C3.ai, Inc.

Thank you for your patience. Today's call will begin momentarily. Good afternoon, and thank you for attending today's C3AI third quarter fiscal earnings call. My name is Amber, and I will be your moderator for today's call. All lines will be muted during the presentation quarter of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. It's now my pleasure to hand the conference over to our host, Paul Phillips with C3AI. Paul, please proceed. Thank you.

Good afternoon and welcome to C3AI's earnings call for the third quarter of fiscal year 2022, which ended January 31st, 22. My name is Paul Phillips and I'm the Vice President of Investor Relations. With me on the call today is Tom Siebel, Chairman and Chief Executive Officer. After the market closed today, we issued a press release with details regarding our third quarter results, as well as a supplement to our results, both of which can be accessed on the investor relations 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 will 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 get 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? Thank you, Paul.

And hi, everybody. Thank you for joining us today. I'm very pleased to give you a briefing on the results of the quarter that we recently concluded. It was a great quarter. Our third quarter results displayed strength in all aspects of our business, including revenue growth of 42% year over year. New business activity was exceptionally strong. Our results were driven by substantially increased sales momentum due to the successful refocusing of our sales organization, continually expanding customer count, the continual expansions of the C3 application footprints within existing customers, and increased industry diversification for our AI products and sales. Highlights of the third quarter include revenue. Total revenue of the quarter was $69.8 million, an increase of 42% year-over-year. Subscription revenue for the quarter was $57.1 million, an increase of 34%. Customer count increased 82% year-over-year to 218. Non-GAAP gross profits for the quarter was 55.8 million, an 80% gross margin. And significantly, our GAAP RPO now represents 168% of Q3 annualized sales. Let me touch on customer wins and expansions. Business from contracts executed in the quarter showed substantially increased industry diversification. 32% was from utilities, 30% of our business was from chemical industry, 20% from agribusiness, 12% from financial services. I've spoken in the past about our emphasis to increase our business with small and medium customers, and I'm pleased to report that we've made excellent progress in that regard. During the quarter, we executed 12 agreements, less than $1 million, three contracts between $1 million and $5 million, two transactions between $5 million and $10 million, and three agreements in the range of $10 to $50 million. Shell, which is one of our largest customers, continues to expand its C3 application footprint with over 10,000 devices currently monitored by C3 AI machine learning models and 23 large-scale assets in production deployment, including Pertus, the largest refinery in Europe, and Nigeria LNG. Understand, so by asset, we're not talking about here by a pump. We're not talking about a valve. By asset, we're talking about Pernas. Pernas, for those of you who know, this is the largest refinery in Europe. I think they process half a billion barrels of oil a day, and this would be an asset the size of, say, border of magnitude of, say, 10 aircraft carriers. So that's what they call an asset. And they have 23 assets that size currently in production. Shell currently processes 1.3 trillion predictions per month with the C3 AI suite and Shell expanded both the duration and the scale of its contractual relationship with C3 during the quarter. The Department of Defense awarded C3 AI a five-year, $500 million transaction agreement, accelerating the ability for any DoD agency to acquire the company's suite of enterprise AI application products and services, basically without an RFP and without competitive bidding. We achieved a new production deployment with the Defense Counterintelligence and Security Agency and secured additional business with the U.S. Space Force. Lyondell Bissell, one of the world's largest plastic and chemical companies, signed a five-year, significantly expanded contract to accelerate the deployment of additional enterprise AI and machine learning applications across the company. Royal Philips, a global leader in health technology, closed a new and expanded contract with C3 to enhance resiliency, visibility, and agility for Philips supply chains across the company's North American operations. Cargill substantially increased and extended its C3 AI contract to expand its deployment of C3 AI supply chain suite applications. Engie Our energy services partner expanded the use and extended the term of its C3 AI contract to deliver a broader range of AI-enabled end-to-end energy and sustainability, think ESG, solutions to serve both the public and private sectors. Swift, the global provider of secure financial messaging services, expanded its relationship with C3.ai, leveraging the C3.ai financial services suite. Our business activity with our joint venture alliance partner, Baker Hughes C3.ai, continues to accelerate globally. I'll talk more about that later. And our customer account increased substantially year over year. touch upon a few other corporate highlights. Sales. In the third fiscal quarter, the company successfully refocused its sales organizations to its traditional strategic accounts engagement model, delivering immediate and positive results. Leadership. C3II appointed Lisa Davis to its board of directors. Lisa is a recognized global leader in industrial and energy industry, bringing more than 30 years of experience to the company. She has served in various capacities and leadership positions with several of the world's largest corporations, including Texaco and Shell, and is CEO of Siemens Gas and Power. we received some very significant AI tailwinds in the federal sector when the president signed into law in December the fiscal year 2022 National Defense Authorization Act. And in that act, section 227 requires that, and I quote, the Secretary of Defense shall ensure that to the maximum extent practicable, commercial artificial intelligence companies are able to offer platform services and applications and tools to the Department of Defense components through processes under Part 12 of the Federal Acquisition Regulations. We believe this represents a secular change in procurement policies for AI solutions for DoD requiring primacy in the selection and use of commercial off-the-shelf software solutions from commercial vendors like C3 AI, rather than traditional custom development by custom project-specific developers that have been largely proven to be unsuccessful. We believe this will help to continue to accelerate C3 AI's federal business in the coming years.