C3.ai(US:AI)2023-12-06 16:00Revenue Growth and Performance - C3 AI's total revenue for the three and six months ended October 31, 2023, was $73.2 million and $145.6 million, respectively, representing a 17% and 14% increase compared to the same period last year[152] - Subscription revenue grew to $66.4 million and $127.8 million for the three and six months ended October 31, 2023, respectively, representing a 12% and 10% increase compared to the same periods last year[152] - Total revenue for October 31, 2023 was $73,229 thousand, representing a 17% year-over-year growth[157] - Total revenue increased by $10.8 million (17%) for the three months ended October 31, 2023, compared to the same period last year[212] - Subscription revenue increased by $6.9 million (12%) for the three months ended October 31, 2023, compared to the same period last year, with 24% from new customers and 76% from existing customers[212] - Professional services revenue increased by $3.9 million (134%) for the three months ended October 31, 2023, primarily due to an increase in prioritized engineering services[213] - Subscription revenue accounted for 91% of total revenue for the three months ended October 31, 2023, compared to 95% in the same period last year[212] Subscription and Professional Services Revenue - Professional services revenue represented 9% and 5% of total revenue for the three months ended October 31, 2023 and 2022, respectively, and 12% and 9% for the six months ended October 31, 2023 and 2022, respectively[151] - Subscription revenue includes term licenses, stand-ready COE support services, trials, pilots, and software-as-a-service offerings, with contracts generally being non-cancellable and non-refundable[191] - Professional services revenue includes implementation services, training, and prioritized engineering services, typically offered as fixed-fee engagements with durations of less than 12 months[192] Pricing Model and Customer Engagement - The company transitioned to a consumption-based pricing model, which initially decreased revenue growth but is expected to increase customer engagement and system consumption over time[153][154] - The company transitioned to a consumption-based pricing model, allowing customers to pay based on monthly vCPU and vGPU usage[159] - The company expects to attract new customers with its consumption-based pricing model, particularly for the C3 AI Platform and C3 AI Applications[176] - Customer Engagement reached 404 as of October 31, 2023, an 81% year-over-year growth and 21% quarter-over-quarter growth[157] - Customer Count increased to 244 as of April 30, 2023, with a 9% year-over-year growth[157] Product Offerings and Innovation - The company's C3 Generative AI Product Suite combines large language models, generative AI, reinforcement learning, and natural language processing to enhance information retrieval and presentation[134] - C3 AI expanded its product offerings to include over 40 AI production applications across various industries, including utilities, oil & gas, financial services, and defense[147] - The company launched the C3 Generative AI Suite, including 28 new domain-specific generative AI offerings in Q1 FY2024[177] - C3 Generative AI—AWS Marketplace Edition was listed on AWS Marketplace in Q3 FY2024, offering a no-code, self-service generative AI application[178] - The company's data science division was formed to develop and apply AI techniques, including machine learning and predictive analytics, to its applications[142] Financial Metrics and Obligations - The company's RPO (Remaining Performance Obligations) decreased from $477,421 thousand to $303,552 thousand over the reported periods[156] - Remaining Performance Obligations (RPO) were $303.6 million as of October 31, 2023, down from $381.4 million as of April 30, 2023[168] - C3 AI booked over $1.2 billion in additional contracts and recognized $951.1 million in revenue from 2019 to 2023[147] - The company's contractual obligations primarily consist of operating lease commitments for facilities and non-cancellable purchase commitments for third-party cloud hosting services[240] Expenses and Profitability - Cost of subscription revenue increased by $11.8 million (61%) for the three months ended October 31, 2023, primarily due to higher personnel-related costs and increased stock-based compensation[215] - Gross profit margin decreased to 56% for the three months ended October 31, 2023, compared to 67% in the same period last year[209] - Total operating expenses increased to $120.5 million for the three months ended October 31, 2023, compared to $113.6 million in the same period last year[206] - Net loss for the three months ended October 31, 2023, was $69.8 million, compared to $68.9 million in the same period last year[206] - Stock-based compensation expense totaled $53.2 million for the three months ended October 31, 2023, compared to $56.0 million in the same period last year[208] - Gross profit for the three months ended October 31, 2023 decreased by $543 thousand (1%) compared to the same period last year, reaching $41.113 million[218] - Gross profit for the six months ended October 31, 2023 decreased by $6.896 million (8%) compared to the same period last year, reaching $81.662 million[218] - Subscription margin for the three months ended October 31, 2023 decreased to 53% from 68% in the same period last year, primarily due to increased personnel-related costs and stock-based compensation[218] - Professional services margin for the three months ended October 31, 2023 increased to 83% from 45% in the same period last year, driven by a higher mix of prioritized engineering services[218] - Total operating expenses for the three months ended October 31, 2023 increased by $6.887 million (6%) compared to the same period last year, reaching $120.509 million[220] - Sales and marketing expenses for the three months ended October 31, 2023 increased by $4.959 million (11%) compared to the same period last year, primarily due to higher marketing and personnel-related costs[220] - Research and development expenses for the six months ended October 31, 2023 decreased by $4.661 million (4%) compared to the same period last year, primarily due to lower personnel-related costs[222] - The company expects sales and marketing expenses to increase in absolute dollars but decline as a percentage of total revenue over time as the business scales[197] - Research and development expenses are expected to increase in absolute dollars but decline as a percentage of total revenue over the long term[199] Cash Flow and Financial Position - Free cash flow for the six months ended October 31, 2023 was $(64.035) million, compared to $(131.823) million in the same period last year[232] - The company had $149.0 million in cash and cash equivalents and $613.3 million in marketable securities as of October 31, 2023, with an accumulated deficit of $944.4 million[233] - Net cash used in operating activities for the six months ended October 31, 2023 was $44.7 million, compared to $90.8 million for the same period in 2022[236][237] - Net cash used in investing activities for the six months ended October 31, 2023 was $96.7 million, primarily due to purchases of marketable securities of $489.9 million and capital expenditures of $19.4 million[238] - Net cash provided by financing activities for the six months ended October 31, 2023 was $5.5 million, driven by $10.2 million from the exercise of stock options and $5.1 million from the issuance of Class A common stock under the ESPP[239] - As of October 31, 2023, the company had cash, cash equivalents, and marketable securities of $762.3 million, compared to $812.4 million as of April 30, 2023[245] - The company's net loss for the six months ended October 31, 2023 was $134.1 million, adjusted for non-cash items including stock-based compensation of $104.0 million and depreciation and amortization of $6.2 million[236] - The company's cash outflows related to changes in operating assets and liabilities for the six months ended October 31, 2023 were $12.5 million, primarily due to an increase in accounts receivable of $8.6 million and a decrease in deferred revenue of $7.3 million[236] - The company's capital expenditures for the six months ended October 31, 2023 were $19.4 million, mainly related to leasehold improvements for new leased space[238] International Revenue and Market Expansion - The company derived 17% and 23% of total revenue from international customers for the three months ended October 31, 2023 and 2022, respectively[189] - The company plans to expand into new industries such as telecommunications, pharmaceuticals, and healthcare, where it currently has limited presence[174] - The company's go-to-market strategy includes partnerships with hyperscale cloud providers like AWS, Microsoft Azure, and Google Cloud[162] Partnerships and Agreements - Baker Hughes' revenue commitments under the partnership agreement were revised to $85.0 million, $110.0 million, and $125.0 million for the fiscal years ending April 30, 2023, 2024, and 2025, respectively[186] - The company revised its arrangement with Baker Hughes in January 2023, resulting in an increase of $32.5 million in the transaction price[187] Inflation and Financial Controls - The company does not believe inflation has had a material effect on its business, results of operations, or financial condition[247] - The company's disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by the Quarterly Report[250] - No changes in internal control over financial reporting were identified that materially affected or are likely to materially affect the company's financial reporting[251] - The effectiveness of internal control over financial reporting is subject to inherent limitations, including human error and resource constraints[252] - The company intends to continue monitoring and upgrading internal controls as necessary, but cannot guarantee their effectiveness[252] Legal and Risk Management - There are currently no pending legal claims or actions that could have a material adverse effect on the company's operations, financial condition, or cash flows[254]