Release Date: May 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- C3.ai Inc (AI, Financial) reported a 20% year-over-year revenue increase to $86.6 million for Q4, exceeding both guidance and analyst expectations.
- Subscription revenue surged by 41% year-over-year to $79.9 million, accounting for 92% of total revenue.
- The company achieved a non-GAAP gross profit of $60.9 million, representing a 70% gross margin.
- C3.ai Inc (AI) generated a free cash flow of $18.8 million and ended the quarter with $750.4 million in cash, cash equivalents, and investments.
- The company launched 30 Generative AI products in fiscal year '24 and received almost 50,000 inquiries from 3,000 businesses, indicating strong market interest.
Negative Points
- C3.ai Inc (AI) reported a GAAP operating loss of $82.3 million and a non-GAAP operating loss of $23.4 million for Q4.
- The transition to pay-as-you-go consumption pricing has led to a decline in average TCV from over $16 million in fiscal year '19 to $900,000 last quarter.
- The company's GAAP RPO at the end of Q4 was $244.3 million, down 36% from last year, indicating short-term pressure on revenue growth.
- Gross margins are expected to decline due to a higher mix of pilots, which carry greater costs during the pilot phase of the customer life cycle.
- C3.ai Inc (AI) anticipates a non-GAAP loss from operations between $125 million to $95 million for fiscal year '25, indicating continued investment in growth at the expense of short-term profitability.
Q & A Highlights
Q: Can you talk a little bit about how you achieved the 20-fold increase in improvements in Version 8? And how sustainable are those types of improvements? How long did that take to get? And then secondly, how scalable are the sales inquiries at this point?
A: Version 8 was a four-year engineering effort, involving a major architectural revamp. We won't see performance increases like that again for a while. Regarding sales inquiries, the interest in Generative AI has been overwhelming, with almost 50,000 inquiries last quarter. We believe we can handle up to 90,000 inquiries a quarter, but this is new territory, and the market looks bigger every time we assess it.
Q: Can you provide more details on the 50% of bookings from Federal, Defense, and Aerospace? What do you see for the pipeline in that vertical for the coming year?
A: The Federal sector is a significant growth engine. We've made inroads with the Air Force, Navy, and Intelligence Community, and we are investing heavily in this area. The Federal community is investing in AI significantly, and we are well-positioned to benefit from this trend.
Q: Can you give an example of a customer coming out of the Gen AI C3 pilot program and the role C3 AI played in getting them into production?
A: One example is a large law firm using our Generative AI to ingest the corpus of SEC.gov Edgar for generating the first draft of S1 filings. Another example is the U.S. Air Force using our platform for predictive maintenance on 22 weapons systems, significantly improving aircraft availability. These examples show the diverse applications of our Generative AI.
Q: How have newly converted customers ramped consumption compared to those who adopted the consumption model in previous quarters? Are you seeing consistency across cohorts?
A: We provided specific guidance last quarter. In the first quarter of production, customers consume about 370,000 GPU hours, ramping up to 1.3 million by the tenth quarter. This data is empirically accurate and shows a consistent ramp in consumption.
Q: How are sales cycles compared to a year ago? Are customers demonstrating a positive trend as they identify benchmarks and TCO to secure budget?
A: Last quarter, we mentioned that the sales cycle was about 3.5 months. I don't have the hard data for this quarter, but I don't think it has changed appreciably.
Q: With the high number of inquiries for your product, do you think this could drive further upside on the revenue side in the next year or two?
A: We are facing a staggeringly large addressable market. Our goal is to establish a market leadership position in Enterprise AI applications. If we succeed, the stock price could be multiples of its current value. However, it's too early to provide specific guidance for fiscal year '26.
Q: Can you explain the margin degradation due to the number of pilots? How does this work?
A: We offer to bring an Enterprise AI application live in six months for $0.5 million, significantly less than what traditional integrators charge. We invest whatever it takes to make the customer successful, even at a loss if necessary. This drives margin degradation, but we believe the pilots are enormously profitable in aggregate.
Q: Last quarter, you mentioned expecting positive free cash flow for fiscal year '25. Is there any update on that?
A: As per our current business plan, we still expect to achieve positive free cash flow for fiscal year '25.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
