CXApp Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion of our financial condition and results of operations in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q, with the audited condensed consolidated financial statements included in our Annual Report on 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2026 (the “Annual Report”). References in this report (the “Quarterly Report”) to “we”, “us” or the “Company” refer to CXApp Inc. References to our “management” or our “management team” refer to our officers and directors. The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition for the three months ended March 31, 2026. Special Note Regarding Forward-Looking Statements This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Overview of Our Business Executive Overview At CXApp, we are at the forefront of transforming the modern workplace through AI-powered solutions that enhance employee experience, operational efficiency, and workplace intelligence. As a leader in this evolving market, our strategic focus is to drive sustainable growth, scale our enterprise customer base, and deliver innovative solutions that leverage data and artificial intelligence to optimize workplace experiences. In first quarter of 2026, we prioritized three strategic pillars: 1. AI-First Product Innovation: During the quarter, we continued to strengthen our competitive differentiation through the development of AI-native workplace intelligence tools. Enhancements to our Generative AI analytics platform enabled improved data ingestion, real-time behavioral insights, and predictive modeling capabilities. These innovations support enterprise decision-makers in optimizing space utilization, workforce engagement, and operational agility. Our investment in state-of-the-art AI infrastructure in partnership with Google Cloud (GCP) is enabling intelligent and scalable solutions that will transform the modern workplace. 33 2. Subscription Revenue Quality Expansion: Our customer expansion strategy remained focused on high-value enterprise accounts, particularly across the financial services, healthcare, and technology sectors with subscription based recurring revenue model. We deepened relationships with existing Fortune 1000 clients through expanded deployments and multi-site activations As a result, recurring SaaS revenue accounted for 98% of total revenue in Q1 2026, underscoring the effectiveness of our recurring business model. 3. Margin Expansion through Cost Discipline: In Q1 2026, we reduced operating costs by streamlining SG&A and rationalizing our services delivery model. Gross profit totaled $790 thousand for the three months ended March 31, 2026, compared to $1,074 thousand in the same period of 2025. Total revenue declined due to the deliberate de‑emphasis of non‑recurring professional services, which also contributed to a decrease in gross margin to 83%. Despite the near‑term decline, our SaaS offerings continue to represent the core of our business, and these actions demonstrate disciplined cost management while advancing toward a more predictable, capital‑efficient operating model. Looking forward, our leadership team remains committed to balancing innovation with financial discipline, ensuring that CXApp is positioned for long-term profitability and strategic growth. By leveraging our AI-driven platform and expanding our enterprise footprint, we aim to deliver scalable, data-driven solutions that address the evolving needs of hybrid workplaces. Financial Performance Summary Revenue Growth and Customer Expansion ● During the three months ended March 31, 2026, the gross profit was decreased to 83% when compared to 88% in March 31, 2025 driven by higher-margin AI-enabled services and a strategic focus on enterprise clients. ● Our customer base continues to expand across key industries, including financial services, healthcare, and technology, aligning with our objective to target high-value, recurring revenue clients. ● The transition to a recurring revenue model has improved revenue predictability and supports our long-term growth objectives. Operational Efficiencies and Cost Management ● During the three months ended March 31, 2026, operating expenses remained essentially flat at $4,914 thousand compared to $4,819 thousand for the three months ended March 31, 2025. This consistency reflects ongoing discipline in cost management while supporting core business operations. ● Strategic workforce realignments have ensured resources are allocated to high-impact growth areas. ● We remain focused on optimizing resource allocation, ensuring that investments are targeted toward high-impact areas such as AI development and customer acquisition. Cash Flow and Liquidity Position For the three months ended March 31, 2026, cash and cash equivalents was $12,342 thousand. This liquidity provides a strategic buffer for continued investment in AI product enhancements and market expansion initiatives. 34 Strategic Growth Initiatives 1. Product Innovation: We are expanding our AI-native capabilities, integrating advanced analytics, and developing seamless integrations with key enterprise platforms to position CXApp as the go-to solution for hybrid workplace management. 2. Market Expansion: By targeting new verticals and strengthening partnerships with cloud providers and key technology platforms, we aim to increase market share and drive cross-selling opportunities. 3. Operational Excellence: Ongoing cost optimization, customer retention strategies, and sales efficiency initiatives remain key focus areas as we strive to enhance profitability and maintain financial discipline. Competitive Positioning and Market Outlook ● The global employee experience market is projected to grow at 20% CAGR, creating substantial opportunities for CXApp to expand its footprint in the enterprise workplace solutions market. ● We believe our AI-driven platform differentiates us from legacy workplace management systems, enabling real-time data analytics and actionable insights that are designed to support strategic decision-making. ● Despite macroeconomic uncertainties, enterprise demand for hybrid workplace solutions remains robust, positioning CXApp for continued momentum as we scale our AI-enabled offerings. Conclusion As we advance our strategic roadmap, CXApp remains focused on executing with discipline and precision. Our AI-first approach, financial discipline, and emphasis on customer-centric innovation are key drivers of our long-term vision to redefine employee experiences in the hybrid workplace. By leveraging our strong foundation and expanding our enterprise footprint, we are well-positioned to deliver sustained growth and value for our stakeholders. Recent Events Convertible Debt Conversion On March 27, 2026, the Company entered into a Securities Purchase Agreement (“SPA”) with Avondale Capital, LLC (“Avondale”), pursuant to which the Company may issue and sell up to $40,000 thousand of Pre-Paid Purchase agreements (“Pre-Paid Purchases”) in tranches over time. The initial Pre-Paid Purchase (“Pre-Paid Purchase #1”) included a $1,050 thousand Pre-Paid Purchase, structured with a $50 thousand original issue discount (“OID”) and $10 thousand in transaction-related fees, resulting in net proceeds of $990 thousand, received on March 27, 2026. Shelf Registration Statement (Form S-3) During the quarter ended March 31, 2026, the Company commenced sales of its common stock pursuant to the shelf registration. These sales were facilitated through a third-party arrangement with Maxim Group LLC, acting as the Company’s agent under an equity distribution agreement. The Company received $2,464 thousand and issued 7,995,651 shares of class A common stock, which are intended to be used for general working capital and other general corporate purposes. 35 RESULTS OF OPERATIONS Comparison of the results of operations for the three months ended March 31, 2026, and March 31, 2025 The following table sets forth our results of operations. This data should be read together with our unaudited condensed consolidated financial statements and related notes. (In thousands) Three Months Ended March 31, 2026 Three Months Ended March 31, 2025 (unaudited) (unaudited) Condensed Consolidated Statements of Operations Data Revenues $ 950 $ 1,224 Cost of revenues 160 150 Gross profit 790 1,074 Operating expenses 4,914 4,819 Loss from operations (4,124 ) (3,745 ) Other income, net 123 2,129 Current income provision (2 ) - Net income (loss) $ (4,003 ) $ (1,616 ) Revenues The Company derives revenue from subscription software as a service (SaaS), design, deployment and implementation services for its enterprise apps business. Revenue was $950 thousand for the three months ended March 31, 2026, compared to $1,224 thousand for the three months ended March 31, 2025. The decrease in revenue of $274 thousand, for the comparative quarters ended March 31, 2026 and March 31, 2025 was due to a decline in Professional Services revenue. Professional services are related to integration works and other services that may be requested by the customer and as such the decline in revenue is attributable to the professional services revenue because the Company has moved to a full SaaS model versus one-time professional fees. Our subscription-based revenue represented 98% of the total revenue for the three months ended March 31, 2026 and 99% for the three months ended March 31, 2025 which is a 1% decrease in the revenue mix. Gross Margin Cost of revenues includes the direct costs to deliver the services including labor and overhead. Cost of revenues were $160 thousand for the three months ended March 31, 2026 compared to $150 thousand for the three months ended March 31, 2025. The gross profit margin was 83% for the three months ended March 31, 2026 compared to 88% for the three months ended March 31, 2025. This increase in cost of revenues of approximately $10 thousand, or approximately 7%, for the comparative periods ended March 31, 2026 and March 31, 2025, was attributable to higher service mix that resulted in higher direct costs during the period. Operating Expenses Operating expenses consist primarily of research and development, sales and marketing, and general and administrative expenses. Total operating expenses were $4,914 thousand for the three months ended March 31, 2026, compared to $4,819 thousand for the three months ended March 31, 2025. The increase of $95 thousand period over period was primarily the result of increase in research and development cost of approximately $26 thousand and increase in general and administrative expenses for approximately $13 thousand offset by decrease in sales and marketing expenses of approximately $181 thousand. 36 Other Income/(Expense) Other income was $123 thousand and $2,129 thousand for the three months ended March 31, 2026 and March 31, 2025, respectively. This decrease in other income was primarily attributable to changes in fair value of derivative warrant liabilities of $2,018 thousand during the three months ended March 31, 2026. Provision for Income Taxes For the three months ended March 31, 2026, the Company recorded an income tax provision of $2 thousand. There was no income tax benefit or provision for the three months ended March 31, 2025. Non-GAAP Financial Information EBITDA The Company includes a non-GAAP measure that we use to supplement our results presented in accordance with U.S. GAAP. EBITDA is defined as earnings before interest and other income, taxes, depreciation and amortization. Adjusted EBITDA is used by our management as the matrix in which it manages the business. It is defined as EBITDA plus adjustments for other income or expense items, non-recurring items and non-cash stock-based compensation. Adjusted EBITDA is a performance measure that we believe is useful to investors and analysts because it illustrates the underlying financial and business trends relating to our core, recurring results of operations and enhances comparability between periods. Adjusted EBITDA is not a recognized measure under U.S. GAAP and is not intended to be a substitute for any U.S. GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry. Investors should exercise caution in comparing our non-GAAP measure to any similarly titled measure used by other companies. This non-GAAP measure excludes certain items required by U.S. GAAP and should not be considered as an alternative to information reported in accordance with U.S. GAAP. The table below presents our adjusted EBITDA, reconciled to net income, which is the most comparable GAAP measure, for the periods indicated (in thousands). Three Months Ended March 31, 2026 Three Months Ended March 31, 2025 Net income (loss) $ (4,003 ) $ (1,616 ) Interest and other income 19 31 Income tax (benefit)/provision 2 - Depreciation and amortization 691 695 EBITDA (3,291 ) (890 ) Adjusted for: Changes in fair value of warrant liabilities (178 ) (2,196 ) Loss on debt extinguishment - 48 Unrealized losses 37 4 Stock-based compensation - compensation and related benefits 391 624 Adjusted EBITDA $ (3,041 ) $ (2,410 ) 37 We rely on Adjusted EBITDA, which is a non-GAAP financial measure for the following: ● To compare our current operating results with corresponding periods and with the operating results of other companies in our industry; ● As a basis for allocating resources to various projects; ● As a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions; and ● To evaluate internally the performance of our personnel. We have presented Adjusted EBITDA above because we believe it conveys useful information to investors regarding our operating results. We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss). By including this information, we can provide investors with a more complete understanding of our business. Specifically, we present Adjusted EBITDA as supplemental disclosure because of the following: ● We believe Adjusted EBITDA is a useful tool for investors to assess the operating performance of our business without the effect of interest, income taxes, depreciation and amortization and other non- cash items including acquisition transaction and financing costs, impairment, unrealized gains, stock based compensation, interest income and expense, and income tax benefit. ● We believe that it is useful to provide to investors with a standard operating metric used by management to evaluate our operating performance; and ● We believe that the use of Adjusted EBITDA is helpful to compare our results to other companies. Even though we believe Adjusted EBITDA is useful for investors, it does have limitations as an analytical tool. Thus, we strongly urge investors not to consider this metric in isolation or as a substitute for net income (loss) and the other condensed consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include the fact that: ● Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; ● Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; ● Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt; ● Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; ● Adjusted EBITDA does not reflect income or other taxes or the cash requirements to make any tax payments; and ● Other companies in our industry may calculate Adjusted EBITDA differently than we do, thereby potentially limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business or as a measure of performance in compliance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and providing Adjusted EBITDA only as supplemental information. 38 Financing Obligations and Requirements Net cash used in operating activities for the three months ended March 31, 2026 was $2,210 thousand, reflecting a net loss of $4,003 thousand adjusted for non-cash items and changes in working capital. During the period, the Company raised net proceeds of approximately $990 thousand under the SPA entered into on March 27, 2026, and also maintained access to additional liquidity sources, including remaining capacity under its financing arrangements and its at-the-market equity program, subject to market conditions such as stock price, trading volume, and issuance limitations. Management continues to implement expense-management initiatives and working-capital optimization measures and expects to use financing sources that are reasonably accessible to support operations. Based on current cash balances, expected collections, and management’s cost-management actions, the Company believes it has sufficient liquidity to meet its working capital needs and other operating requirements for at least the next 12 months from the issuance date of the condensed consolidated financial statements Revenue Recognition The Company recognizes revenue, in accordance with ASC 606, when control of the promised products or services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from its software as a service for cloud-based software, as well as design, implementation, other professional services for work performed in conjunction with its cloud-based software, and sale of hardware. The Company enters into contracts with its customers whereby it grants a non-exclusive cloud-based license for the use of its proprietary software and for professional services. The contracts may also provide for on-going services for a specified price, which may include maintenance services, designated support, and enhancements, upgrades and improvements to the software, depending on the contract. Licenses for cloud software provide the customer with a right to use the software as it exists when made available to the customer. All software provides customers with the same functionality and differs mainly in the duration over which the customer benefits from the software. License Subscription Revenue Recognition (Software As A Service) The timing of the Company’s revenue recognition related to the licensing revenue stream is dependent on whether the software licensing agreement entered into represents a service. Software that relies on an entity’s IP and is delivered only through a hosting arrangement, where the customer cannot take possession of the software, is a service. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous access to its service. The Company’s customers generally pay within 30 to 60 days from the receipt of a customer approved invoice. Professional Services Revenue Recognition Professional services under milestone contracts are accounted for using the percentage of completion method. As soon as the outcome of a contract can be estimated reliably, contract revenue is recognized in the statement of operations in proportion to the stage of completion of the contract. Contract costs are expensed as incurred. Contract costs include all amounts that relate directly to the specific contract, are attributable to contract activity, and are specifically chargeable to the customer under the terms of the contract. Hardware Revenue Recognition For sales of hardware, the Company’s performance obligation is fulfilled when the products are shipped to the customer, transferring title and ownership risks. Deliveries occur via drop-shipment by a third-party vendor and the Company leverages drop-ship arrangements with many of its vendors and suppliers to deliver products to customers without having to physically hold the inventory at its warehouse. The Company negotiates sale prices, pays suppliers directly, manages credit risk, and ensures product acceptability, acting as the principal in the transaction and recording revenue on a gross basis. Customers typically pay within 30 to 60 days of invoice receipt. The Company has elected the practical expedient to expense the costs of obtaining a contract when they are incurred because the amortization period of the asset that otherwise would have been recognized is less than a year. 39 Liquidity and Capital Resources as of March 31, 2026 Compared with March 31, 2025 Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities. As of March 31, 2026, the Company has a working capital surplus of approximately $7,981 thousand and cash of approximately $12,342 thousand. For the three months ended March 31, 2026, the Company incurred net loss of approximately $4,003 thousand and used approximately $2,210 thousand of cash for operating activities. The Company’s net cash flows used in operating, investing and financing activities and certain balances are as follows (in thousands): Three Months Ended March 31, 2026 Three Months Ended March 31, 2025 Cash flows (used in) provided by Net cash used in operating activities $ (2,210 ) $ (979 ) Net cash provided by (used in) investing activities - (5 ) Net cash provided by (used in) financing activities 3,454 - Effect of exchange rates on cash (3 ) (3 ) Net increase (decrease) in cash and cash equivalents $ 1,241 $ (987 ) March 31, 2026 December 31, 2025 Cash and cash equivalents $ 12,342 $ 11,101 Working capital surplus $ 7,981 $ 7,075 Operating Activities for the three months ended March 31, 2026 and March 31, 2025 Three Months Ended March 31, 2026 Three Months Ended March 31, 2025 Net income (loss) $ (4,003 ) $ (1,616 ) Non-cash income and expenses 1,103 (661 ) Net change in operating assets and liabilities 690 1,298 Net cash used in operating activities $ (2,210 ) $ (979 ) 40 For the three months ended March 31, 2026 the non-cash income was approximately $1,103 thousand and for the three months ended March 31, 2025 the non-cash loss was approximately $661 thousand: Three Months Ended March 31, 2026 Three Months Ended March 31, 2025 Depreciation and amortization $ 691 $ 695 Amortization of right of use asset 102 100 Accrued interest expense on promissory note and convertible debt 60 71 Stock-based compensation expense 391 624 Gain on change in fair value of derivative liability (178 ) (2,196 ) Loss on debt extinguishment - 48 (Gain) loss on foreign currency transactions 37 (3 ) Total non-cash expenses $ 1,103 $ (661 ) The net cash provided in the change in operating assets and liabilities were approximately $690 thousand, for the three months ended March 31, 2026 and net cash provided in the change in operating assets and liabilities were approximately $1,298 thousand for the three months ended March 31, 2025: Changes in Operating Assets and Liabilities Three Months Ended March 31, 2026 Three Months Ended March 31, 2025 Accounts receivable and other receivables $ (228 ) $ 954 Prepaid expenses and other current assets and other assets 99 (175 ) Accounts payable 250 103 Accrued liabilities and other liabilities 150 398 Operating lease liabilities (102 ) (103 ) Deferred revenue 521 121 Net cash used in the changes in operating assets and liabilities $ 690 $ 1,298 Cash Flows from Investing Activities for the three months ended March 31, 2026 and March 31, 2025 Net cash flows used in investing activities were $0 thousand for the three months ended March 31, 2026, compared to net cash flows used in investing activities of $5 thousand for the three months ended March 31, 2025. Investing activities during the three months ended March 31, 2025 related to purchases of property and equipment. Cash Flows from Financing Activities for the three months ended March 31, 2026 and March 31, 2025 Net cash flows provided by financing activities were approximately $3,454 thousand during the three months ended March 31, 2026. These cash inflows were primarily attributable to proceeds from debt and equity financings. Specifically, the first tranche of the Securities Purchase Agreement (“SPA”) was issued on March 27, 2026, with a principal amount of $1,050 thousand, resulting in net proceeds to the Company of approximately $990 thousand. In addition, under its effective shelf registration statement on Form S-3, the Company commenced sales of its Class A common stock pursuant to an equity distribution agreement with Maxim Group LLC, acting as sales agent. During the period, the Company received net proceeds of approximately $2,464 thousand from the issuance of 7,995,651 shares of Class A common stock. The proceeds from these financing activities are intended to be used for general working capital and other general corporate purposes. 41 Off-Balance Sheet Arrangements We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts. Contractual Obligations and Commitments Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered during our course of business. Our contractual obligations consist of operating lease liabilities that are included in our balance sheet. As of March 31, 2026, the total obligation for operating leases is approximately $121 thousand, of which approximately $109 thousand is expected to be paid in the next twelve months. Critical Accounting Policies and Estimates Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). In connection with the preparation of our condensed consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our unaudited condensed consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our condensed consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Critical Accounting Policies Our significant accounting policies are discussed in Note 2 of the unaudited condensed consolidated financial statements which are included elsewhere in this filing. Critical Accounting Estimates We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our unaudited condensed consolidated financial statements. The Company believes there have been no significant changes during the three months ended March 31, 2026 to the items disclosed as critical accounting estimates in management’s discussion and analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 that was filed with the SEC on March 30, 2026. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 42