Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- C3.ai Inc (AI, Financial) exceeded expectations for revenue, cash flow, and profitability in Q1 FY2025.
- The company achieved its sixth consecutive quarter of accelerating revenue growth, with total revenue reaching $87.2 million.
- Subscription revenue increased by 20% year-over-year, contributing significantly to the total revenue.
- C3.ai Inc (AI) closed 71 agreements in Q1, including 72 new pilots, marking a 117% year-over-year increase in pilot count.
- The company has a strong cash position, ending the quarter with over $760 million in cash, cash equivalents, and investments.
Negative Points
- C3.ai Inc (AI) reported a GAAP operating loss of $72.6 million for the quarter.
- The company expects short-term pressure on gross margins due to a higher mix of pilots, which carry greater costs during the pilot phase.
- Operating margins are also expected to face short-term pressure due to additional investments in salesforce, R&D, and marketing.
- Despite strong bookings, the company maintained its previous annual revenue guidance, which may raise concerns about future growth expectations.
- The competitive landscape remains challenging, with internal IT organizations often attempting to build similar AI applications in-house.
Q & A Highlights
Q: Can you start out by characterizing what the tone of business was like for you guys in Q1? Specifically, I'm looking at your deal band chart, where you had 71 deals and the average TCV is $700,000.
A: The business environment is quite dynamic, especially with the advent of generative AI. The complexity of the AI market makes it difficult to model, but we are seeing a broad range of applications for enterprise AI, many of which were unanticipated. The public sector, law firms, and medical diagnostics are some areas where we have found significant opportunities.
Q: Given how strong the bookings seem to be, why didn't the guidance for the year go up?
A: Our guidance still represents 19% to 27% revenue growth, making us one of the fastest-growing companies in the public software company universe.
Q: On the subscription revenue, it has been a little lumpy. Can you give us some color on the trends?
A: Under ASC-606, certain things that used to be called software are now called services. We've guided that our services revenue would be 10% to 20% of revenue in any given quarter, and this quarter it was 16%. Our services margins are quite high, over 90%, so it's a good business for us.
Q: Are the size and value of the pilots for standard and generative AI as expected?
A: The middle-of-the-road pilot for enterprise AI is about $0.5 million, and for generative AI, it's about $0.25 million. Generative AI pilots usually take three months to complete, while enterprise AI pilots take six months. We expect about 70% of our pilots to convert to production contracts.
Q: What gives you confidence in the Q2 revenue guidance, which implies a significant step-up in growth?
A: Our guidance is based on our best professional judgment. We've been public for 15 quarters and have been accurate in our guidance each time. The best indicator of our future performance is our guidance.
Q: Can you speak to the partner efforts outside of Google Cloud Platform (GCP)?
A: Our relationships with AWS and Microsoft Azure are also strong. We are great partners for these companies because our applications drive substantial workload in their compute and storage clouds, adding immediate value to our joint customers.
Q: For the state and local agreements, were most of those pilots?
A: Yes, they almost all began as pilots. They typically last one to three months, and the majority convert to production contracts.
Q: Any change in the competitive dynamics out there? Who do you run up against the most these days?
A: The de facto competition is the IT organization or CIO trying to build these applications themselves. These are often our best prospects as they realize the difficulty of scaling AI applications without the right platform.
Q: What are the trends in expenses for the next quarter or two?
A: We plan to continue making investments in our sales force, R&D, and marketing efforts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
