CXAI — Q2 2026 Financial Report Analysis

Revenue up 38.5%, but only because of one month of an acquisition, and the net loss nearly tripled

CXApp, a small workplace-software company spun out of Inpixon, reported second-quarter 2026 revenue of $1.69 million, up 38.5% from $1.22 million a year earlier. Almost all of that growth came from EngineRoom, an Australian digital-marketing agency CXApp bought on June 3, 2026, which added $526 thousand in its first four weeks. Without it, revenue would have been about $1.17 million, down roughly 4.5%, and subscription software revenue, the original business, fell 7.0%. The net loss widened to $8.62 million from $3.14 million. Most of that jump was a $5.0 million non-cash accounting charge on the company's convertible debt and warrants, not a worse-run business, but the operating loss did not get smaller either.

At a glance

• $1.69M revenue (+38.5%): $526K came from EngineRoom's first month. The software business on its own shrank about 4.5%.
• 63.2% gross margin, down from 86.0%: agency work costs much more to deliver than software subscriptions, so each new dollar of revenue keeps less.
• Share count up 3.2x in six months (33.8M to 109.2M shares before the August 1-for-50 reverse split): the business is being funded by issuing new stock, which shrinks every existing shareholder's slice.

Q2 2026 vs Q2 2025

Gross margin here is revenue minus the direct cost of delivering it, divided by revenue. CXApp's cost of revenues excludes depreciation and amortization. Operating margin is the operating loss as a share of revenue. A figure like -243% means the company spent about $2.43 in operating costs, beyond its gross profit, for every dollar it brought in.

Per-share figures are as filed in the 10-Q, which came out on August 14, before the 1-for-50 reverse stock split took effect on August 18, 2026. On a post-split basis, the same Q2 loss works out to about -$5.15 per share (our arithmetic: $8.62M ÷ 83.7M ÷ 50).

Takeaway: The 38.5% revenue growth was bought, not earned. The legacy software business shrank, and CXApp acquired an agency with lower margins. On a cash-like basis (adjusted EBITDA) the business lost slightly more than a year ago. Shareholders are paying for that through heavy dilution, with the share count roughly tripling in the first half.

What drove the quarter

Revenue. The 10-Q credits the $471 thousand increase "primarily" to EngineRoom, which "added new revenue streams through managed advertising and growth marketing advisory services". The revenue breakdown in Note 3 shows how that splits:

• Software, license and maintenance subscriptions: $1,093K, down from $1,175K (-7.0%). Management notes "a decrease in the revenue from licenses during this period".
• Managed advertising (EngineRoom): $435K, new.
• Growth marketing advisory (EngineRoom): $91K, new.
• Professional services: $63K, up from $20K. Hardware: $12K, down from $28K.

Note how EngineRoom's revenue is recorded. CXApp books customers' ad spend that runs through EngineRoom campaigns gross, meaning the full billing counts as revenue and the media cost counts as cost of revenue. The filing's reason is that CXApp "controls the media-buying process" and acts as principal. That raises reported revenue relative to the profit actually kept, and it is a big reason the gross margin fell.

Gross margin. Cost of revenues rose 264%, from $171K to $623K. Gross margin fell to 63.2% from 86.0%, which the filing attributes to "a shift in revenue mix following the inclusion of EngineRoom's managed advertising and growth marketing advisory services... which have a higher direct-cost profile than the Company's subscription revenue". Gross profit barely moved, from $1,052K to $1,071K (+1.8%). So 38.5% more revenue produced less than 2% more gross profit.

Operating expenses. Total operating expenses were flat at $5.19M, but the mix changed:

• Research and development fell $505K (-23%) to $1,688K.
• Sales and marketing fell $109K (-18%) to $486K.
• General and administrative rose $599K (+35%) to $2,291K. That includes $208K of one-off EngineRoom acquisition costs. Without them, G&A still rose about 23%.
• Amortization of intangible assets rose $42K to $725K.

R&D cuts paid for the rise in overhead. For a company whose stated strategy is "AI-First Product Innovation", a 23% cut in R&D spending is worth noticing.

Below the operating line. Other expense was $5.15M, against $0.97M of other income a year earlier. The main item is a $5.0M loss from changes in the fair value of derivative and warrant liabilities: $4.48M on the Avondale convertible notes and $0.53M on the warrants. Under the fair-value accounting the company chose, these liabilities are revalued every quarter, and when the share price moves, the "loss" or "gain" passes through the income statement without any cash changing hands. A year earlier the same line was an $880K gain, which made the Q2 2025 net loss look smaller. A $651K deferred tax benefit tied to the newly consolidated Australian business partly offset the charge.

The acquisition

CXApp paid a provisional $3.56 million for EngineRoom: $3.07M in cash, $464K in escrow and $24K still owed to the sellers. In return it booked $1.84M of customer relationships, $0.48M of trade names, $0.52M of developed technology and $1.09M of goodwill. Goodwill is the premium paid above the identifiable net assets. There is also an earn-out tied to EngineRoom's revenue targets for the periods ending June 30, 2027 and June 30, 2028. Because payment depends on a key employee staying, CXApp will book the earn-out as compensation expense over time, not as purchase price. That expense will show up in future operating costs. All values are preliminary and may be revised.

Investing cash outflow for the first half was $3.27M, almost entirely this deal. That is roughly 28% of the $11.7M cash balance at quarter end.

What the headline numbers hide

• The net loss overstates the operating problem, and the loss per share understates it. About $5.0M of the $8.6M net loss is a non-cash revaluation charge. On the other side, loss per share "improved" to -$0.10 from -$0.15 only because weighted shares quadrupled, from 20.7M to 83.7M. The net loss itself was 2.7 times larger. The per-share improvement is entirely dilution.
• Cash burn is smaller than the net loss, but rising. First-half operating cash outflow was $4.46M against a $12.62M net loss. The gap is mostly non-cash items: the $4.83M fair-value loss, $1.41M of amortization and $0.81M of stock-based compensation. Cash burn still grew 11.6% from $3.99M a year earlier. Working capital helped by $1.11M, since accrued liabilities rose $1.40M and accounts payable rose $0.91M. Part of that is simply EngineRoom's payables joining the balance sheet. Without the help, burn would have been higher.
• The gap between GAAP and adjusted results is wide. Adjusted EBITDA of -$2.86M excludes the $5.0M fair-value charge, $736K of depreciation and amortization, $420K of stock-based compensation and $85K of unrealized FX losses. It also takes out the $651K tax benefit and interest. Stock-based compensation is a real cost paid in shares, so excluding it flatters the result. Even on management's preferred measure, the loss got 6.8% worse year over year.
• One-offs in both years. This year: $208K of acquisition costs and the $651K deferred tax benefit. Last year: an $880K fair-value gain and $256K of other income. Both distort the year-over-year comparison of net loss.
• Receivables. Trade receivables were $706K against $789K at year-end, but unbilled and other receivables rose to $446K from $178K. EngineRoom brought $574K of receivables with it, so there is no clear sign yet of customers paying more slowly. This is worth watching once a full quarter of EngineRoom is in the numbers.
• "Recurring revenue" is a new, broader measure. The company now counts 92% of Q2 revenue as "recurring", a non-GAAP figure that includes ongoing managed-advertising and advisory work. The filing says it "is not synonymous with Subscription Revenue". On the stricter, audited subscription line, recurring software revenue fell 7%.
• Financing is the business model for now. The share count went from 33.8M at December 31, 2025 to 109.2M at June 30, 2026 (pre-split), and the company issued about 7.67M more shares after the quarter to convert Avondale notes. In the first half, CXApp raised $5.99M net from convertible notes and $2.46M from at-the-market share sales. $10.06M of convertible debt remains on the balance sheet, and Avondale has about $33.7M of remaining capacity under the March 2026 agreement. That money is available only by issuing more stock, usually at a discount.
• Going concern. The 10-Q states that recurring losses and negative cash flows "raised substantial doubt about the Company's ability to continue as a going concern". Management concluded that its plans, meaning cost cuts plus market-dependent financing, alleviate that doubt for at least one year.

Earlier this year: Q1 2026 for context

Subtracting Q1 from the first-half totals, Q1 2026 revenue was about $950K and the Q1 net loss about $4.0M. So Q2's revenue rose about 78% from the previous quarter, nearly all of it from EngineRoom's partial month. This is the first CXApp report on this site, so there is no earlier outlook to check against.

Outlook

Management gave no numeric revenue or profit guidance. The 10-Q says the company intends to "leverage the combined platform to increase recurring and contractual technology revenue and expand the adoption of higher-margin platform offerings".

Our read:

• Q3 revenue should jump mechanically. It will include a full three months of EngineRoom instead of four weeks. If June was a typical month, EngineRoom alone could add roughly $1.5M a quarter ($526K × 3, our rough extrapolation, not company guidance). Gross margin would then fall further toward the agency's lower level.
• What matters is the legacy software line. Subscription revenue has shrunk 7% year over year and 15% year to date ($2.03M vs $2.39M). Until it stabilizes, revenue growth will depend on acquisitions.
• Runway. $11.7M of cash against about $2.2M a quarter of operating cash burn is roughly five quarters without new money. That burn rate will change as EngineRoom's costs and the earn-out compensation come in. In practice the company is relying on the Avondale facility and the at-the-market program, both of which depend on the share price. The August 18 reverse split restored Nasdaq's $1.00 minimum bid price (confirmed by Nasdaq on September 2, 2026). History suggests continued note conversions could push the price back toward that threshold.

What to watch in the Q3 10-Q (expected around mid-November 2026): a full quarter of EngineRoom revenue and its effect on gross margin; whether subscription revenue stops declining; the first earn-out compensation charge; operating cash burn; and how many more shares were issued.