Greetings. Welcome to the CXApp First Quarter 2025 Earnings Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Khurram Sheikh, Chairman and CEO. You may begin.
Thank you, operator. Good afternoon, everybody. I'm joined by our CFO, Joy Mbanugo, as well on this call, and we are both excited to share with you our earnings for the first quarter of 2025. We will also provide an overall business update on our progress in shaping the future of work and creating transformative employee experiences with our state-of-the-art CXAI platform. By now, everyone should have access to our earnings PR announcement as well as the 10-Q that we are filing with the SEC. This information will also be found on our website www.cxapp.com or www.cxai.ai. I'm going to go through the next couple of slides, which are the disclaimer slides, which you can read at your own leisure. Okay. Dear shareholders, the CXAI platform anchored on customer experience (CX) and artificial intelligence (AI) is the most advanced technology solution transforming people, places, and things in the workplace.
We are solving the biggest problems in our industry post the pandemic, to return to office (RTO) and employee engagement. As we've been saying since the start of the company post-IPO that we are shaping the future of work. The start of 2025 has been very interesting. Technology giants like Amazon, Salesforce, and Dell have called all employees or specific teams back to the office five days a week, which has reignited conversation about how and where people can best do their work. Even companies that don't have a five-day RTO plan see their leadership wanting employees to spend more time together. Sergey Brin, co-founder of Google, said the company could lead the industry in artificial general intelligence, when machines match or become smarter than humans if employees just worked harder. He said in a memo that was viewed by the New York Times, 'I recommend being in the office at least every weekday.'
He added that 60 hours a week is the sweet spot of productivity for registered employees who work on Gemini, Google's lineup of AI models and applications. As leaders, we see firsthand that the workplace is undergoing one of the most significant transformations in decades. Hybrid work is the new operating model and the stakes are really high. Yet, many organizations are still trying to manage it with legacy and disconnected systems. The reality is clear mandates alone won't bring employees back; spaces alone won't foster collaboration; amenities alone won't guarantee engagement. The organizations that will thrive are those that fundamentally and holistically rethink the workplace experience to meet new expectations and business needs. Business leaders like Amazon CEO, Andy Jassy, say that in-office work offers a level of energy, collaboration, and speed that is missing when employees work from home.
Executives at Dell echoed this in a memo calling all sales staff back to the office full-time. All data shows that sales teams are more productive on-site. Similarly, although leadership in Microsoft and Google have ruled out a five-day RTO mandate anytime soon, the productivity caveat is hard to ignore. In a hybrid world, yesterday's solutions create today's gaps. Conference rooms sit empty while desk neighborhoods overflow and no one knows why; underutilized spaces abound. Leaders lack real-time visibility into how people work, collaborate, and engage. Without intuitive, seamless experiences, employees feel friction, leading to disengagement, quiet quitting, or attrition, and employee frustration. The root of it is a lack of actionable insights. We can't measure what we can't see. Leaders need systems that don't just connect devices; they need to connect people to meaningful experiences using intelligent insights to optimize space based on real user patterns, personalize the employee journey in real time, and anticipate needs instead of reacting to frustrations.
That's what CXAI does, and we do it with Agentic AI. So we are CXAI; we're shaping the future of work, and we're excited to share with you the progress we made in our journey. So I'll go to the next slide to talk about the company. I do this every quarter because I want to make sure we give updates that allow you to see the progress we're making. We are still 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 70-plus team members of CXAI, more than 70% are engineers, and we have doubled the staff in Silicon Valley focused on building Agentic AI solutions and maintaining our technology and product leadership. We believe employees are at the center of this multibillion-dollar growing workplace experiences market, and we are creating a new category in software for employee experiences.
The CXAI platform is based on 39 filed patents, with 17 of them already granted. This substantial intellectual property not only establishes our company as a technological frontrunner but also secures our position as a pioneer in the industry. We have two new patents published this quarter. Both are tied to spatial intelligence, which we'll talk about later as we invest in that technology. We're proud to have some of the largest logos in the world as our customers, at the leading edge of employee experience transformation. Our focus is the technology; technology is the transformational factor. One of the key differentiators of our business is that we have strong security and compliance credentials globally. We have both ISO 27001 and SOC 2 compliance certifications. That is why you see so many logos from regulated industries using CXAI; they know they can trust us with their data and their enterprise security goals.
As I mentioned earlier, we have a global team located in the Bay Area, Toronto, Canada, and Manila, with other contracted workers globally. We are deploying with the small scale we're at in 200-plus cities in 50-plus countries across five continents. That gives us the diversity of experiences and relationships as well as users, and the users are a key part of this equation as we move forward. We have also built a culture of CXAI that is innovation-focused with three core values: purpose, passion, and positivity. We are passionate about solving the big problems in the future of work using AI, and we are optimistic about creating a new paradigm of digital transformation of the enterprise focused on employee experiences. Our large enterprise customers are mainly divided into the following top five verticals: financial services, technology, media and entertainment, healthcare, and consumer. We are proud to have some of the largest logos in the world as our customers that are leading the edge of workplace transformation.
When you talk to our clients, they're all at the C level; they are CIOs, heads of workplace experiences, CROs, and some of them are actually CEOs of these companies who have taken it upon themselves to drive this transformation. We're excited to work with them. These customers are sophisticated buyers of technology solutions and do not compromise on quality, performance, security, reliability, scalability, and actually the technology roadmap. As I think about 2025 and as management and the Board built our 2025 plan, we said what are the top three priorities for 2025? We've got a lot on our plate, but the one most important thing is customer success. Customer success is not just about getting customer contracts, but really about user engagement and adoption. We are focused on improving the user experience with these large clients and how those user experiences will make them more productive and save time while connecting with their fellow employees.
For us, we're working on great features that are must-haves. We already have a lot of them in place, but we're constantly evolving that technology roadmap. More importantly, we're seeking immersive engagement with these employees who want to use CXAI every day on all the things that matter for their work. How do we make that happen? There are a lot of solutions in the marketplace that have not been successful. We've mentioned the disconnected systems; but we're building an Agentic AI solution. The Agentic AI will revolutionize how humans interact and collaborate with AI, leveraging technology for seamless user experiences. The Agentic AI system understands the goal or vision of the user and the context of the problem they're trying to solve, then provides actionable insights to solve the problem. We're building automated workflows, and you'll see some examples throughout today of the progress we made, including the Agentic booking example from last quarter.
More importantly, we're creating a platform that becomes a trusted adviser for our customers, focusing not just on large enterprises but also on the end users, the employees of these large companies. Lastly, we provide spatial intelligence, offering contextual insights through our 2D and 3D technologies, alongside our AI-based application platform to promote AI-powered action and predictable outcomes. It focuses on analytics that will provide more value to the end user. In summary, when we think about 2025, we are focusing the engineering team on driving key initiatives and technology improvements. Ultimately, our sales and customer success teams are driving user adoption and engagement that will make this product so integral to employees' daily lives that it becomes indispensable. Let me talk about what employee experiences are and what makes them truly distinguished. When we consider employee experiences, the first thing that comes to mind is the platform we have built and how we approach it.
The CXAI platform, as we've noted, is AI-native and is the first mobile and cloud-based technology platform in this space. We've designed it from the end user's perspective, not just as an application but as a platform. The CXAI platform is built upon three key pillars. The first pillar comprises the CXAI applications, which are based on Android, iOS, and web applications. We are ensuring they are not only multi-OS but also multi-device, ranging from watches to smartphones, laptops, desktops, and kiosks. We have successfully installed our applications with many of our clients. To make these applications intelligent, we have developed a rule engine that establishes content, access, and decision-making—this is the brains of our system, known as the CXAI BTS. The analytics platform, CXAI VU, extracts valuable insights and analytics for user experience. This trifecta creates an end-to-end platform that delivers best-in-class employee experiences.
Furthermore, through our partnerships with cloud providers, including Google, Microsoft Azure, and AWS, we have forged strong relationships that enhance our potential and offerings. We serve as a key component in our clients' applications, providing comprehensive solutions while allowing them to utilize their own branding. With regard to the CXAI platform, I want to share insights gathered from our partners at Gartner concerning the motivation to return to office. The return to office is among the most significant challenges of our times, as every single enterprise globally seeks solutions for the digital workplace and workforce. Both leaders of enterprises and employees are navigating uncharted waters related to hybrid work in the post-pandemic world, encountering considerable challenges. On one hand, company C-suites want employees back in the office for greater productivity, engagement, and effective utilization of workspace.
On the other hand, employees desire flexibility— preferring to work either from home or the office and demanding easy access to workplace tools, information sharing, and collaboration with peers from anywhere. The data indicates that employees are motivated to return not solely due to mandates but also to reconnect with colleagues and have meaningful interactions with senior leaders and their environment. This understanding necessitates a powerful solution, which is precisely what we have built within our comprehensive platform. Our immersive user interface embodies a one-click action capability, integrated seamlessly with mapping technology that enhances connectivity within buildings, enabling bookings, and driving engagement. Through the CXAI platform, we deliver a complete solution that integrates multiple enterprise tools into one application, offering employees a unified experience.
This also involves advanced 2D and 3D mapping technologies enhanced by AI, allowing for intelligent interactions with space and surroundings. The importance of automated workflows is paramount. We've developed a natural language command interface that allows users to ask questions, receive answers, and initiate actions with ease, thereby enhancing productivity and engagement. Our initial deployments of the first three pillars are with global customers today. I'm proud to say we are recognized as best-in-class. However, what excites me the most is our focus on Agentic AI — an innovative solution that will be groundbreaking and transformational to the entire workplace. Focusing on what people do when they return to the office is crucial. Findings from Gartner indicate that the primary challenge when coming back to the office is finding available workspaces for collaboration, meetings, and coordination.
Indeed, the desire for virtual assistants that aid in everyday tasks is growing. With a strong trend toward hybrid work at the start of 2025, people are looking for meaningful and productive social interactions with their coworkers. CXAI has been collaborating with our clients and now boasts over 1 million users globally. We can provide valuable metrics around desk bookings, usage patterns, and insights, which are essential for enhancing AI functionality within the platform. We can identify peak usage days, as well as average utilization rates, while offering users easy and efficient access to necessary resources and spaces. Advanced space utilization analytics are critical. For example, we have the capabilities to present booking trends, utilization rates, booking ratios, and cancellation patterns to provide greater insights. This data indicates that our users increasingly prefer on-site work during midweek, especially on Tuesdays and Wednesdays.
Additionally, there's a substantial volume of last-minute bookings as employees seek to secure workspaces. Our CXAI kiosks streamline this process by offering intuitive, mobile-connected solutions for desk reservations, enhancing the effectiveness of return-to-office initiatives. Through our CXAI technology, we not only enable better management of office space but also drive employee productivity by ensuring they can work effectively in their environments. We’re proud to showcase user interaction trends across varying contexts, recording quarterly and hourly data to inform our product development and client engagements based on emerging insights. Our AI-powered insights offer a new lens through which we can assess performance and outcomes. For example, with our CXAI VU Smart Expert, we provide users the capability to query and receive tailored insights from the data sets without the need for extensive analytics tools, allowing decision-makers to address their specific needs with ease.
This ensures we can identify booking patterns, spatial utilization trends, and can even visualize regional preferences through heat mapping. We aim to enable forecasting to provide ongoing analyses that keep pace with evolving user needs. Our emphasis on Agentic AI reflects our commitment to build collaborative AI agents capable of integrating multiple workflows into actionable solutions. This initiative has shifted our focus from simple assistance to providing intuitive, proactive insights through complex ensemble technologies including machine learning, natural language processing, and automation. Last quarter, I provided an example of how we are applying Agentic technology in our booking tools. We are continuously enhancing user experiences. Clients must streamline coordination for events within their workspaces, as these functions require a multitude of logistical arrangements. Our tools now enable users to set collaborative meetings seamlessly by helping them book venues, coordinate participant invitations, order refreshments, and manage all relevant details in a quick and efficient manner.
By integrating various workflows, we simplify the complex tasks involved in organizing events for teams. We introduce structure and efficiency into processes that have previously been cumbersome and frustrating for our clients. I will now share the notable highlights from our Q1 product and customer achievements before handing over to Joy to delve into the financial metrics from this quarter.
Thank you, Khurram. If we could go to the next slide, I'll walk us through our Q1 results, starting with headline metrics, then dive into operational details, our income statement, and conclude with our overall liquidity position, which is pretty strong, as we are happy to report. While we have seen some expected pressures, the underlying improvement in our margins and continued cost discipline are driving meaningful progress. As Khurram mentioned, we did have three large logos that increased their expansion and pushed annual recurring revenue (ARR) up to 130% of the original contract value—clear validation of our platform’s stickiness and our team's focus on customer success. These include Fortune 500 customers in the financial services and tech verticals who have expanded their footprint with us and continue to do so. Our subscription revenue has seen a significant increase from Q1 2024, rising from 87% to 99%.
While we are certain that it will not be this high every quarter, we do expect to continue the trend, similar to previous quarters, with an increase in subscription revenue compared to one-time revenue. Regarding gross margin, we have seen an increase, moving up to 88% from 82% in Q1 2024. Cash operating expenses were reduced by $300,000 year-over-year despite absorbing one-time costs, which I will delve into in the next slide. I’m happy to report that our earnings per share has improved, moving from negative $0.34 to negative $0.08 from Q1 2024. Overall, these are the remarkable highlights for Q1 2025. Moving on to the next slide, let’s explore our income statement results in more detail. We did experience a decline in revenue, which will likely come up in questions, so let's address it. The decline primarily stemmed from two of our large customers who typically would have renewed in Q1; however, we deferred their renewals to Q4.
This timing explanation accounts for the perceived revenue drop. We’ve witnessed resilience in gross profit, maintaining strong gross margins despite lower overall revenue, continuing at an impressive 80% margin. Our partnership with Google Cloud has continually helped us reduce our cloud costs, saving us $177,000 year-over-year. Operating expenses have experienced a slight increase, but our focus remains on R&D investment and product development. While we have seen an increase in investment in G&A, it is linked to one-time costs for professional services and new hires. Though our operating loss has widened a bit, it's important to remember that we were also absent $600,000 in revenue that would have substantiated this loss further—and so we are maintaining a cost structure that holds firm during this transition. We can now move to discuss our liquidity situation and overall cash position, as there were some inquiries during our last earnings call about it.
Overall, our net cash used in operating expenses decreased from $979,000 to $2.7 million in Q4 2024, reflecting tighter control over working capital and disciplined practices in minimizing cash burn. To address liquidity concerns, our cash balance at the end of the quarter stood at $3.98 million. I should also note that we entered into a new convertible note agreement that grants us access to $20 million—of which we drew down $4 million on April 8. With this in place, along with our previously established convertible note, we have access to $20 million in total. This ensures we have more than 18 months of liquidity at our current operating level. Additionally, with today's filing, we've become S-3 eligible. In summary, these results reflect our focus on three strategic priorities that Khurram outlined previously: customer success, deeper AI adoption, increased analytics usage, and ensuring product stickiness.
Every renewal, cost decision, and platform investment is aligned with these goals. To summarize, while the decline in revenue was timing-related and not structural, our margins reach high records through operational rigor, we maintain management of costs amid one-time expenses, and we have a solid cash position with multiple levers to pull to sustain growth.
Thank you, Joy. To summarize why CXAI? It is crucial to highlight our financial performance, as we’re now transitioning from the traditional old model to a new, more innovative approach. CXAI transcends being just an app; it is a platform intended to create workplaces that are dynamic, versatile, and remarkable—just like the people within them. We aren't merely enhancing productivity but reimagining the complete work experience, focused on the connectivity between employees. With CXAI, we aim to cultivate a work culture that shifts to a community-centric dynamic where the employee is prioritized, enabling everything else to fall into place. That’s been our focus, and now with our CXAI platform solution grounded in AI, we are equipped to furnish that capability to all our clients. We've seen fantastic growth in recurring revenue, which has gone from less than 70% when we first acquired the business to an astonishing 99% this quarter.
That is simply remarkable. While we didn't initially target for such a significant figure, it speaks volumes about how our customer success teams and our engineers are creating products that stimulate recurring revenue. Instead of one-time fees, clients are opting for recurring features because they see the value in our offerings. That's a clear positive trend, along with our improved cost structure allied with our partnership with Google Cloud. We can scale our operations and achieve strong performance as we increasingly leverage AI with more data sets, hence the gross margin has risen from approximately 78% a year and a half ago to 88% today. Our clients genuinely enjoy working with us, and we continue to engage closely with CIOs and heads of workplace experiences who are eager to explore opportunities where AI becomes the driving force behind their strategic initiatives. Today, we held our Annual Shareholder Meeting, and I'm thrilled to announce that two of our directors, Camillo Martino and Shanti Priya, received re-election.
We are incredibly fortunate to have a strong Board that has supported our initiative over the past two years, providing both innovative guidance and mentorship as we scale the company. We are not only addressing our shareholders' concerns but also ensuring we remain attuned to the changing landscape. As a result, we are moving forward with unwavering commitment to innovation. Working in Silicon Valley, we engage with the leading disruptors in the market. The Google partnership not only aids our cloud management cost efficiency but also enhances the innovation aspect, granting us access to the latest tools and technologies that coalesce into our offerings. We're in a position to leverage the developments from Google, especially with the new AI tools announced recently. Therefore, while we are committed to creating unique value propositions centered around employee experiences, we are confident in our trajectory toward creating a new software category within the industry.
Finally, I’m open to addressing any questions you may have, and I want to assert that we genuinely foresee a bright future ahead. The potential is extensive, as there are many fragmented competitors in our space. Our singular vision remains centered on creating optimal employee experiences for every user.
We do have some questions. One question pertains to the current shares outstanding; this can be found on our balance sheet, and it's about $19.8 million. Another question concerns how much total debt is currently outstanding, summarizing all aspects, including the recent $4 million draw from Avondale on April 8. When I compile figures from our outstanding notes and warrants, we're at approximately $10 million—though this number is approximated from memory. Others have inquired whether we plan to disclose our clients’ identities. While we have shared case studies in the past, under the existing circumstances—including return-to-office dynamics—some of our clients value confidentiality. We will aim to share this information when possible.
Joy, I'd like to add that you can find information about our clients on cxapp.com. We are proud of all our partnerships, and while some might be cautious about publicity for various reasons, we collaborate with many esteemed companies across sectors including technology, entertainment, financial services, healthcare, and consumer goods.
We've received another question about expectations for total revenue growth or subscription revenue growth year-over-year in 2025 versus 2024. As I mentioned, we're not providing any official projections at this moment. However, that's certainly our aim. I will pass the next question to you, Khurram.
In response to that, I want to emphasize that our primary objective revolves around ARR growth. This is our main initiative. Our strategy encourages building recurring, repeatable, multi-year contracts. Although there might be short-term revenue disruptions, we believe this approach is right for SaaS AI-based companies, as it fosters the stickiness of our product. I take pride in retaining large clients who recognize the true value and vision of employee experiences globally.
We also have a follow-up question regarding the three large customer renewals. Are these renewals part of the six that were mentioned in Q4 of 2024? The answer is no; these three are in addition to the six renewals previously discussed.
To clarify, some clients that renewed in Q4 had delays, which is why they fell into that quarter. This quarter, however, we are glad to see three renewals properly executed on schedule along with successful expansions.
That covers all the questions we received.
Thank you all for your time and engagement during the annual shareholder meeting. We're grateful for your continued support, and we remain committed to transforming this industry as we navigate today’s disruptive environment. We're poised for significant success ahead, thanks to our capable and dedicated employees and trusting customers. We look forward to sharing more in our upcoming quarterly results and product advancements. Have a great evening.
Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.