C3.ai, Inc.

Good day and thank you for standing by. Welcome to the C3AI first quarter fiscal year 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I'd now like to hand the conference over to your first speaker today, Mr. Paul Phillips, Vice President of Investor Relations. Please go ahead, sir.

Good afternoon and welcome to C3AI's earnings call for the first quarter of fiscal year 2022, which ended July 31st, 2021. This is Paul Phillips, Vice President of Investor Relations of C3AI. And with me on the call today are Tom Siebel, Chairman and CEO, and Dave Barter, CFO. After the market closed today, we issued a press release with details regarding our first quarter results, as well as a supplement to our results, both of which can be accessed on the IR section of our website at ir.c3.ai. This call is being webcast, and a replay will be available on our IR website following the conclusion of the call. During today's call, we will make statements relating to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a further discussion of the material risks and other important factors that could affect our actual results, please refer to our filings with the SEC. Also, during the course of today's call, we'll refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release. Finally, at times in our prepared comments, in response to your questions, we may discuss metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future. With that, let me turn the call over to Tom for his prepared remarks. Tom?

Okay. Thank you, Paul, and good afternoon, everyone. I am most pleased to provide you an update on our first quarter results and provide some comments on the state of the business as we see it. We posted another set of strong results in the first quarter. We continue to make great progress in solidifying our position as the pure play enterprise AI application software company. Our progress continues as planned on track. Our products are powering some of the world's largest enterprise AI application deployments as we extend our production footprint across industries and regions globally. Our first quarter performance was a strong start to the new fiscal year. Let's look at some of the financial and business highlights. Total revenue for the quarter was $52.4 million, up from $40.5 million a year ago, an increase of 29% year-over-year. Subscription revenue was $46.1 million, up from $35.7 million one year ago, an increase of 29% year-over-year. Non-graph gross profit was $40.9 million, a 78% gross margin compared to $30.2 million gross profit, a 75% gross margin a year earlier. This was an increase in gross margin of 35% year-over-year. Our remaining performance obligations or RPO was $290.6 million compared to $275.1 million a year ago, an increase of 6% year-over-year. Non-GAAP RPO was $357.3 million compared to $279.5 million a year ago, an increase of 28% year over year. We ended the quarter with 89 Enterprise AI customers, an increase of 85% year over year. As we have previously discussed, historically, our business has been characterized by quarter-to-quarter lumpiness due to the substantial size of our average order value. Now, as application sales become an increasing large part of our revenue mix, roughly 50% of our subscriptions last quarter in Q1 accrued from application software. We are increasingly offering lower-priced, high-value products like C3 AI CRM and Ex Machina. And as we've discussed, we've been diversifying our distribution model to complement enterprise selling with telesales, distributors, market partners, and direct marketplace selling. While we have not yet fully eliminated the lumpiness from our business model, we have made great progress, with average subscription total contract value shrinking from $16.2 million in fiscal year 19 to $12.1 million in fiscal year 20 to $7.2 million in fiscal year 21 to $4.5 million in the quarter ended July 31. It's my expectation that this average contract value will continue to increase going forward as we continue to add diversity to both our product mix and our distribution model. Our average revenue per customer in the first quarter was $535,000. Let's talk about our market partner ecosystem. We significantly expanded this partner ecosystem in Q1, entering an important, highly strategic alliance with Google Cloud to allow the entire Google Cloud global sales and service organization to co-sell and service the entire family of Sheet 3 AI applications globally. The two companies... will tightly integrate C3 AI and Google Cloud technologies and go-to-market initiatives with the effect of accelerating enterprise AI adoption. The comprehensive alliance includes coordinated software development roadmaps, tight product integration, as well as joint selling, joint marketing, marketing, and joint customer success programs at global scale. C3.ai and Google Cloud will regularly synchronize our software engineering roadmaps and activities to ensure that the Google Cloud, Google Cloud applications, and the C3.ai suite and AI enterprise applications are fully optimized and tightly integrated. The companies will engage in significant ongoing marketing development activities and will coordinate sales and service activities globally to assist small, medium, and large enterprise customers to accelerate the adoption and time to value of their enterprise cloud AI applications. We expect this partnership will dramatically accelerate the adoption of enterprise AI applications across all industry segments and will prove an additional growth engine for C3 AI. Microsoft. Our partnership, our strategic partnership with Microsoft continues to expand. To date, we have closed more than $200 million in business with Microsoft. Our joint teams are currently working a pipeline of more than $350 million in specific opportunities. Recent wins with Microsoft include the United States Missile Defense Agency, Cargill, Ball, Cummins, the United States Air Force Rapid Sustainable Office. And we continue to make great strides in the market in Europe, in North America, in federal. And it is a very, very important relationship. C3 AI CRM, we are seeing increased interest in the C3 AI CRM family of applications that address the currently installed investments of CRM systems. And these investments are estimated to be well in excess of $500 billion. When you think about it, you know, C3 CRM sales and software sales this year will be $120 billion this year alone. So, you know, we put some number of years of investments of, you know, Salesforce, Siebel, SAT, Dynamics, Accenture, PwC, Deloitte, et cetera. This is, you know, there's no way you don't get to a number greater than a half a billion dollar installed, half a trillion dollar installed base. Now, with C3AICRM, companies can easily upgrade their existing Salesforce deployments, their Dynamics deployments, Siebel deployments, ServiceNow, Viva, SAP, CRM, and retain those investments, but at the same time make them fully predictive, including now precise AI revenue forecasting, AI product forecasting, next best product, next best offer, customer retention, and customer satisfaction management. As you can imagine, we are seeing really substantial interest from the largest integration partners that see this as an opportunity to upgrade and add additional services into their existing CRM installed base. And so you can expect from this to see additional market partner announcements in this area in the coming quarters. Customer momentum. We expanded our enterprise AI footprint in the first quarter in defense, in chemicals, in financial services, manufacturing, oil and gas, energy, sustainability, and utilities. We have new, quite significant enterprise production deployments went live at Lionel, Basel, Shell, Engie, and Con Edison. We initiated new enterprise AI projects with Baker Hughes, Ball Corporation, Cargill, Cummins, Engie. FIS, Koch Industries, the Missile Defense Agency, Morse code, and Standard Chartered Bank. And we significantly expanded business with Cargill, Lyondale Basel, and Standard Chartered Bank. In the course of the quarter, we continued to advance our product leadership position in Enterprise AI. In the first quarter, we released two major upgrades to the C3 AI suite. And we have now released 40 enterprise AI software applications into production for banking, for manufacturing, for telecommunications, public sector, energy, utilities, defense, and intelligence. We also released a new version of C3 AI Energy Management, a solution that helps enterprise control and mitigate greenhouse gas emissions and manage energy consumption and energy costs. And we launched C3.AI Ex Machina, our no-code AI and analytics platform that anyone can use and continue to deliver new features to enhance and simplify the user experience. We gained quite a bit of additional industry recognition in the course of the quarter. C3.AI was named the leader in the IDC marketscape worldwide for industrial IoT applications. The C3 IDC marketplace positioned C3 AI as the leader for being an AI platform provider. Importantly, our customer at the Air Force Rapid Sustainment Office was selected as a finalist for the Constellation Supernova AI and Data Award. This is the highest honor in enterprise AI application excellence. And this is an award that was won last year by C3AI customer Shell for its C3AI enterprise AI accomplishments in production use. We continue to grow our enterprise AI production application footprint through both new customer acquisitions and expanded use by existing customers. We had 101 discrete applications in production at the end of the first quarter, up from 67 a year earlier. Operating at massive scale, as of the end of the first quarter, the C3 AI suite applications were integrated with roughly 850 unique enterprise and enterprise data sources. We're processing 1.7 billion predictions per day. We're managing 24 in excess of 24 trillion data elements and evaluating in excess of 33 billion machine learning features daily. We've been doing a lot of work, as you've seen, in the media and online in brand awareness. And we considerably extended our brand leadership for enterprise AI, capturing both the number one and number two internet search positions for that category in the first quarter. And we exceeded the next closest competitor by a factor of three to one. C3 AI Digital Transformation Institute, I want to make a few comments about that important initiative. We continue to invest in our important university partnerships at UC Berkeley, the University of Illinois at Urbana-Champaign, Princeton, MIT, Carnegie Mellon, Stanford, the University of Chicago, and KTH in Sweden with the C3 AI Digital Transformation Institute. In the first quarter, We announced and funded $4.4 million in initial cash awards to support 21 groundbreaking research projects focusing on using the C3 platform and developing new AI techniques to advance energy efficiency and lead the way to a lower carbon, higher efficiency economy. We've been doing a lot of work really in focusing in leadership and sales leadership in the company, importantly with the addition of former VMware and SAP executive Sam Alkarad as President and Chief Revenue Officer to lead the global expansion of C3 AI's. sales and customer service organizations. Sam is an experienced and proven sales executive with a long track record of building and managing highly effective sales and customer service teams. Sam previously served as Senior Vice President and Global Head of Sales for VMware's Tanzu portfolio of applications that was roughly a billion dollar software business. And prior to VMware, Sam held a number of senior executive positions at SAP. Human capital. We continue to be just extraordinarily fortunate in the quality of human capital that we're able to attract from leading universities and from other organizations globally. In the first quarter, believe it or not, we received just shy of 6,200 – I'm sorry, 9,200 employment applications. And from that, I think we interviewed 1,500 people and added 54 net new employees. And people are as bright and experienced as they get. We ended the quarter with 628 full-time employees. And as you can see on the internet, C3 AI continues to be ranked amongst the best places in the world to work by Glassdoor. So in summary, the enterprise AI application software market is rapidly growing. We see accelerating interest in our applications across industries, geographies, and market segments. We are aggressively investing to extend our product and technology leadership, to expand our market partner ecosystem, and the associated distribution capacity that comes along with that ecosystem. As we continue to execute in delivering high value outcomes for our customers, we are increasingly well positioned to establish a global leadership position in enterprise AI application software. Bottom line, our performance in the first quarter was strong across the board, and we're planning for continued growth in this year and accelerating growth next year. Overall, I would say the progress of the company is exactly on track with the plan that we laid out for you before the IPO and during the IPO and has updated in the past two quarters. I believe the company has never been better positioned to achieve its objective of establishing a clear market leadership position in enterprise AI application software globally. I'll now turn this over to our CFO, David Barter, for more color on the quarters.