across industries in The United States.

Speaker 1

And as you can see, there was a huge surge in RTO across industries from 2023 to 2024, around 34 basis points of increase in return to the office, and this is the proportion of mostly in person workers that are now been asked to come to the office. There are still a lot of workers working hybrid and remote, but this has been a year of change. And when you look at the industries, and we're we're working in all these industries, and we see that growth in terms of in in office usage, whether it's in entertainment or financial services or technology or medical, we're seeing that in our industry as well. So this is an interesting trend that is growing. We support not only return to office, but also remote.

Speaker 1

But we do see that given the fact that our business is focused on providing those amazing experiences at locations, this is a very positive trend. Now, besides that, the next big issue that people are facing are employee experiences. And McKinsey's research again shows that employee satisfaction across working models, whether it's remote or it's hybrid or it's in the office, that employee experience and productivity rates are relatively lower. And McKinsey has kind of gone further into it, they've seen that there are five core areas that spur organization health and are the most frequently stated reasons leaders give for transitioning to RTO. Their collaboration, connectivity, innovation, mentorship, and skill development.

Speaker 1

Companies that hope to reach their stated organizational effectiveness goals should look beyond RTO policies themselves to address the chronic problems that continue to take a toll on employee experience and productivity. And when you look at these these stats, it's pretty amazing that, you know, employee engagement is low, and more importantly, the the view of employers or leaders in the organizations versus the employees is very different on all these five metrics. So we believe this is the next frontier of solving the real problem in for workplace, which is the employee experience. And that's why our company has been focused on that. We really believe that we have solutions to solve this problem.

Speaker 1

This problem is is really tough one, and there's not nobody has solved it, and we look forward to making making our solutions solve these problems. You know, when you think about companies who ask employers employees to come back to the office, They must also provide a bridge between employees to facilitate collaboration, innovation, conversation, and connection. 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. Great work has always been about the ability to feel connected to your employee's mission and be able to feel fully productive in your office environment. Employee engagement can be as simple as being able to easily navigate your campus using step by step navigation from your employer's workplace experience app to something as complex as building a long term friendship with a coworker who discovered who you discovered loves CrossFit as much as you do through the app's internal social feed.

Speaker 1

That connectedness, inherent in successful workplace cultures, now extends beyond the four walls of the office and the physical devices the company provides them. It now includes transformative workplace solutions that allow employees to experience their full work life cycle from anywhere. And that's what we do at Sky. So as we as we think about, you know, Sky and how we've designed it, I just wanna be very clear about how Adjunctive AI is transformational to this whole space. This is, you know, we've been working with Gartner for the last year and a half as we collaborate with industry leaders on thought leadership and how the market is is evolving.

Speaker 1

The way humans interact and collaborate with AI is taking a dramatic leap forward with AgenTeq AI. The AgenTeq AI system understands what the goal or vision of the user is and the context of to the to the problem they're trying to solve. To achieve this level of autonomous decision making and action, AgenTic AI relies on a complex assemble of different machine learning, natural language processing, and automation technology. So simply, AgenTic AI focuses on completing actions and outcomes versus just assistance. Like a trusted advisor that is proactive, insightful, and asked to solve problems.

Speaker 1

So, you know, we're gonna show you a quick demo of one of our first AgenTek AI capability. I wanna show you the future first, or what is coming, and then we'll talk about what we achieved in 2024. So operator, if you can please play the video. Can you operate me email or reload the video? K.

Speaker 1

And you see this video, you're seeing what we call just in time booking. It is contextually aware. It is multiple workflows being implemented simultaneously. You get a meeting set up within a New York minute with all the multiple functions, and you get it on your calendar. You get to navigate where it is, and you simply say a command, and it gets done.

Speaker 1

That's Agendaq AI. We're ahead of the market in getting this solution. Operator, you can move to the next slide. All right. So that was just a glimpse of the future.

Speaker 1

Now I'm gonna tell you about today. What is happening today? What have we accomplished in 2024? So I think in one of our previous meetings, we had talked about our Skype platform. The Skype platform was, you know, visually in terms of being AI native, although we had some of the key pieces of mobile and cloud in our architecture.

Speaker 1

But I'm happy to say, so today, all the things on this page are now fully built and started being deployed with our clients. So the Sky apps, we have multiple OSs from Android, iOS, and web, now we're gonna be on multiple devices, not only just mobile devices and web devices, but the kiosk. And the kiosk is foundationally a really amazing product for all office buildings where you enter the building and you can now connect with your workplace as your employees with a single touch or a single command. So that is that is in production. Sky BTS is our rule engine that we're integrating with our platform that allows content management, but also allows you employers and and and work people to connect with the with the infrastructure as well as all the things that make the work happen.

Speaker 1

And last but not least, our analytics, SkyView, which is our analytics engine that give insights about what is happening in the space and what is happening with the application and what is what are the predictable outcomes that they need for their workplace. So all the products are now available. We're on multi cloud. We we have GCP as our main partner, but we are now deployed with Amazon, I'm sorry, with Azure, and we are also working with AWS. So we're gonna be truly multi cloud, we're multi OS, and we're designing this for end to end infrastructure applications.

Speaker 1

If you think about our experiences, as we talked before, we've had this great amazing unified employee experience, which integrates hundred plus enterprise tools, provides this one single pane of glass where you can connect with your employees, your friends and colleagues, as well as your workplace. And with spatial intelligence, we provide that contextual awareness and ability to to interact as well as ability to get insights. And the insights is what we're getting with our experiential analytics. It is now deployed in 2024 with major clients, and it's gonna be scaled to all our employees. And what I showed you a glimpse of AgenTeq AI, we're building multiple AgenTeq AI solutions that will be transformational to all our existing customers as well as new customers.

Speaker 1

And the idea is very simple. Any work interaction, will be implemented using natural language commands powered by trustful domain specific AI. We're using our users' data, and we're using inside their enterprise to provide really amazing outcomes. So I'm gonna talk next about what actually was done in 2024 from a customer adoption and from getting growth with existing clients as well as new clients. Number one, single code Disk Sky one point zero.

Speaker 1

This is available to all our existing customers. What this has enabled is the ability to have one common code across all our applications, allows us to provide an acceleration of future upgrades, makes bug fixes much easy, and provides stability to our code base and to implementation. And this is accelerated across all our customers today, so every single one of our existing customers has access to it. Secondly, we had a really great year with one of our clients who has done more than 100% increase in their ARR. It's our largest expansion customer, doubled our ARR, is growing dramatically, and this is just a starting point.

Speaker 1

So we're excited about that expansion customer. As we told you last quarter, we were in the final stage of deploying our Sky 1.5 platform, which is based on a more advanced coding technology, but also implements SkyView and SkyBTS together. I'm happy to say that we have completed that pilot and now we're in production with that client in a full fledged campus, and they have a big rollout plan for 2025 as they grow the business. We talked about SkyKiosk as being fundamentally transformational in the office space, in lobbies and on the floors, and we have now got our first paid deployment with a large technology company in Silicon Valley. They're implementing it for their RTO.

Speaker 1

It's very intuitive. It's very interactive. And more importantly, it solves a real problem when you walk into the office. So Sky Kiosk is now going to be GA and available to all our clients as well as our new clients. And one of the last final highlights I'll share about is on Sky localization.

Speaker 1

You know, we've been asked by a lot of our clients since we're in so many countries and locations. There's different attributes in terms of language, in terms of local preferences. So we've been working with Google on this, and now we're deploying our first implementation of the localization solution that has eight languages and different localization features for large entertainment clients. We feel this is also destined for scale with all our clients across the world, and we find this is going to be a key differentiator in employing those differentiated experiences. So those are our updates as regards to the product and customers.

Speaker 1

I also would say that we've had really good renewals, especially in q four, where we've been able to take some of our major clients to the next level, and they've renewed with us, but also have really bought into the roadmap that I shared with you. They all believe that these are the right things for them at this scale up. So I'm now going to turn the discussion to our CFO, Joy, to go over the 2024 results. Joy, over to you.

Speaker 2

Thank you, Kram. So, today I'll walk through our financial highlights for the year and quarter, share progress on key metrics, and provide insight into how we're positioning CXAI for sustainable growth in 2025 and beyond. So, 2024 highlights. We achieved a double digit ARR growth. Kerm alluded to that, supported by six major logo renewals in Q4, which is a very strong indicator of customer satisfaction and product value.

Speaker 2

Hoping to see more of that with the kiosk that Kerm talked about. We continue strengthen our business model with subscription revenue accounting for 87% of total revenue, up from 78% in 2023. This shift helped us drive a gross margin of 82% compared to 78% last year. Our net retention rate reached 100%, up significantly from 73% in 2023, showing a reduced churn and just our expansion within our existing customer base. Next slide.

Speaker 2

Oh, sorry. We also had an improvement in OpEx, and you'll see that throughout all of the comparative slides where we go year over year and quarter over quarter, we've significantly reduced our expenses, and we'll continue throughout the year to look at cost efficiency. Next slide. So, snapshot of Q4, our revenue was 1,660,000.00, down slightly compared to Q4 of twenty twenty three. Gross profit increased to 1,430,000.00, and we held operating expenses steady at 4,600,000.0, showing continued fiscal discipline.

Speaker 2

Our loss from operations in Q4 was 3,180,000.00, essentially flat versus the same quarter last year, despite higher G and A costs. And the higher G and A costs in Q4 of twenty twenty four is related to salaries and administrative costs related to filings and other operational expenses. Next slide. So, this slide is exciting because it talks about full year revenue. And although revenue slightly declined year over year, we're very committed and very excited about just the growth of the company and our pivot away from professional services and nonlicensing services.

Speaker 2

So, subscription revenue grew 10% year over year, now totaling over $6,200,000 We improved gross profit by 4% while reducing cost of revenues by 27%, reflecting strong margin discipline. We significantly reduced total operating expenses from $58,000,000 in fiscal year twenty twenty three to $19,600,000 in fiscal year twenty twenty four, a 66% improvement mainly driven by, you'll see this impairment of goodwill. So, for those of you who've been following along with the CxAP story for the last two years, you'll remember last year we had a write down of goodwill, and so that one time charge will show up in 2023, and we won't have that charge, we don't have that in 2024. So we have a significant improvement in losses. We talked about this on the last slide, but a little bit more.

Speaker 2

We delivered a 30% improvement in EBITDA year over year, supported by a 20% reduction in operating expenses. These reflect our focus on profitable growth and set the stage for our long term goal of just achieving positive net income, a goal, not sure when, but a goal, and maintaining consistent gross margins above 80%. If you also have been following along in the news in our filings, in addition to our extension, you will have seen that we also filed a notice related to additional funding. So I know that's been a question in previous calls about our financial runway. We have a strong balance sheet.

Speaker 2

We entered into another note. We entered into one last year. And we are very confident that with these two notes and our sustained revenue from our existing customers and new customers that we have runway for at least, if not beyond, a year. So, what's to come? I think there are some questions about what are we focusing on.

Speaker 2

We'll continue to focus on NRR and ARR. We'll continue to focus on our investments and use some of our existing resources to invest in AI. So we want to enhance our AI capabilities for deeper product stickiness. And we'll continue to maintain tight cost discipline while investing in long term growth. So in closing, I just want to say we're very proud of the progress we made in 2024, all of the transformation we've gone through in 2024, and the strong foundation we've built for 2025.

Speaker 2

We want to thank all of our customers, employees, and shareholders for all of your continued support and belief in this mission to reimagine the workplace for employees. Back over to you, Carl.

Speaker 1

Thank you, Joy. That was great. So I just wanna, you know, reiterate one aspect. I think we started the call by talking about that we've completed the transformation of the company in terms of the existing app business. So now when you think about the Sky1.o, which is the old CS app business, it is profitable.

Speaker 1

It is all restructured, cleaned up, expanded with with new clients and existing clients, but it is profitable. And now we're investing the r and d dollars with Terry's leadership and the new team we've hired here in Silicon Valley to really focus on Agenetic AI. So when you think about our business, think about a very solid, profitable anchor business on the existing app business. And now we build we're building this AgenTeq AI platform that will be many fold more stronger, better, as well as scalable, and that's our growth function. Right?

Speaker 1

So I'm very proud of the team. As Joyce said, both the finance team, the engineering teams, and the global success teams have been super in getting all of this done. It's been a very challenging project for us for the last year, but we've got it done, and now we're ready for the future. And, as Joy mentioned, with the very healthy balance sheet that we have now, the fact that our cost structure is much, much better, we are now, you know, really focused on delivering those great experiences for our employees or for our customers. Our customers are demanding all of these advanced solutions, so this is why we're adding the additional financing to help support that, and we're really being focused on sustainable growth.

Speaker 1

And, and so, you know, it's been it's been a very, positive year for us. So now let me just close with, you know, kind of summarizing what we talked about. We're super excited that we've achieved these significant milestones in product delivery to meet our customers' expectations that has resulted in continued growth over the past year leading to our best financials to date. The amazing innovations from our team with our analytics platform SkyView and the unique SkyKiosk position us well for 2025 to exceed our customers' expectations to provide the best employee experience solution in the market. You know, as I started the call, RTU is a multibillion dollar problem.

Speaker 1

With our Sky platform, we are leading the industry with a disruptive offering. We're leveraging cutting edge AI technology to enhance productivity, engagement, and efficiency in the enterprise. Our new generative AI capabilities allow us to automate complex workflows and offer our customers intelligent solutions that drive measurable outcomes solving real world problems. Some of the largest brands in the world, the Fortune five hundred and one thousand are our clients, and we are working with partners like Google and others to solve their problems, and their commitment to renew and expand with us establishes as the leader in this emerging market. Finally, I'd like to say we believe 2025 will be a banner year for the company as we see significant expansion demand from existing customers, who are scaling our products in their footprint as well as new enterprise clients in our target markets.

Speaker 1

With our Silicon Valley based technology team and global customer success teams delivering amazing products and experiences today, we are well prepared to deliver on our commitments to shareholders, clients, and the broader market as the era of AgenTiG AI for employee experiences is realized. We invite stakeholders, potential clients, and the media to join us in this exciting journey into the future work. We are planning our annual investor day in May 2025, nearly a month and a half away, where we will be providing further details on our new product offering as well as customer case studies on how Sky is shaping our clients' employee experiences, and we keep investors updated on the final days and location. I just wanna say I wanna thank the investors for supporting us. I wanna thank our our partners and our board members who have really been helping us get to this level and we're really excited about the future.

Speaker 1

With that, I think Joy and I will take a couple of questions that were submitted online. And so Joy, you wanna take one of the questions the audience?

Speaker 2

Yeah. So I think somebody asked a question about strategic initiatives, insights to partnerships, revenue diversification efforts is a really good question, technological advancement. So I'll speak to some of it and maybe answer a couple of the questions here. But like we mentioned, we're gonna continue to build out the AI capabilities and really focus on investing in the tools, so that'll probably be investing in people. So you'll see costs go up there, and that's probably the when you talk about strategic initiatives, that's what we'll be doing there.

Speaker 2

We've talked in the past about our partnerships with cloud partners, and we'll be spending more time or doubling down on that. And we, you know, have a positive outlook for the company. We are not giving guidance at this moment, but we're very excited about just this opportunity and, you know, just the the market of employee experiences. I think there was one more. Why wait until earnings to post updates?

Speaker 2

I think you could improve awareness as well as advertising brand on social platforms. We completely agree, and you'll hear more from us. I think Kerm and I were talking about it. When you're in the sick of it, you don't think about it. We had our last earnings call in November, so you're absolutely right that November to April timeframe is a long time to hear from us.

Speaker 2

So you'll be hearing a lot more from us. We'll be doing a lot leading up to our investor shareholder meeting in May, and we're really excited about that. So you you won't have to wait. You won't have to wait that long. Kerm, is there any other questions, or were there any questions you wanted to answer?

Speaker 1

Yeah. I see a question. One question is Sky's future challenges. What are the biggest opportunities and risks that you see in terms of in the next six to twelve months? And how are you how are you preparing for them?

Speaker 1

Plus, what do you see as the competition and where you stand out in terms of technology and financial growth? It's a great question. And, you know, one of the things, I want everybody to know is that we do compete with the largest, companies in the space in the sense of, you know, when we are working with our clients, these are large enterprise clients, and we work with the CIOs and the c levels in these companies. So when they have options to choose really large companies, they look at us because we have a differentiation. Our biggest differentiation is, like I mentioned, the engaging UI, the complexity turned to simplicity, the insight, and the ability to provide a full stack solution for the enterprise.

Speaker 1

I think it's very hard to find that solution in the market. You know, you hear about all the large companies coming into the space, but, you know, our clients are staying with us because we provide that localization. We provide those experiences that are really amazing for them, and that's why they're staying with us. In terms of risk, absolutely, there are risks in the market given but our focus is really that employee experience. And the interesting part of our business is that our clients are actually our partners.

Speaker 1

And when I say that is, I had a CIO of one of our clients into my office, and he said, you know, you're not a vendor, You're a partner. And the reason is because when we deploy the application to our clients, it is like coming from the CIO. It is their application. We are the partner that he or she needs for us to be successful. So it's really not one of those sales with a vendor sale.

Speaker 1

It's actually a partnership sale because they ultimately deploy the Sky platform as their own application. It has their logo. It has their unique, you know, insights as well as their unique branding. So we are really partners with these clients. It's super important for us to be that be in that partnership more, provide those amazing experiences, and the joint customer is the employee, the end user.

Speaker 1

Right? So this is where it's a very interesting collaboration. And once we're in with these large clients, they wanna scale up. They wanna go from one and two campuses to a hundred campuses to everywhere they want. And the good news I can tell you is in all of the customers that have renewed with us and are growing, we have visibility and adoption at the c level.

Speaker 1

So the CEO and the CIO are using the app. They find this to be critical to their business, to their future, and to their employees. So I'm super excited about that. There's always gonna be competition. Competition is always great.

Speaker 1

I think we just have a unique opportunity to be transformational because of the trends I mentioned at the start of the meeting. There was another question, Joy, about, can you give us some color on pipeline building Yes. Year over year or sequential booking growth? Look, we're not gonna give guidance, but as I as I mentioned earlier, we have we have these anchor customers who have large budgets and great campuses globally. Right?

Speaker 1

So there's a big scale opportunity. We have to demonstrate their capability. We have to demonstrate the adoption, the usage. We're making a lot of progress. We're pretty excited about it.

Speaker 1

But once we have the higher adoption, we'll definitely share those. But right now, we are we are getting really good, good feedback from them. So but, Joy, you wanna add anything else to that?

Speaker 2

Yeah. I would just say we're that's one of our areas of investments. Investing I I know I mentioned investment in projects, but we're also investing in, you know, sales and marketing. And so you'll see more, you know, you'll see more spin there, but we're expecting corresponding revenue. But not guidance, but that's another area of investment for us.

Speaker 2

And great question. Okay.

Speaker 1

Great. Well, I really thank everybody for joining the call and listening to us. I think we're gonna be much more active in the market now. We've been spending time, you know, getting the business to the right footprint, to the right structure, building the great advanced products. And I think you will see me enjoy very vocal in the market now.

Speaker 1

As I said earlier, we will be at we will have an Investor Day in May. We will will also be out there a couple of investor conferences. We've been asked to come, but you will see regular updates from us as we start launching these new products and providing these great experiences. And we look forward to our next earnings call, which will be up for the Q1 in May timeframe. So thank you everybody and look forward to the follow-up here.

Speaker 1

Thank you.

Speaker 2

Thank you.

Operator

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

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