C3.ai, Inc.

Good day, and welcome to the C3AI's fourth quarter fiscal year 2024 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Amit Berri. Please go ahead.

Good afternoon, and welcome to C3AI's earnings call for the fourth quarter of fiscal year 2024, which ended on April 30, 2024. My name is Amit Berri, and I lead investor relations at C3AI. With me on the call today is Tom Siebel, Chairman and Chief Executive Officer, and Hitesh Lath, Chief Financial Officer. After the market closed today, we issued a press release with details regarding our fourth quarter results, as well as a supplemental to our results, both of which can be accessed through 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 related to the 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 on material risks and other important factors that could affect our actual results, please refer to our filings with the SEC. All figures will be discussed on a non-GAAP basis unless otherwise noted. Also during 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 remarks, in response to your questions, we may discuss metrics that are incremental to our usual presentation to give 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. And with that, let me turn the call over to Tom.

Thank you, Amit. Good afternoon, everyone, and thank you for joining our call today. Hitesh and I are pleased to share with you our results for the fourth quarter and for the entire fiscal year of 2024. Q4 was a great quarter and the end of a huge year for C3 AI. We exceeded all expectations for revenue, cash flow, and profitability. Let me be clear. There were no expectations that we did not exceed. This was our fifth consecutive quarter of accelerating revenue growth. Our quarterly year over year revenue growth has accelerated from 11% in Q1 to 17% in Q2, 18% in Q3, and now 20% in Q4 fiscal year 24. Our quarterly subscription revenue has also significantly accelerated going from 8% in Q1 to 12% in Q2, 23% in Q3, and 41% in Q4 on a year-over-year basis. We finished the quarter with $86.6 million in revenue, exceeding the high end of both our guidance and analysts' expectations. I'll note that this is the 14th consecutive quarter as a public company in which we have met or exceeded our revenue guidance. For the quarter, subscription revenue was $79.9 million, accounting for 92% of total revenue and increasing 41% from a year ago. Our non-GAAP gross profit was $60.9 million, representing a 70% gross margin. Our GAAP operating loss was $82.3 million. Our non-GAAP operating loss was $23.4 million, better than our guidance for a loss of $43.5 to $51.5 million. Our non-GAAP net loss per share was 11 cents. We generated a free cash flow of $18.8 million to end the quarter with $750.4 million in cash, cash equivalents, and investments, again, exceeding analyst consensus. Full-year results exceeded both the high end of our guidance and analyst expectations with record revenue of $310.6 million, a 16% increase over last year. Subscription revenue was huge. $278.1 million, a 21% increase over last year. Now with the transition that we went through to pay-as-you-go consumption pricing, we are engaging in a much larger number of smaller transactions of shorter term. This offers us greater revenue visibility and greater revenue predictability. Our average CCV has plummeted as a result from over $16 million in fiscal year 19 to $900,000 last quarter. As we work through this pricing transition, we are seeing, as expected, at first a decline and now a return to accelerating revenue growth. Also, as expected, we are seeing a reduction in RPO. We expect RPO to continue to decline in the next few quarters as we expect revenue to increase. This is a mathematical certainty from the change in our go-to-market model And I'm not certain at all that RPO is a valid leading indicator of our business in the short term going forward. Let's take a look at the AI value stack. There clearly is a market frenzy today around AI infrastructure. Now, when you look at the value stack at AI, at the bottom you have silicon, above that you have infrastructure, above that you have foundation models, and on top of all of that, you have enterprise AI applications. C3AI plays at the top of the stack, focused exclusively on enterprise AI applications. Now, we believe that in the long run, silicon and infrastructure get commoditized and AI applications dominate the value stack. As an analog, think about the early stages of the personal computer market. At the beginning, most of the value was in the silicon and the infrastructure. Think about the IBM PC XT that you might have used in 1983. It cost $7,900. In today's dollars, that would be $22,000. You might have had $200 to $300 worth of software running on that machine that you purchased from BusyCalc or Lotus or wherever. Now, that PC that's on your desk today costs your company about $200 a year in depreciation expense for the hardware and another $200 a year or so for infrastructure costs. By the time you have all the applications you're running on that computer, be it Bloomberg, SAP, CRM, whatever it might be, those applications can exceed $8,000 a year in total cost. Well, the AI era will be no different. Okay, and the same game is going to play out as we move forward. The bulk of the value is going to accrue to the applications that leverage the entire AI stack and deliver value to the business. Silicon will get commoditized. It always gets commoditized. Infrastructure will get commoditized. It always gets commoditized. What doesn't get commoditized in the long run are the applications, and that's where C3 AI plays. Let's take a look at the market dynamics in AI. This is proving a headwind for some companies, as we're seeing, and it's proving a tailwind for some companies. For us, it is clearly a tailwind. The primary competitor to C3 AI remains try to build versus buy. Building AI applications for an enterprise is incredibly difficult and unlike anything CIOs have encountered before. In fairness, Most CIOs have their hands full trying to install single sign-on, trying to get their security firewalls to work, and trying to figure out how to manage over budget, delayed, sometimes multi-billion dollar SAP upgrades from Accenture and Deloitte. Developing enterprise scale application software is simply not what they do. The extensive infrastructure and software services required to operate AI applications to scale are exceptionally complex and not feasible for most companies to manage with an in-house team of IT engineers. Today, many companies are dabbling in trivial AI projects or relying on outside integrators to try to cobble together something that works. These are nothing more than large and expensive experiments. Nobody succeeds. In reality, enterprise customers don't want to buy tools to build applications. They want to buy applications. We've already proven this. We've proven it in the relational database market. We've proven it in the ERP market. We've proven it in the CRM market. At C3.AI, we've dedicated 15 years and a couple billion dollars worth of software engineering in building a powerful AI platform that underpins some of the largest enterprise AI deployments on Earth today. We started this effort in 2009 before anybody even talked about enterprise AI, before Azure existed, before GCP existed, before the GPU existed. With significant first mover advantage, we serve the market today with 90 enterprise AI and generative AI applications that offer outsized economic benefit. Our business is focused on enterprise AI applications. In fiscal year 24, 88% of our bookings were driven by AI application sales and 12% of our bookings were driven by the see-through AI platform. Our pilot count surged to 123 for the year as we closed 191 agreements, now across 19 different industries, underscoring the effectiveness of these products in meeting complex business needs across many business sectors. Our bookings distribution for the fourth quarter was approximately 50% federal defense and aerospace, 15% oil and gas, 11% state and government, 7% manufacturing, 6% energy and utilities, 5% consumer packaged goods, 5% professional services. This increase in bookings diversity would be a leading indicator for C3AIs. Our pilot distribution for the fourth quarter was 29% manufacturing, 21% federal defense and aerospace, 12% agriculture, 9% chemicals, 6% life sciences, 6% oil and gas, 6% state and local, 6% energy and utilities, and 3% logistics and transportation. This pilot diversity is going to be a future indicator of where you'd expect this company to be going. Now, let me provide a brief update on some of our recent product advancements. First, version 8 of our platform and applications is providing customers with an order of magnitude improvement in speed, efficiency, and overall performance. With version 8, it is now more than 20 times faster to ingest data, train machine learning models, and infer time series features and customers can run thousands of applications in a single C3 AI platform cluster to reach highly scalable deployments. The C3 AI community is the name of our interactive training, online help, and developer platform. It is becoming a thriving ecosystem for engagement and collaboration amongst C3 developers and data scientists around the world. This year, we supercharged the C3 AI community by delivering C3 generative AI co-pilot, which instantly answers questions and generates code for programmers to massively increase developer productivity on the C3 AI platform. Let me talk a little bit about customer traction. We are witnessing increased usage amongst our customers. Cargill has expanded from 13 to 18 plants in production in the past year. Breaker Q's sourcing optimization is now deployed across 855 sites and three business segments with 2,000 users, offering a potential savings of $100 million a year. C3 AI reliability is now deployed at 12 plants at Patronus, monitoring 4,000 control valves and realizing $25 million a year of annual loss avoidance. Dow is enhancing its predictive maintenance capabilities with C3 AI reliability and has announced that it's expecting to decrease downtime for steam cracking furnaces in polyethylene production facilities by 20%. Wholesome, a large European construction products company, started with C3 AI reliability production pilot in May of 2023 and now has 31 facilities in production running over 200 machine learning models to monitor 3,000 sensors from critical equipment, including vertical roller mills. According to Rose Wesby, who is head of plants of Tomorrow at Wholesome, this is a quote, C3AI is playing an important role at Wholesome's digital transformation, providing innovative AI solutions that drive efficiency and sustainability. She continues, the collaboration between C3 AI and Wholesome has led to advancements in operational efficiency at scale, raising the bar for predictive maintenance in our sites. Thanks to C3 AI's platform, Wholesome has achieved a step function change in performance asset lifestyle management, improving our reliability and capacity for our customers, as well as reducing environmental impact. Con Edison, a C3 AI customer since 2017, uses the C3 AI platform to improve everything from operational and energy efficiency to public safety, billing performance, and customer satisfaction. According to Tom McGee, who is general manager for Con Ed's advanced metering infrastructure project, And I quote, the AMI project, the largest in history, included the deployment of 5.3 million smart meters and resulted in significant benefits such as improved outage management and energy efficiency. The use of AI and machine learning has enhanced public safety, optimized grid operations, and achieved substantial energy savings and emissions reductions for our customers. We monitor our customer satisfaction very closely and our customer satisfaction levels are well above industry averages for enterprise application software. We talked a little bit about the strength that we're seeing in the US federal market. We had a strong quarter and closed out a remarkable year for the federal business with revenue growing more than 100% in 2024. Our transaction in this vertical is increasing, establishing it as a significant growth engine for C3 AI going forward. Last year, we closed 65 agreements with federal agencies and made inroads into 10 new federal organizations. In Q4, we entered into 13 new and expanded agreements with the U.S. Air Force, the U.S. Navy, the U.S. Intelligence Community, the Defense Counterintelligence and Security Agency, the Chief Digital and Artificial Intelligence Office, the Authorities Group, and the U.S. Marine Corps. Our expertise and leadership in predictive maintenance is clear when you look at the work we do with the U.S. Air Force and now the Navy. The U.S. Air Force Rapid Sustainment Office continues to expand their C3 AI footprint by increasing the capabilities and the number of weapons systems monitored on the predictive analytics and decision-assisted application. this system they call Panda. This is the system of record for all predictive maintenance projects within the RSO and the United States Air Force, optimizing fleet maintenance, increasing aircraft availability, and minimizing downtime. This application is now being applied to monitor two new weapons systems, the T-7 and the KC-46, and it's been expanded to include new capability for the B-1 bomber, the C-5, and the KC-135. According to Jimmy Lawrence, who is the Deputy Program Executive Officer for the Rapid Sustainment Office. C3AI, and this is a quote, C3AI's cutting-edge technology has been a game-changer for the U.S. Air Force, driving unparalleled advancements in predictive analytics and maintenance. The implementation of C3AI solutions has revolutionized the operational capabilities of the Air Force, leading to significant improvements in aircraft readiness and efficiency, unquote. We've also been working with the US Navy building on predictive maintenance program for C3AI and the US Air Force on the crowdsource flight data program at Nellis Air Force Base in Nevada. This new agreement also expands the Navy into the analysis of electronic emissions on the F-35 weapon system. Talk a little bit about the C3AI Partner Network. Our partners remain a key driver of growth and customer success as we continue to deepen our relationships with the major hyperscaler providers and system integration partners. Last year, we closed 115 agreements through our partner network, representing a 62% increase from the prior year. This includes 91 agreements with AWS, Google Cloud, and Azure. Our joint 12-month qualified pipeline with partners grew by 63% year over year. Our business activity with Google Cloud has increased considerably. In Q4 alone, we closed 12 pilots with Google Cloud. There's a massive amount of support from GCP in pursuing our state and local pilots, and Google has committed to invest with us in a big way in the first quarter. We've also substantially increased our partnerships with two firms, one Fractal and the other called Paradigm, partnering with them for professional services to support our version A upgrades, customer service engagements, and pilot delivery. These organizations have established dedicated practices around C3 AI and are committed to train over 200 C3 AI qualified engineers and data scientists in the coming year. Let's double click on C3 Generative AI. Folks, this is a massive opportunity. There is substantial and growing demand for our C3 Generative AI products The market is very much coming our way. The company launched 30, count them, 30 generative AI products in fiscal year 24, and we are being overwhelmed with market interest for these products. In Q4 alone, we received almost 50,000 inquiries from 3,000 businesses, each with revenue greater than $500 million, all expressing interest in our generative AI applications. 50,000. 10,500 in the 28 days of February alone. We currently expect this to expand to 90,000 inquiries in the first quarter of 25. Over the past year, C3 regenerative AI was piloted across 15 different industries, driving us deeper into new verticals and accelerating our industry diversification. If we look at the industries that we touched with these pilots, it would be like 21% federal defense and aerospace, 12% manufacturing, 10% ag, 10% state and local government, 7% financial services, 5% chemicals, 5% construction, 5% CPG, 5% energy utilities, 5% oil and gas, 5% pharmaceuticals and life sciences. The C3 generative AI remains a highly differentiated product offering in the generative AI market, providing customers with safe, secure, fast, reliable information from across their enterprise. It enables retrieval and reasoning across omnimodal data with deterministic responses fully traceable to ground truth sources. It offers robust enterprise controls, no incremental cybersecurity risk caused by or LLM-caused data leakage, minimal hallucination risk, poses no IP liability exposure from the LLM, and provides flexibility to be completely LLM agnostic. And we further demonstrated, we further differentiated C3 generative AI from other market offerings in the course of the year in many witty ways. We have a rich product roadmap for the coming year, and we will continue to invest in this product to drive innovation in the generative AI market. Okay, so to wrap this up, we see over the decades and as Inflation goes up and inflation goes down and markets boom and market bust. We see equity market mood swings. And great management teams don't build companies based upon the fad of the week. As it relates to equity markets, with increased inflation, the current pendulum has swung to a demand for instant cash generation and instant profitability. Now let's put this into perspective. It took Apple over a quarter of a century to be consistently profitable. A quarter of a century. How did that work out for Apple investors? It took Amazon 29 years to be consistently profitable. That generated roughly $2 trillion in investor value. These companies were going after large market opportunities, and they had conviction to invest for growth and market share along the way. regardless of the current fad that happened in response to market fluctuations quarter to quarter and kind of day to day. C3 AI is looking at addressing a potentially $1 trillion addressable software market. We believe this is the largest market opportunity in the history of software. We raised $1 billion in December of 2020. Think fast. before the world at large was even talking about enterprise AI. And we raised that money to invest in growth, to invest in technology leadership, to invest in brand leadership, and to invest in market leadership. The investments we've made since then have been well considered, prudent, and consistent with what we communicated to investors. Our investment plan is a lot longer than day-to-day investment cycles. So as it relates to guidance, we are expecting additional acceleration of C3EI revenue to approximately 23% in fiscal year 25. At the same time, make no mistake, we plan to continue to invest in growth as necessary to build, to establish market share, to establish a market leadership position, and to build a long-term cash-generating portfolio. profitable market-leading enterprise AI software company. Our revenue guidance for Q1 of fiscal year 25 is going to be $84 to $90 million. For the fiscal year, we're looking at $370 to $395 million. Our non-GAAP loss from operations, we're expecting to be, for Q1, between a $22 to $30 million loss And for the year, $125 to $95 million loss. And now I'll turn the call over to our most competent CFO, Hitesh, for additional color and detail. Hitesh.