C3.ai(AI) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Total revenue for Q1 FY25 was $87.2 million, a 21% YoY increase, exceeding analyst expectations [7][8] - Subscription revenue grew 20% YoY to$ 73.5 million, representing 84% of total revenue [8][27] - Non-GAAP gross profit was $60.9 million with a 70% gross margin [8] - Non-GAAP operating loss was$ 16.6 million, better than the guidance of $22 million to$ 30 million [8] - Net cash provided by operating activities was $8 million, and free cash flow was$ 7.1 million [8] - The company ended the quarter with $762.5 million in cash, cash equivalents, and marketable securities [28] Business Line Data and Key Metrics - The company closed 71 agreements in Q1, including 72 new pilots, marking a 117% YoY increase in pilot count [9] - State and local government business grew over 500% YoY, with 25 agreements signed in Q1 [9][12] - C3 AI Federal business represented over 30% of bookings for the quarter, with new agreements signed with the U.S. Air Force, Navy, Marine Corps, and Intelligence Community [13] - Partner-supported bookings grew 94% YoY, with 72% of total agreements closed through the partner ecosystem [15][16] Market Data and Key Metrics - The company expanded its footprint in state and local governments across multiple U.S. states, including Texas, California, and Florida [9] - The public sector market in Europe is expected to more than double the addressable market [12] - The company signed 40 agreements with Google Cloud in Q1, a 300% YoY increase, driven by joint campaigns focused on the public sector [16] Company Strategy and Industry Competition - The company is focused on expanding sales capacity in North America, Europe, and the public sector [15] - C3 AI's platform is designed to deliver pre-built AI applications quickly, differentiating it from legacy software companies and modern data integration platforms [18][19][20] - The company leverages partnerships with hyperscalers like AWS, Google Cloud, and Microsoft to drive workload in their compute and storage clouds [16] Management Commentary on Operating Environment and Future Outlook - Management highlighted the complexity of the AI market, particularly with the advent of generative AI, and the difficulty in modeling the business [42][43] - The company expects to be free cash flow positive in Q4 FY25 and for the full fiscal year, despite short-term pressure on gross and operating margins due to higher pilot mix and investments in sales, R&D, and marketing [30][32] - Revenue guidance for Q2 FY25 is$ 88.6 million to $93.6 million, with full-year guidance maintained at$ 370 million to $395 million, implying a YoY growth rate of 19% to 27% [31] Other Important Information - The company launched C3 Generative AI for government programs in Q1, with a pilot signed with a state on the U.S. East Coast [24] - C3 AI's customer base continues to expand, with significant success in improving manufacturing outcomes for Nucor Corporation and enhancing grid resiliency for Eletrobras [14][15] Q&A Session Summary Question: Tone of business in Q1 and deal size - The tone of business was described as "wild," with generative AI driving complexity and unexpected opportunities in sectors like public sector, law firms, and medical diagnostics [41][42][43] Question: Why guidance didn't increase despite strong bookings - The company maintained its full-year revenue guidance of$ 370 million to $395 million, representing 19% to 27% YoY growth, as it remains one of the fastest-growing companies in the software sector [44] Question: Trends in subscription revenue and expenses - Subscription revenue is expected to remain lumpy, with professional services revenue bouncing around 10% to 20% of total revenue, averaging 15% [46][47] - The company plans to continue investing in salesforce, R&D, and marketing efforts [50] Question: Competitive dynamics - The primary competition comes from IT organizations and CIOs attempting to build AI applications themselves, often leading to failures and eventual return to C3 AI [51][52][53] Question: Pilot growth and Q2 revenue guidance - The value of pilots remains consistent, with enterprise AI pilots averaging$ 0.5 million and generative AI pilots averaging $0.25 million [56] - Confidence in Q2 revenue growth is based on the company's track record of meeting or exceeding guidance for the past 15 quarters [58] Question: Partner efforts outside of Google Cloud - The company has strong partnerships with AWS and Microsoft Azure, with all hyperscalers benefiting from C3 AI's ability to quickly deploy applications and drive cloud resource consumption [62] Question: State and local government agreements - Most state and local government agreements begin as pilots, with the majority converting to production contracts [63][66]