CXApp reports strategic growth and innovation, highlights key partnerships and market validation for AI workplace solutions in Q3 2023 earnings call.

Khoram Sheikh - Chairman and CEO - (00:00:00)

And thank you for joining us. I'm Khoram Sheikh, Chairman and CEO of CXAP Inc. Trading on NASDAQ under the symbol CXApp, pronounced Sky. Also joining me on this call is our CFO Joy Benugo. And before we begin, please note our forward looking statements as outlined in our Safe harbor statements as outlined in our disclosures. We're Also submitting our 10Q which will be filed with the SEC and you'll also see a press release that just got launched out there. So let me talk about Sky People ask me the question, what does sky actually do? And at sky we are defining the intelligent experience layer for the modern enterprise. Our platform blends agentic AI,, autonomous context aware agents with spatial intelligence that understands how people actually use the workplace. This combination turns data into decisioning and routine actions into automation. We're not just another AI platform. We're the bridge between billions in corporate AI investment and the actual human experience at work. When people ask what Sky actually do, here's my answer. We transform office buildings, campuses and digital workspaces into living, learning and adaptive environments. Environments that think and act with you. We now operate in 200 plus cities across 50 countries serving over a million users. And all of those users are using us in a very secure manner across all their campus environments, integrating all the enterprise functions into one application. I'm also proud of the great team we have. We have around 65 fellow sky employees who are all based in multiple offices globally in the Bay Area where our headquarters is in Toronto, Canada and in Manila and more than 70% of them are in R and D. A very technology focused company. And this tells you that our DNA is an innovation company. So let's talk about technology wise, what does this entail? And we've been the leader in the first mobile app for this application of workplace experience. We cloud first and now we're AI native in terms of this deployment that we're embarking on with Sky 1.0 going to Sky 2.0. So, I've shared the slides in the past but I want to just reinforce the fact that we're building this as a platform, it's not a one off application. The sky apps go from all the way from your mobile device all the way to a kiosk or even larger. We'll talk about that today. Also be multi OS and be able to be adaptive. Our behind-the-scenes behind the scenes is our rule engine, our brains behind the sky system that allows enterprise owners and users to control and manage the content as well as Provide access control and provide all the great things that will enable productivity at the workplace. I'm going to show you some great examples of that. And then finally, skyview is our data analytics and ingestion engine that allows you to create your own dashboard, create your own analytics, and create the insights and the outcomes that really matter at the end of the day. And all of this is hosted on the cloud. We're partnered with Google, as you know, but we also enable things on AWS and Azure. So we're multi cloud, we're multi application across the board and we're building this as a platform for scale. So I want to talk about the market and what's happening within the market today and the market trends. This is a study done by McKinsey and it's very enlightening to see that across the Fortune 500 where we participate, 88% of organizations say when they use AI they only don't scale it to the enterprise level. So although AI is being used by more than a large percentage of enterprises, they're not using a scale. They have the tools, but not the orchestration. That's where sky comes in. Sky solves that execution gap by unifying workflows, analytics and human experience into a single agentic layer. It's what we call agentic orchestration. Turning disconnected tools into intelligent systems that anticipate and act. Think of a Global bank with 40 offices worldwide. You already have Teams, Zoom, ServiceNow and multiple space management tools, but no unified experience. Our agentic engine stitches those environments together so that when a team lead books a hybrid meeting in New York, the system automatically coordinates rooms, catering visitor access and AV support across different time zones. It's invisible, autonomous and measurable. Along with that, you've seen what's happening in the environment. You see a lot of CEOs are mandating return to office and AI tool adoption. But employees are burned out and disengaged. That's the leadership expectation versus workflow reality dividend. As executives everywhere are pushing return to office mandates, employees create flexibility. The result is policy friction. Sky bridges that mandate to execution gap for major technology clients in Silicon Valley. We used our platform to launch the new campus headquarters. Right size, their campus designs and footprint allowing for colleague booking feature to allow selecting where and who they want to spend their day and providing an automated check in process for their users via their internal badging system. This improved on site attendance satisfaction scores as well as created higher employee engagement. That's productivity, collaboration and sustainability all together. That's the beauty of Sky. We enable all of these great capabilities and the outcomes are coming very clear now with our clients. And you know, this is not us just talking about it and the world is taking notice. This quarter, Gartner named Sky as a representative vendor in the 2025 Market Guide for Workplace Experience Applications. At Cataly we helped define, by the way, we've been working with them for the last two years, educating them on the benefits of AI and the benefits of our capability to enable this transformation. It's a validation that our combination of agentic AI, and spatial intelligence isn't just visionary, is essential to the future of work. And we've been very happy to see this guide come out. There's also more work coming out from Gartner and other analysts. As we said in our first call with you guys, this is going to be a new category called employee experiences and I think the market is headed in that direction. This last quarter we were super busy also with lots of events and lots of things happening in the market. We amplified our ecosystem presence at the San Francisco Tech Week. We'll talk about that in a bit. Here we were at Work Tech at the Meta headquarters in Menlo park and Palo Alto area on October 9 and then we also attended the Cornet Global Summit at Anaheim. Across these events, one theme was constant. AI in the workplace is no longer a pilot. It is a board level imperative. So it's super important to recognize that as we talk to our ecosystem partners, our customers, our stakeholders, all of them are pretty clear that the AI bandwagon is everybody's got to be on it and it's going to change the way we work. So we are super excited about the events. We were. There were a lot of great new clients that came to us. Our existing clients were there. We hosted a number of networking events and we discussed and debated. And the reality is everybody wants our generic AI solution. They want it faster. Another strategic collaboration that we announced this week was our collaboration with a really cool company called Noro. We are thrilled about our collaboration with Noro. It's a pioneer in immersive telepresence. Together we're merging Sky's autonomous AI engine with Noro's life size presence portals. Imagine walking up to a wall in New York and speaking naturally face to face with a colleague in London. With Sky's agentic AI, automatically handling context, environment and collaboration tools behind the scenes. That's how we're turning presence into intelligence for most of our global customers. This partnership will allow hybrid project teams to occupy and occupy in commerce, share spaces in real time seeing body language, maintaining eye contact, ensuring digital work stream. All orchestrated by agentic AI. That's how sky makes distance disappear in hybrid work. And we're super excited about it. We're going to have the first units being installed in our offices. Noro also has locations already deployed in London and New York and in Atlanta and Chicago, and we're going to be taking to our clients. We're putting the roadmap together in terms of the combined offering. It'll be available to clients beginning in Q1, but we're doing a lot of internal testing right now. So super excited by this opportunity. And Tommaso is a great partner and I've known him for a while and super happy that we're working together now. So let me talk about other highlights on the product side. Innovation continues to do.

- (00:09:34)

This was really important because a lot of our clients this last quarter were starting their RTO. Plans again were reengaging with their employees. And they wanted something slicker, faster, and our team delivered. For example, one global client used the enhanced booking engine to manage more than. 10,000 plus deaths across five campuses. They reported a significant percent drop in scheduling conflicts in the order of 40% or. So. And a double digit increase in employee satisfaction with hybrid coordina. Coordination. That's another example where as our solution, as you can see, the colleague booking, where you can see the screens in the people. And their images and also look at. The visual representation of all the things around them. It's super. Super amazing and interesting, and it creates that engagement layer to say, yeah, I really want to get back to. The office. I really want to interact with these people, and I really want to get my work. Done faster now to enable that. We've talked. About a BTS, which is our behind the scenes. Oh, by the way, before I go there, let me show. You a video. Jumping ahead of. When I talked about this. At the conference at the SF Tech week, where we had Google as our invited guests, as partners. But let me share with you something that I've said there. Okay. I don't know if. The video was. Accessible or not, but we're going to have it available. On the platform. Let me try. To play it again. Actually, with my volume one. Maybe that'll help. So that feature has become so important or customer said, this is a musthave you got to have it. And by the way, be one pictures, and it's like a scramble screen. If all these images are like we want to see them. Go see who they are. Right? It's just human behavior. Death Booking is a self created feature, meaning that there's no need for it if you have assigned dust, which we grew up with. Assigned dust. It was clear because of the pandemic. So you create a new problem that has now been difficult for an employee to get to. The office and find a spot. But it's created this new. Set of opportunities, which I think agenda ki makes it more easy and simple because. You don't want to go every morning? Where do I have to sit? Or what do I have to do. Whatever. We make it forward. Recommendations for me so I can make it better. So that's what we do. Okay, so I think we had some technical relationship value, but hopefully the audience. Heard the audio. And that just tells you. What we see. As really killer application, a killer use case. Wanting to have this colleague booking feature knowing what was in the office where they're sitting. Being able to adjust your daily calendar as well as your weekly calendar based on where it is. And I think it's pretty cool to see this live in motion now, and a lot of our clients are using it. It's a great feature. It's a must have. For a lot of our clients. So I'm super excited about that. And what enables all of this stuff is. The behind the scenes, the brains behind it. And before we go there, let me talk to you a little bit about one of the big deployments. That we did this quarter, which was, we were live at 30 rock, which. Is. A marquee place, and it's been pretty amazing to have that deployment be live. Now. And that took a lot of. Effort from our client as well as us. And it's a high profile. Place, so making sure that everything is working well. Be around. 6000 users day one on that system. The system did not employ. It actually work really well. People were super happy. Actually, the clients made some Instagram posts, as you can see there. And there were some really great activities happening. And as we look at the. Activity logs and we have our sky view analytics that can show you all. The things people were doing and is interesting. That client actually does not do any space booking, but they were doing a lot of amenities, a lot of content, a lot of events, and most importantly, dining. Dining was an number one feature across. The board, we launched not only that one site in New York, we also launched. Four sites across the country. One is on the west coast. The other two are on the east coast, and it's interesting to see that. There's a lot of great demand for the capability. A lot of users are using it. Every single day. And some of the sites. That we thought were going to be less using it, actually using it more, primarily, as I said. The dining feature is a must have. Everybody loves the dining feature and then seeing all of the other. Capabilities in terms of. Access to all the different amenities at the offices, all the different event. Events that you can go to really create that engagement layer. So now all of the ideas we talked about are now in real motion, in real deployment with. This client, and they're super happy with the performance. So let's talk a little bit about, I mentioned the BTS, which is behind the scenes, and that is actually the key technology platform that. Is letting enterprise admins manage complex content faster. And now we actually are in beta trials with a full AI plugin when natural language content creation. These migrations are beginning in Q. Four, and this will be fully compatible with our legacy apps offer. Offering faster administration and granular role controls as well. And what that. Means is. You're the it guy. You can get access to all the information. Ray to it. Or if you're an HR manager, you get all the people data or. If you're an operations manager and you want your team data, you can. Have that access to that you can provide content, notifications, all the things that are necessary for that. So it's super exciting. And this is an. Infrastructure player that we really believe will enable supercharge your legacy apps. So I want to go to the future a little bit. So we've talked about. Our sky digital assistant and. How it works. I'm going to play a little video. Of how. Our existing new and enhanced sky digital assistant is. Working in our labs in San Ramon. It's kind of. Like a sky digital. Is like an intelligent concierge. Employees can now book, plan and act in real time, using. Natural language with the system proactively suggesting actions based on calendar. Location behavior. It's a living example of agenda ki, workplace intelligence that works for you, not the other. Way around. I want to play the video. Hopefully you will hear the audio on this and you'll see our sky. Assistant interacting with one of our engineers. Hi, I'm sky at san ramon hq. I can. Book meetings, reserve desks, or order food. How can. I help today? I don't know. Can you think tomorrow? At 02:00 p.m. for 1 hour. Thanks. How many people? Including you, will be attending. And will you need a screen? Oh, yeah. There will be three people. Yes. I need to say. YAML done with capacity for five and a screen. Sounds ideal. Would you like me to check? Its availability for tomorrow. November 12 at 02:00 p.m. for 1 hour. Yes, please. Perfect. Let me check if Diablo Den is available for you. Good. News. Yabo den is available. Booking it now. All done. I've successfully booked Diablo den. For Wednesday, November 12 from two. P. M. To 03:00 p.m. would you like to order food for your meeting. Yeah, that's actually would be great. Great. What type of food would you prefer? We recommend bamboo. Sushi for sushi. Osam palace for vegetarian or. Mixed for healthy bowls. Go with mix. Perfect choice. I know you love the. Dave's chocolate bowl from mixed. Should I order that for all three people? Yes. Great. What time should it arrive? Your meeting starts at 02:00 p.m. 230. Perfect. I've ordered three gay chocolate bowl. Bowls from mixed being delivered to Diablo den by 02:30 p.m. You're all set. So that's a gentle, geared work context where proactive and human centered. Hopefully, you see how intuitive it was, how easy it was to use and how context of where it was to find the right thing for you. And making happen effectively. I know that. If you push the video on the screen, you could see it in real time. So we'll have that available for you after the call. And for the next video, I'll let you know how to depress it, but hopefully you. Heard the audio on this. And. Before I go forward. Q three was a really good quarter for us. We had. A lot of these great customer highlights deployments as well as. This new advancement with the sky platform, so we're super excited about that. I'm now going to continue to. Our my partner, CFO Joy, to give you the. Financial updates. For q three joy. Thank you, kurum. It sounds like or not sounds like, but the digital assistant just reminds me of a theme for this quarter. Something I've been thinking about. In the theme or keyword is momentum. So we're seeing momentum in the AI ecosystem. We're seeing. Momentum in. The speed at which companies. Are implementing return to office or the reboot of return office or return office 2.0. And then more excitingly, momentum in our product. And I think the. Digital assistant is super exciting for me. I don't know if I would want whatever bowl. I was ordering, but that sounds a lot of great progress there. So if you go to slide. 18. We can look at our Q three financial highlights. This was a solid quarter of exec. Execution and operating discipline. We maintained strong margins. Controlled Opex and delivered measurable improvement and profitability. Starting with ARR expansion, we closed the quarter with. Two large logo renewals, both in the enterprise segment. These renewals reflect customer confidence in our workplace, platform and demo. Demonstrate the durability of a recurring revenue base. Our subscription. Revenue mix reached 99%, an increase from 88. Percent in the same quarter last year. That transition toward pure staff continues to be one of our key strategic levers, and increases predictability. Expands gross margins and creates multi year visibility into future cash flows. Next on gross margin, we delivered an 80. 9% increase compared to 88% in Q three of last year. An 86% last quarter. The steady improvement reflects the benefits of disciplined cloud cost management. And more efficient infrastructure scaling. We're. Continuing to see leverage in our cost delivery as we optimize across mult. Multitenant environments. And automate provisioning. Turning to cash, OPEC, we help. Steady at $3.2. Million flat compared to both last quarter and the prior period. That stability reflects our ongoing focus on operational efficiency. For maintaining a lean structure while still investing in. Innovation in go to market execution. Finally on profitability in earnings per share. We improved earnings per share this quarter to negative thirteen. Cents, a substantial gain from negative 34 cent the same quarter last year. That's a very clear signal. That our cost controls and recurring model are working together to improve the bottom. Line. We can go to slide 19, which is our quarter over quarter comp. Comparison. Revenue came in at $1.1 million, compared to 1.2 million in Q two. The modest decline reflects the shift in revenue mix. We saw lower hardware related sales this quarter, consistent with our strategy to phase out non core components and focus on software led growth. Cost of revenue decreased from 171,000 223,000, which drove an improvement in gross profit. To 991,000 lifted gross margin to 89%. That gain was driven primarily by tighter control over cloud utilization and vendor opt. Optimization. Looking at operating expenses, total Opex declined to 4.8 million from 5.2 million in Q two. An 8% reduction, quarter over quarter. Most of that was related to. Some of that was related to savings in other areas, and you will see a slight increase in GNA, but that is primarily due to stock based comp. Just because we have a large amount. Of. Stock that vest for employees in Q three, so you'll always. See that? Probably quarter over, quarter overall. These shift. Shifts demonstrate the flexibility of our operating model. We're able to scale innovation while containing discretionary. Spend as a result. Lossroom operations improved to three point negative 3.8 million compared to negative 4.1 million. In q. 2025. That continued progress quarter over quarter as. We execute against our goal of reach and breakeven. As we executed, reaching break even eventually. I also like to talk about our cash position. We remain very healthy with our cash position. We ended the quarter or as. Of right now. Today, actually, with $9 million in the bank. And with our equity and debt fundraising that we've. Done throughout the year. We have access to cash that. Should last at least for the next two years. In summary q three showcased steady, disciplined perform. Performance, improving gross margins, consistent opex. And expanding recurring revenue. For managing growth and profitability in tandem, ensuring Sky's position to scale. Eff. Efficiently while driving durable shareholder value back over to. You, Korra. Thank you, Joy. So I want to talk a little bit about the future here. At sf. Tech. We hosted a panel motor by Sam Rahan, who heads up system integrator partnerships. At Google cloud. And she talked about the inclusive and immersive workplaces of the future. It's a very interesting talk, and so I'm going to play a snippet of it. And what I asked the audience is please press on the play button so you can watch the video, but you're going to have the audio through this as well, so I'm going to start right now. If I'm in foster city. I'm. My hologram is going to be sitting here for those of you who are big Star Trek fans. I drove growing up as a kid, I was like, big into it. I always believed that one day that's going to become reality. And if any of you have visited. Our executive briefing center. We already have. A demo of it. I have gone through it. I must say, it's amazing and scary. All at the same time. The hologram was eating an apple. And I'm like, oh. My God. This is good. So. I believe we're going to in workplace, we're going to enter the world of Parawood, where there's going to be virtual reality. That's how we're going to do meetings. And I'm not saying that. We're going to replace. Human interaction. Absolutely not. I think there is a need for that. The need for it is always going to stay there. If Covid has proven one thing, it's proven. That the human connections are important. We're going to continue to be in the hybrid environment, but I think most importantly, what we're going to do. What is going to get even. More better in 2030 and beyond, is that. No matter what part of the globe you are in. Your employee experience. Is going to be inclusive. It's going to be culturally adaptable. For somebody who's working out of Alaska versus Silicon Valley. And. It's going to be inclusive, which I think is very. Important. That's why I think virtual reality is going to be a big part of it. So I wouldn't be surprised if I'm talking to for around five years from now, and he's like, hey. I think this new app like metaverse in it and has all this other stuff, and then agents are going to work for you. It's pretty exciting stuff, and. These conversations. And the other conversation we've had with great partners at our event reaffirmed the sky is the partner choice for the world's most advanced AI ecosystems. We're very proud of our partnership with Google. And it's super interesting how. They are aligned with our vision, helping us on the infrastructure side, helping us on the gotomarket. Side as well. And then being. Top leaders with us as we look at defining future work. So I want to summarize what you saw today, what you heard from us today, but. As we exit Q three. Moving into 2026, our priorities are clear. Three priorities. Number one, expand within our current customer base, meaning for Fortune 500 clients. Use only two or three or four modules. Today, every expansion. Into either analytics or. Content management or digital system that you saw multiplies here. Our potential number two. Accelerate ecosystem. Int. Integrations partnerships like you heard about Noro and Google Cloud. Extend Sky's reach beyond traditional workplace apps into immersive. And eigenic experiences. And third, maintain cost discipline while investing in AI leadership. We're balancing growth with responsibility, proving that AI companies can scale intelligently. In short, Sky is the most advanced egenic AI. Solution for workplace and employee experience markets. We're not just. Riding the I wave. We're architecting it. We're building, not just another AI. Company. We're building a category defining enterprise platform. The most advanced agenda AI solution for workplace experience and hybrid collaboration. I want to thank our employees and extraordinary creative, mission driven team. And our customers and shareholders for believing in this journey. Guide more than a ticker symbol. It's a movement to make AI human again. We're super excited about this opportunity. Thank you, everybody, for joining the call. We're going to take a couple of questions that came online, and so, joy. If you have a list of questions, please go ahead. Yes. There's one from. Vanderbilt art from. Maxim. Multiple questions. Curm so I'm going to. Let you. I thought you want to answer all of this. But the question is. Give me 1 second. He wants. A kiosk update customer feedback and usage sets how many units deployed today versus pipeline growth. And expansion progress with largest existing customers. That is the testing before expanding deployments to all locations. A couple of our clients. And. Just status of testing before expanding to large deployments and maybe more information on. The 30 rock deployment and how we did that. Okay, great. Thank you. Joy. Yeah, that's a lot of great questions all rolled into one, so. I'll try to dissect it. So the first one on kiosk. Absolutely. That's been a great product launch. We launched it with one client in Silverton Valley. They've deployed it in their campus in San Jose. It's working really well. It's super exciting for them to start using it for their employees. As they implement RTO. And that deployment was our first deployment. That gains attraction. They want to first make sure San Jose works really well and then deploy it globally around all of their 14 plus campuses, so that's an interesting opportunity. And in parallel, we've got three more clients existing. Clients who are already in pilots and. That pilot phase to deployment, and a lot of them really like the fact that it's engaging. It's real time. It's just in time getting actions, completing either it's. Booking a desk. Or. Booking a conference room or just navigating to the right person or. Universal search. All of those are implemented with that, and I think there's a lot of genuine interest. I can give you exact numbers on units right now, but I can tell you that. For all the deployments on all the campuses that we have with our clients when they deploy. One. It's obviously going to deploy. In all the different campuses. So we're excited about it. And I think. There's a great opportunity. Coming in. Q one where. We are going to launch these other three clients and then from those three will be the next. Ten. So I think that's the kind of scaling you see. On that product. On the other question, in terms of. I think Joy was it about. The other expansion. Opportunities. Right? So 30 Rock is an excellent example of a large multinational media company that deployed a marquee site in New York City. It was super critical for them to get it. Absolutely. Right. And so it was a lot of focus, a lot of hard work. I commend the team, both our team and the customers team, for making it happen. But they not only just launched New York, they actually launched LA and they launched. Miami and they launched Connecticut. So they're super excited, actually, even though they're an early customer of the product. They want the kiosk right away. So they're actually in trials with the kiosk. So I think, all in all, it just shows that it takes a little effort to get into these big clients. Once you're in there, they see the opportunity.