Q3 2021 C3Ai Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the C. Three AI third quarter fiscal year 2021 earnings 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 one on your telephone if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your Speaker today, Paul Phillips Vice President of.
Of Investor Relations at C. III AI. Thank you. Please go ahead Sir.
Good afternoon, everybody and welcome to C. III <unk> earnings call for the third quarter of fiscal year 2021.
And at January 31, 2021.
This is Paul Phillips, Vice President of Investor Relations of C. III AI with me on the call today are Thomas <unk>, Chairman and Chief Executive Officer and day.
David Barter Chief Financial Officer.
After the market's close today, we issued a press release with details regarding our third quarter results as well as a supplement to our results of both of which can be accessed on the investor Relations section of our website at IR Dot C. Three Doc 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 our business that may be considered forward looking under federal securities laws.
These statements reflect 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.
These risks are summarized in the press release that we issued today for a further discussion of the material risks and other important factors that could affect our financial results. Please refer to our filings with the SEC, including our prospectus also during the course of today's call, we will refer to certain non-GAAP financial.
Measured of.
A reconciliation of GAAP to non-GAAP measures is included in our press release.
Finally at times, and our prepared comments or responses 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 and the future.
With that let me turn the call over to Tom for his prepared remarks Tom.
Thank you Paul and good afternoon, everyone.
It's my great pleasure to have the opportunity to spend.
Some time with you this afternoon.
So let's talk about.
The company and talk about the market overall, we're really quite pleased with the progress that we continue to make and the market globally.
We continue to break ground.
As the only enterprise AI software of peer play this.
This is a large and rapidly growing market. We continue to innovate we continue to expand our market partner ecosystem and the associated increased distribution capacity associated with that.
We continue to demonstrate technologies leadership.
And I believe that we are increasingly well positioned to establish.
Global market leadership position and enterprise AI software.
So let's talk about the financial highlights all and all it was a strong third quarter revenue and the third quarter was $49 1 million.
$42 $7 million of that was subscription revenue and increase of 23 per cent.
From a year earlier subscription of increased to 87% of our revenue mix.
Services revenue for the quarter was $6 4 million or 13% of total revenue representing a decrease of 4% from a year ago.
Non-GAAP operating and especially for the quarter increased to $49 2 million up 27% from a year ago and non-GAAP operating loss for the quarter was $11 9 million compared to $8 4 million a year ago.
Let's talk about the overall state of the market.
When we think about.
Enterprise AI and digital transformation, we are focused on and extraordinarily large addressable market that according to analysts was.
The $74 billion and 2020, increasing to $271 billion by 2024. This is.
A significant opportunity by any standard and the largest software and market opportunity that I've seen in my professional career.
Digital transformation enabled by enterprise AI remains at the top of the agenda of virtually every CEO and board globally.
We see increasingly robust interest and demand for enterprise AI solutions.
And and our pipeline continues to grow substantially across all reason all industries and all regions.
And the address a few significant.
Few of the significant customer wins and the third quarter of firstly in four.
Okay. We have formed a strategic wide range of your relationship with and for a multibillion dollars ERP software provider under the terms of the agreement and four will be integrating many existing and.
And for applications with the C. Three AI suite.
And.
The C III AI applications and market sell and deploy.
AI based solutions to their customers under the inflow of brand this will evolve into a broader partnership with infor to market and <unk> solutions to and for customers, including C. Three AI reliability C. III AIC RM.
And the AI ex Mark and our next generation and predictive analytics application and empowers anyone could develop the scale and produce AI based insights without writing code.
Secondly, I wanted to talk about Johnson controls and Milwaukee Johnson controls recently selected C. Three AI for the inventory of supply chain optimization.
Just the controls.
$23 $5 billion company with a leading manufacturer of fire.
C of security equivalents for building and the energy services side.
Finally, I wanted to talk about and opportunity at the United States Army, where we expanded our work with the U S Army aviation to improve aircraft readiness and.
In addition, with our partner Raytheon, We recently began work on the USR based next generation tactical ground station that we want and.
April automated processing and analytics of massive amounts of incoming sensor data for improved situational battlefield awareness.
This is this is very very high tech.
Our wars level of technology. This AI based system will provide decision support the commanders based on information coming from the multitude of sensors and sources within the CIA.
Within the <unk> suite synthesizing risk into a single unified data of image.
A lot of talk about industry diversification, we continue to diversify across industries, we're seeing increasing contributions from the life Sciences financial services and the high tech sectors as well as <unk>.
Increasingly healthy growth and international sales and high Tech accounted for 8% of our business and.
Fiscal year 'twenty, one year to date compared to less than one per cent for the same period, a year ago Lifesciences accounted for 7% of our business and fiscal year 'twenty one of the year to date compared to less than 1% for the same period a year ago.
Manufacturer of counting manufacturing sector accounting for 11 accounted for 11% of our business and fiscal year 'twenty, one to day compared to approximately 1% over the same period, a year ago, and the standby of oil and gas accounted for 38% of our business in fiscal year 'twenty eight 'twenty, one year to date compared.
To fit approximately 15, 9% a year ago.
Addressing strategic partnerships and core to our market growth strategy.
And is one of the evolution of our global direct geographic and vertical market sales organizations to include major accounts and enterprise sales mid market sales and mass market and sales channels and to the expansion of our market partner ecosystem and both horizontal and.
And vertical markets.
We realized significant benefits from these efforts and the third quarter with increased geographical expansion increased vertical diversification and significant growth and software subscriptions and importantly increased volume and diversity and the average contract and our sales pipeline by way of example.
Our average total subscription contract value decreased from $12 1 million and <unk>.
Fiscal year 'twenty to $5 2 million in Q3 fiscal 'twenty one.
This is substantial progress.
We continue to build and increase our engagement with our partner ecosystem is a key growth strategy, enabling us to significantly expand our market reach and serve customers across industries globally and the third quarter, we established for expanded such partnerships with Microsoft Bing.
Hughes and G shale and for FA.
And Raytheon and.
And you can expect to see continued activity.
<unk> activity.
And this in this area going forward and.
And the fan of actual services sector.
And our industry partner.
As large.
S AML compliance.
<unk> by C. III AI, the first joint product release under a broad alliance between us and the C. III.
AI.
This solution Leverages C. III AI advanced machine learning technology, combined with the deep financial industry domain expertise of SaaS to dramatically improve the effectiveness of financial crime detection.
C III and AI and Microsoft closed our first AI CRM deal with a fortune 500 customer we believe AI will represent a significant and growing part of the 60 plus billion dollar CRM market.
Market globally.
And the defense sector, we engaged with our defense industry partner Raytheon to provide technology for the U S. Army's intelligent ground station initiative.
As I referenced earlier, we formed the comprehensive alliance with Infor to integrate many existing and for applications using the C. III suite and the C. Three applications.
And enabling and four to market these applications.
Its customers through all of the channels you can expect and in the coming quarters, we will make increased efforts to expand our market partner ecosystem across both horizontal and vertical markets.
As we see this as a key point of leverage for market growth.
We focused a lot and I'm going to.
And strengthening the company leadership and.
And we expanded the company's leadership with the addition of Jim Snobby formally co CEO of S&P and chairman of the Siemens also chairman of the Maersk to the C. III AI board of directors.
Come to rely on Jim as a trusted advisor.
He has he been and adviser to the company for some times the advisor to me for some time as we work to establish C. III.
And as a leading global enterprise software company. He brings a unique set of leadership skills and expertise and of the company and is a great addition to our World Class Board.
In addition, we continue to expand our global Advisory Board that has been really really important and establishing customer relationships, okay and building presence in country and in the industries.
The Advisory Board now includes shock I believe who is founder and the first president of the European Bank for reconstruction and development and former special adviser to the president of France.
So <unk>, who is a member of Parliament and former home Secretary and former Chancellor of.
Exchequer and the U K.
Admiral denim again.
The us assistant Secretary of the Navy and the Obama administration.
Rick Legit, former Deputy director of the NSA and the Obama administration.
Frank Cowen and former President of S&P.
And Europe, and George Matthew former President and COO Altra.
Now those of you who have been tuned into the financial channel. So we're watching the wall Street journal or reading of the financial times are Bloomberg and you don't have noticed that we have been investing in.
And branding globally.
And we expanded our enterprise AI brand and campaign to include significant significant cable TV and radio presence with spots running on virtually all of the major business and financial networks, and the United States and Europe.
We also expanded our advertising to include the UK, EMEA and APAC as well as the United States.
We are becoming increasingly known as the enterprise AI market leader.
Leading indicators of brand equity and brand recognition had been substantially increasing including PR.
<unk> volume public relations volume new sentiment.
Social media sentiment.
And Internet search and frequency.
Let's talk about energy sustainability, one of the energy and sustainability of market is back okay and it is.
And it is on fire and so we are seeing increased and interest.
Interest for AI enabled solutions, and the energy and sustainability and market. This market is coming back drop that strong.
Over the last last year alone the number of companies and governments that are committed to reach net.
Zero emissions has doubled.
Out of <unk> seen the flood of announcements from companies and G Shell Baker Hughes, Microsoft Amazon for BP, Jetblue American Airlines and others announcing the zero carbon commitments sustainability is also clearly a top priority for the U S for the <unk>.
New U S administration targeting of two trillion dollar of investment and private security.
C. III is a leader in the space.
Energy and climate sustainability is the core market many of you'll recall, where we started with our first product offering and 2000 10-C, III energy management, which we have deployed in the production use with many large organizations globally, including and Jeep and the New York Power Authority.
One iconic fortune 100 company and a customer since 2012, they have they have set ambitious sustainability goals and use our energy management and application to identify and prioritize the energy efficiency and carbon reduction and investments globally to meet the climate goals many utilities.
The C III AI technology and C. Three energy management, not only the optimize their own energy usage, and optima and and optimize the grid infrastructure, but also to help their customers.
Their energy efficiency and greenhouse gas goals of Great example, is New York Power Authority that deploys <unk> energy management think of the service, enabling and its large commercial and industrial customers, who achieved the energy efficiency and greenhouse gas goals.
And with our energy partner Engie, and we're delivering internet of innovative innovative solutions fit with <unk>.
C three energy management, Ohio State University for for example, as the void and Jean Smart institutions built on the <unk> AI technology.
The reduce and manage the energy use and carbon footprint across its entire.
485 building campus and Columbus, We're also working on the LNG on a novel cutting edge solution addressing the very difficult challenges of managing scope three emissions of problem that requires an entirely new of technology approach.
And the third quarter, we significantly expanded our effort our investment and the C. III AI digital transformation Institute issuing a new call for papers to find innovative research and applying AI and digital transformation, the energy and climate security.
Very excited to support this next wave of research by providing enabling.
For cleaner and lower costs, and more reliable energy and to help lead the way to of lower carbon future.
Our extraordinarily well positioned for this new opportunity.
Many of you will know that the CPI.
And was recognized by Glassdoor.
As the best place to work during the pandemic.
And we were ranked among the top 25 cloud computing companies the stellar employee satisfaction during the Covid crisis.
And this ranking is based on employee feedback provided through glass door. During the first six months of the pandemic.
I encourage those of you who are interested to take a little bit of glass door to get a feel for the high levels of employee engagement and and enthusiasm and C. III AI.
As you know.
We place and exceptionally strong focus on human capital and C. III AI.
And are aggressively expanding the company.
And the future and the.
Short months.
Since the company went public in December we've increased our head count by approximately 10% to roughly 560 60 today.
We continue to attract massive interest from the global data science.
And the engineering software pool, and the third quarter of we've received over 17000 job applicants we.
We conducted 3900 66 interviews with Sep over 1700 candidates and administered almost 700 assessments.
Of that we hired 60 full time employees.
And we've processed and additional.
Since the day seven job offers that have been accepted.
One of the unique aspects of the C. III is a clear and technology and product differentiation and we continue to protect the company's intellectual property with the combination of trade secret copyright trademark and our growing family of U S and foreign patents with third.
<unk> U S and foreign patents have been awarded and 40 U S and four and foreign patent applications pending the.
The US patent office recently awarded US a broad and important patent entitled systems and methods and devices for an enterprise AI development platform. This is the most significant and substantial patent we have been awarded to date. This patent essentially secures the fundamental concepts of applying our model.
And driven architecture for.
Enterprise, AI applications, and and secures and C. III AI intellectual property and we are working now perform and technology licensing officer C. III. The licensed some of them. This IP the companies that will lead to attempt to internally develop there and enterprise AI applications.
Big picture.
We see a robust and growing interest and enterprise AI software of the solutions that we offer we continue to make significant progress on all fronts and our objective to establish and maintain the global leadership position and enterprise AI.
We continue to aggressively grow the company diversify our business across industries, and geographies and expand our partner ecosystem.
We believe we are very well per position to address this $200 billion plus addressable market opportunity and we are just getting started with that I will turn it over to our CFO David Barter for further details on our financial results and the third quarter David.
Thank you Tom.
We delivered a strong performance and the third quarter and we're optimistic about the growing demand we're seeing for our software.
Revenue and the third quarter was $49 $1 million up 19% from a year ago, reflecting continued business momentum and increase the adoption of enterprise AI.
During the third quarter subscription revenue was $42 $7 million and increase of 23% from a year ago professional services revenue was $6 4 million a decrease of 4% from a year ago.
We also saw and increasing diversification of our revenue mix.
Our revenue growth and the quarter was highlighted by contributions from over the different industry verticals, including some of our newer verticals such as life Sciences and financial services, the deliberate approximately 24% of our third quarter revenue.
Geographically EMEA and APAC drove over 30% of our revenue.
Finally, it is important to note the improving operating efficiency this quarter subscription revenue increased 23% year over year, while non-GAAP sales and marketing expense increased 14% year over year.
And important aspect of our model is the usage of market partners, either the leverage selling model and significantly extends our sales reached the each industry vertical.
Our partners does the deep domain expertise and their respective vertical market.
<unk> enterprise AI and a significant customer base that will benefit from our enterprise AI applications. This will provide us with sales leverage over time.
It is worth noting that our contract with Baker Hughes, our market partner for oil and gas includes the very specific contractual commitment.
As a five year agreement and the total contract value is $450 million their.
The C. Three AI increases over the five year term of the agreement.
This offers predictable growth and the years ahead.
For example, the Baker Hughes commitment to $75 million and fiscal year, 'twenty, two compared to $53 million and fiscal year 'twenty one.
Our contractual backlog continues to provide us with healthy revenue visibility. It is important to note that we use adjusted <unk> to measure our backlog.
This metric includes our GAAP remaining performance obligations or contracts with the cancellation clause and the Baker Hughes commitment and.
And the end of Q3, adjusted <unk> was $538 million.
Up 16% from the prior year.
Within adjusted RVO, the GAAP, <unk> was $247 $5 million or contracts with the cancellation clause was $48 $4 million and the Baker Hughes commitment was $241 $8 million.
And the healthy revenue visibility and coverage that comes from an unusually large contractual backlog, we continue to focus on expanding our footprint within existing customers, adding new market partners, and adding new customers and existing and new industry verticals.
And discussing our expenses and profitability I will be referring to non-GAAP measures unless otherwise indicated the GAAP to non-GAAP reconciliation is provided with our earnings press release that can be found and the IR section of our website and it is on file with the SEC.
The difference between our GAAP and non-GAAP financial measures and the quarter was stock based compensation expense.
Gross margin and the third quarter was 75, 9% compared to 73, 8% of a year ago.
This expansion was driven by subscription gross margin.
The increased to 84 per cent compared to 74, 7% and the prior year period.
Operating expense increased to $49 $2 million of 27% from a year ago.
Tom described we are making significant investments in R&D in order to bring new products to market that can enhance our growth.
The three AI CRM and C III AI ex market out of our two such initiatives.
We are also investing and our go to market efforts, including the expansion of our direct sales force. We're also investing in brand awareness market education, and enterprise AI and thought leadership.
Operating loss for Q3 was $11 9 million or a margin of 24, 3% compared to $8 $4 million or a margin of 23% a year ago.
Turning to our balance sheet and cash flows we ended the third quarter with $1, one 2 billion and cash and cash equivalents. This.
And this includes net proceeds of $844 $6 million from our initial public offering in December.
Our operating cash outflow for the period was $24 $7 million due primarily to increased investments and sales marketing and head count.
Capex in Q3 was <unk> $2 million this length of free cash outflow of $24 $9 million.
The timing of our billings and collections can vary and order to capture the complete picture of our cash flow margin is recommended to calculated on a rolling four quarter basis.
For the last four quarters, our free cash flow margin was the negative 24%.
Deferred revenue was $62 3 million at the end of the quarter. It is important to note that the deferred revenue non a perfect measure for our business due to the quarter to quarter variability and the timing of invoices to our customers and our historical large transaction sizes. In addition, our billing terms vary.
Some contractual arrangements, we're not billing and inception, but instead, we will build the customer periodically over the duration of the arrangement. So these customers revenue commitments do not appear and the deferred revenue.
As an example at the end of the third quarter, we booked several deals that will generate $4 $1 million of of revenue, but this amount does not and our deferred revenue.
Looking to the fourth quarter, we expect total revenue to be and a range of $50 million to $51 million.
Representing approximately 21% year over year growth at the midpoint of the range.
Non-GAAP loss from operations is expected to be in the range of 28% to $27 million.
For full fiscal year 2021, we expect total revenue in.
In the range of 189 to $181 $9 million.
Representing approximately 16% year over year growth at the midpoint of the range.
Non-GAAP loss from operations is expected to be in the range of 51 to <unk> $49 1 million.
Historically, the difference between our GAAP and our non-GAAP financial measures has been limited the stock based compensation.
Beginning with this guidance for the fourth quarter and full year fiscal 2021 and in future reporting periods and the difference between GAAP and non-GAAP measures will include stock based compensation expense and the employer portion of payroll tax expense related to stock transaction.
In summary, we are pleased with our strong performance and our first quarter and of the public company, our results and outlook reflect growing market demand from enterprises across an increasing range of interest.
With continued investment and multiple growth drivers, we are increasingly well positioned to capitalize on the large multibillion dollar market opportunity generating value for all of our stakeholders.
Thank you for joining today's call now I'll turn the call over to the operator for questions.
Operator.
Thank you as a reminder to ask a question you'll need the press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.
And your first question comes from the line of Brad Sills with Bofa Securities. Your line is open.
Oh, Great Hey, Thanks, guys for taking my question and congratulations on your first quarter as a public company.
I wanted to ask about the the vertical partner focus here, obviously, you talked about some sort of leverage that youll see here from some of these partnerships.
Could you help us understand.
Perhaps some of the newer ones like Raytheon and these are relatively new verticals.
For the company what type of of what kind of resources are committed from the partner.
From these partners how are you going to market together, how do you expect it to get that leverage through these partnerships. Thank you so much.
Pay per <unk> com I'll field. This one because of its kind of a sales and marketing related.
Well as you know we're going to market of course three planes.
Sure.
We have a horizontal market partners like.
A Microsoft would be the largest put also IBM and India.
We are building of geographic marketing organization and North America.
Asia Pacific, Okay, and in Europe, and then across all sectors, we have vertical market sales organizations in oil and gas and utilities and financial services.
<unk>.
And the precision health et cetera, and you can expect that each of the the goal is the each of these vertical markets will align with the leverage market part so the classic cases Baker Hughes.
So we've aligned and oil and gas with Baker Hughes. This 24, roughly I think billion dollar the oil services company that gives us access to 12000 people now selling with us around the world and there is virtually not one of the largest say 20 or 30 oil companies and we're not in.
Active sales motion with whether it's aramco and not <unk>.
<unk> now of gas from shell and 12000 salespeople and so a lot of sales capacity and we will look at financial services. As you know we have a couple of very large and successful.
Relationship and banking with bank of America.
And with the number of applications that are analysts standard chartered bank and we build of large product line to meet.
The.
Needs of financials of banks, whether it's anti money laundering, and cash management securities lending Volcker rule compliance Inter day liquidity, what have you and so through our partnership with Fas, which I think gross dose roughly 12 or $13 billion of the revenue guide in the banking these people.
And are now we have access to their I think 20000 and banking customers around the world with their entire sales organization. So this is the entire FIA sales organization as it relates to the end of <unk> I don't know, how many sales people and for ass off to look it up but of units a ton of the salespeople and these guys sell billions of dollars and soft.
And there and now they are selling our software solutions as core true to.
And what they're doing.
So we're dealing with by the time of your role in the company is like what we're doing with Microsoft and Adobe and Okay in CRM and what we're doing with oil and gas and Baker Hughes, what we're doing.
And banking with Fas, Okay, what we're doing and manufacturing and particularly within what we're dealing with literally tens of thousands of people that are selling for us around the world and.
And if were able to successfully execute this strategy and the next two to three years honestly I think we can put the lights out of the market before anybody else gets here and so this is core to the strategy I think nobody has ever attempted this before.
We believe it is the core competence for us.
And.
And expect us and.
Specifically people like me and Ed and Newmont, who you know the the spending a significant amount of time on this and then we brought in a very senior executive.
By the name of the Gene Resnick, who is the chief strategy officer at ex.
Center due to head up this initiative of coordinating the.
And the vertical market partners so.
Do you expect the.
A significant and investment here and expect in the coming quarters that will be.
The additional announcements split these vertical market partners that we think.
Give us a.
Compared to the.
The increase of our competitive advantage of the market.
That's great. Thanks, so much Tom and then one more if I may please the <unk>.
Sept of embedding the <unk> platform and just some of these horizontal categories you mentioned and early win with the Microsoft partnership here first seats at the <unk> AI enabled of CRM and <unk>.
<unk> is the new partner for ERP can you remind us of little bit on kind of where.
Where you are with those partnerships I know they're early.
How quickly does it take one of these partners to ramp up from an integration standpoint, and and then go to market and when do you think youll see the leverage out of those those two partnerships in particular.
I think of it I think we've been at Baker Hughes now if I'm not mistaken five quarters of is this about right got it okay.
And it.
And.
There you can correctly and the workflows.
Some of the southern quarter of seven quarters of growth as Dan correct. Okay. Thank you and I think Baker Hughes and the bigger user of large global company and they are fully spooled up I mean, we are building.
And probably for products together or bringing the market. We have two products that we already have and the marketplace.
We're fully spooled up granted and Florida is brand new granted Fas is is relatively new and so you can expect it will take US 1234 quarters to get these things really spooled up and get the momentum going and.
We're not going to turn out overnight, but we are building.
Revenue capacity flywheel that I think what you get and we you start looking at calendar year.
You know the.
And.
The 22 23, I think this is going to be significant for us to be recognized.
That's great. Thanks, so much Tom.
Your next question comes from the line of Jack Andrews with Needham Your line is open.
Well good afternoon, and thanks for taking the questions and the congratulations of the results I wanted to see if you could.
Expound a little bit on the go to market strategy around the ex Mark and the product.
I believe this is somewhat of a different offering from the solutions that you've historically sold so how should we just be thinking about.
And your strategy and is this something that you expect the.
The uptake to be mainly from your existing base of customers or do you expect ex marketing to effectively drawing some brand new customers to the key three AI family.
Thank you for asking Jeff So ex Mark kind of it's a product that we are ahead of the market for some years and we've been work and where we are now is we are really seeing this and we've done all of the work with the documentation and the stack overflow of the online training of the.
The community basically offer this as a mass market product you can think of this as serving the same market needs of the currently served by Alterra ex which is basically associated and associated with the day modification of the democratization of data science. This is allowing people who would normally be doing analytics with pivot tables.
Okay on an ex sales spreadsheets to be doing point no code low code WYSIWYG. What do you see is what you get point and click drag and drop data science and what we released share is kind of a 21st century version of that.
Solution and the democratization of data science is something that has to happen I mean for for when we see the expansion of AI. This is not all going to happen through people hiring 15 ph D level of data scientists from <unk> and a quarter million dollars of fees is just not going to happen. So we're going after the provide the tools were.
Morals and.
Apply data science to their business to achieve the benefits and that's what ex market and is all about and so think about it I think al directions of the fine company I'm sure.
It will proceed it'll continue to be successful, but it has it serves that fed market need.
Now in Algeria ex has some constraints.
And it will run on any computer UART as long as on premise on the Windows machine and.
And ex market all of run on and income generally supports the browser shifts entirely cloud native Alger and actually use any amount of data and you want as long as it doesn't exceed two gigabytes.
The acuity data science and organizations like and now a shell United Healthcare Department of Defense, we're done with hundreds of Petabytes not a couple of the gigabytes and Alger and she will allow you to perform the data science on basically as many rows as you want and as long as does and exceed 10000, and so think about.
A 20 <unk> century interface on a cloud native WYSIWYG application, we're aware of the nuclear reactor of it's under the surface that nobody knows is the entire C III platform.
And so that is a it's a mass market product it's available on the market right now he can sign up on the web today and get a free trial I encourage you to do so and after you do your 30 day free trial and encourage you to buy it and I think it cost $300, a month or something and so we will be looking at and that.
And will be an area of our ability and again thousands of customers. It's now tried tested and proven production product and.
Everybody on the call I encourage you to go find <unk> got the C.
<unk> Dot AI click on average mark going to sign up for a free trial and.
And may and email and some of your thoughts of the product.
Either before or after you buy it.
Great. Thanks, and really appreciate the detail around that.
Okay.
Your next question comes from the line of Michael <unk> with Keybanc. Your line is open.
Hey, guys. Congrats of course on the first quarter out.
So I was really pleased to see the fortune 500 deal and the Microsoft partnership I was wondering if you could drill down a little bit on that and tell us where the what the value creation was there and why that seems promising.
And I've got a follow up.
Great question, Michael and I mean, we have a number of significant partners that and we're going to macro of AWS. We go to market with global go to market with a lot of these guys.
But I would say the organization that is kind of the.
The the DNA most allow.
Aligned with ours is Microsoft and these guys are really strong and enterprise selling.
And so we've been able to align with them.
Some of the largest organizations and the world and the.
And I'd say, it's government with with shell.
And with others.
And we're on speed dial of these guys. They are a great partner and.
And.
It looks to me like as it relates to the cloud computing.
These guys are going to be of forced to be reckoned with because they really do understand the enterprise and they know how to sell there and I think they come to believe that you know.
We're not entirely and familiar with that process also.
And so we get along with those guys really well and we are selling with them and oil and gas or some of them and utilities were selling with them and banking.
Someplace around kind of Theres, a whole pipeline of transactions that we're doing with pipe with Microsoft enterprise transactions, but it.
I am confident and hundreds of transactions that we're working together.
Alright, Thanks, Mike.
And my other sectors. They don't they don't hesitate to spend to spool up the big guns.
And if they need to close the deal or make a committee of the customer the rollouts that Dr. Johnson of JP or wherever they need to make.
And make the commit and make sure of the commitment gets met there.
And they're really strong.
And Tom if I could just kind of you to be macro prognosticator of here for a minute you did 20% sequential of almost 9% sequential growth and the quarter and that's the.
The most of you've done in seven quarters and.
And this is an indication from the I mean.
Obviously, you're doing a lot of things right, but from a demand or a macro perspective people are opening up some of these kinds of of larger projects that you do.
Well I think I think our subscription revenue was like 24% growth wasn't it.
It was really pretty healthy and that's what we're focused on and we're really not focused on the services line.
And you'll want to keep the services line under control and and.
And we gave you guys of the courtesy of disaggregated and those two so there is no question as to whether we're a software company here of a services company.
Okay now, let's talk about the main coming and to January of of you know.
And of 2020 of them, who are blowing and going right below the.
The governor of ASIC R. R.
Growth rate last fiscal year of 68% of top line, Okay and.
Of 71, Okay. Thank you, 71% of and it was blowing and going.
And when Covid hit in February.
Our world just stopped and understand back then and our average transaction size of the Matt as you know with like what did I say $25 million, Okay, and sell of London, and Claus Paris closed Eric close Chicago closed God knows San Francisco closed, okay, and even the beaches and Orange County of our closed there was nobody else in the business. So we.
We hit a.
We hit a speed bump, okay, and the first two quarters of.
<unk>.
Our average day in.
February March April may timeframe, we'd hit a speed bump. Okay. Then the all of a sudden you start getting all of the stimulus starts to take place people will start focusing on digital transformation and they start focusing on AI and we began to see of significant.
Acceleration and our business once you get into June and July August September, which made us feel comfortable talking to you guys about the idea of making this a public company.
I mean, there is no question that we're seeing an acceleration and we we believe the as we get into <unk>.
Fiscal year 'twenty, two and 'twenty three we will see accelerate we will see increased growth rates and.
So this is a healthy market and.
I believe we know how to grow of business rapidly and we're pretty we're pretty optimistic but.
I think the growth the overall growth rate and this year this fiscal year, David which would be what.
For the and April I think this year, we will be.
And the midpoint of the guidance of 60 per cent midpoint of the guidance of 50%, Okay fine but whats.
So we're dragging Q1 and Q2 like a boat anchor of this fiscal year and they hurt us and but Covid has turned from a from a massive decelerate.
And accelerate and.
You know.
I'd like to take over those behind us.
Hopefully it will be behind us soon so we all get together for a cocktail and New York.
Yes, we're optimistic about the next two years.
Thanks, Tom.
Your next question comes from the line of Dan Ives with Wedbush. Your line is open.
Thanks Sue.
Tom could you maybe talk about how your conversations of change.
Customers over the last six to nine months still when I compare it to a year ago I mean, maybe.
Does it really feel like it almost went from more of a push to of Paul I mean could you just maybe talk about some of the drivers and some of the the anecdotal conversations with other Ceos and the Cio's. Thanks.
It is of Great question, Dan and.
And I did not anticipate the effect of the IPO on the brand and.
And I guess I should have because of all of the tanker I'd tell you its going to do it.
And Jesus is going to be important and for your business I just looked at it as the financing event.
And the finance growth.
And so I guess I'm kind of slip and big.
The effect of the IPO and the associated PR.
It really has been huge.
On the <unk>.
On the perceived.
Credibility and gravitas of the business and so we're seeing a much in a substantial increase and the growth and.
The growth of the pipeline of conversations are happening faster.
The the default position the companies are coming into the discussion is that it works and how are we going to make it work.
There is virtually zero and a higher as senior executive today and there is virtually nobody here, while we're turning the call and.
So it's.
Yeah.
The the effect of the company's been extraordinary positive if you do or do you know when you're going to.
Go play and Google analytics sometime and go do a search on like enterprise AI or C. J.
AI and look at what has happened in terms of kind of where we are.
<unk>.
And search frequency and these terms I mean with <unk>.
We've moved way way up and the list so it's.
You know.
And as I said since the IPO thinks that the I think the IPO contributed I think of the global economy has contributed I think the fact that the government is trading of $100 billion of day U S government, probably isn't hurting and.
And the focus of our digital transformation and AI. So.
And we're.
You go I think we're and the right place at the right time, we are of good solution and I think.
The things have changed significantly.
Thank you.
Your next question comes from the line of Mark Murphy with Jpmorgan. Your line is open.
Yes. Thank you very much Tom we've seen quite a bit more excitement about our cash.
Commodity super cycle and in particular in the oil.
Because of the pandemic recovery and response one.
Wondering how different is your energy deal pipeline today versus a year ago.
And I don't think you've commented on patrol and us and the.
And the script I'm wondering if you could comment on that.
And just how different is that pipeline and.
And is it does the typical of oil and gas company feel more pressure to modernize during tough times of ore.
Maybe more of an inclination to spend into of Super cycle.
Well, Mark I don't pretend to be and manage and expert and energy and markets as you know, but it's been fascinating to watch.
And.
First of all of the relationship with Baker Hughes is extraordinarily positive and it is.
Funny that it would be because you couldnt find two companies more culturally different.
This is the old school oil and gas company out of the New school of high Tech company, but these guys are pretty switched on and as of today.
And we must talk between the two companies of 100 times of day and.
And we finished each of their senses.
When we first get into February and March April of <unk> was negative $37. A barrel you think that might add all the chilling effect on the energy business Holy Moly and these guys were just really right and they couldn't figure out how to lay out of the company people fast enough and then day and.
And then after the set of pick the themself and dusted themselves off.
And I think when I started to look at it. The reality is the situation. We had companies like shell, which is as I recall roughly of 300 billion Euro of business I think the fifth largest company and the world and they look at the economics of you look at oil futures at the time nobody was predicting oil over $50 a barrel I believe it might be over $50 per barrel today and it wasn't.
It wasn't being predicted to go over it and.
And there's a lot of downward pressure on oil prices for all of the reasons that we both know and.
If you look at <unk>.
A barrel of oil and there might be one and company and the world that can make money okay.
And 50 or $45 per barrel and that would be Saudi aramco, because they have and they have the lifting cost and I think that stuff comes out of the ground at about $6. A barrel. So does that and you have the rest of these guys, whether it drives debt gazprom, exxon or or shell, who of running these large global enterprises and they have the choice to either reinvent themselves.
<unk> or slowly go out of business and so these and many.
And you get to places like shelf. These guys are not.
I mean these are highly educated and really bright people they've made the decision and reinvent themselves. So I think the the oil pressure and oil flood.
Fluctuations are proving a.
And accelerant.
To the use of AI as these companies you really focus on renewable on the shelves turning itself into the renewable energy company and with the bulk of I think the revenue silicon and becoming from electricity and the future.
That's a big change.
And but we see this the rosneft Gazprom Aramco and knock there all of the big guys are thinking about this and and we're at the table.
Okay, great to hear and.
Given it has a quick follow up could you.
You clarify how did the GAAP <unk>.
Joe or backlog.
Behave sequentially and the January quarter, I'm, just not sure if I heard that number correctly and I know you.
There's a few different layers on that take for you.
And so just how did the RP that GAAP, our pier B and sequentially and then I'm. Just wondering do you have the current RP O or the next 12 months portion at your fingertips by any chance or perhaps do we see that later.
And you'll see the current view on the Q, but the the.
The current RVO is $131 million.
Yeah.
Okay.
Great and then what was the sequential change system the total GAAP RPM.
Absolutely. So when you actually look at our total GAAP RVO Youre looking at and from last quarter was $2 67, and it's $2 47 and five.
Of the 247 forward and be precise to 47 five is the GAAP RPM.
One of the changes that's happened here Mark is the back and the old days like C.
Pre December.
We were ruthless about the way of it we engaged with the software transactions. Okay. If the competitive and the customer was not era of alcohol non refundable commitment to buy okay over multiple years.
And it did not give business hard stop okay. Now that we have a now we're kind of a little different position we're in.
And we're focused and what we're doing and we were doing our best to finance the business and we did a pretty good job, okay without bringing in a lot of doorbell on sand Hill road when other.
Of the business is pretty well capitalized we're focused on market share, okay, and we have gone towards the more I would say market transactions, where we are willing to consider.
And engaging and multiyear transactions with with organizations, where some percentage of the of the transaction is cancel of bowl based upon.
Performance.
<unk> of the share that we're going to bust our assets to make sure of that nothing to get canceled, but it does that Victor but that decision did have a negative effect on our P. O. Okay and I think it's the right decision to make for the business but.
But we've become we're doing engaging and.
We're being.
And more flexible and easier to do business with and all.
Your to get contract signed and.
Sure.
It does have some downward pressure and IPO, but I think it will have upward pressure on revenue prospectively.
And and Mark with that in mind, the cancel of obese went from 37, 1% to $48 four so sequentially up 30%.
So if.
And if I'm hearing you correctly, there is the little more inclusion of cancellation clauses of the contracts. So the <unk> is kind of the mix is shifting a little off and the long term and a little off the GAAP.
So I guess the ruling a little more into the consumable piece of it but it's netting out positively for revenue zone of tariff.
<unk> positive and it is.
The positive review the IPO of bus cancel bullets increased year over year of it.
Year over year ended up sequentially. It was off a little book Okay.
Okay. Thank you very much.
Okay.
Thanks Mark.
Your next question comes from the line of Patrick Colville with Deutsche Bank. Your line is open.
Okay. Thank you for taking my question and congrats on the.
The inaugural set of results and the public company.
I guess I got two part question.
And I think we're just touching the dismantle but I wanted to just clarify so the delta between RPI and billings to come out and stand up because if I look at billings and the quarter I think it was off about 5%, whereas the adjusted <unk>.
And was up 16, so just help me understand.
And why that might be.
Sure well I think the and I'm trying to include it in my prepared remarks on billings was I think youre looking at perhaps the deferred revenue is that correct.
When you value.
And so I think what we tried to highlight in our remarks as debt.
And almost in line with Tom's comment on being more flexible there were some pieces of of our deals that are not flowing through deferred and.
And I called out of a portion of what happened at the end of the quarter were $4 1 million and the flowing through deferred so I think net that is doing the spend thats whats impacting your math there.
Okay got it and.
And you look at the the Baker Hughes contribution and the quarter.
The Baker Hughes contribution as part of our view.
And as part of revenue.
The.
When did the the bigger youth part of portion of I think we will actually be including in our 10-Q.
And so youll see youll definitely and that's where that revenue will be.
Almost.
Fantastic well. Thank you so much for taking questions.
Your next question comes from the line of DJ Hynes with Canaccord. Your line is open.
Hey, Thanks, guys and congrats on the results.
Tom when you think about building domain expertise as you enter a new vertical and how much of that falls on C. III development efforts and how much of that is influenced by the lighthouse accounts with whats Youre partnering I'm just trying to think about the.
The higher replicate the models you've continued to grow into new markets.
It's a great question, TJ and and one of the real.
Some of the story that really is not realized yet by a lot of the market.
Is that.
Across all of these markets, whether it's AI based produce demands for the Air Force one.
Other its customer churn and bank of America.
Okay, whether it's process optimization AI based predictive maintenance for paper manufacturing at.
Georgia Pacific or whether it's.
And hydrocarbon loss of accounting of share.
99% of the code we're installing is the same.
Of course, all of the across the entire installed base because that's the beauty of what we've done. Okay. So yes. So you don't need to know we don't need to know first principles of how of turbine works and order of a gas chairman of the works in order to build the digital twin and for the turbine or or.
Or.
And bill of predictive maintenance model for that treatment and.
99% of the code is exactly at the same all of the changes are the data sources.
The machine learning models, Okay, and the user interface will agree that the user interface is trivial. We are truly lives. This idea of aggregating very large datasets into the unified Federated image for example.
This is what volunteer of calls and ontology. This what Pelletier does okay. The Ontario has the large services organization that takes the big business of.
Taking I think it at.
And at MGE and now with aggregated.
100 trillion rows of data from 50 enterprise data sources 27 million sensors, and then and it really go out of the extra price for weather and train and social media.
That will update where the trade and social media 62 billion times of day, and what and when when when the aggregate debt either of you had a fair and Federated and this is the way Pelletier says every sentence of their of their presentation and ontology oncology oncology lift it up it's not quite that magic, okay and so.
Other do that through services, we do that through software.
Now.
And so.
And we built with our partners of Baker Hughes.
Actually before Baker Hughes, we build of predictive maintenance application for an offshore rig okay at shell and anything about offshore rigs. Okay. We rebuild production optimization for the LNG operations and Australia, That's Queensland gas, we don't know anything about about the LNG operations, but we're able to work with the subject matter.
Experts say our team of six people and their team and the six people and build the applications today shell God knows how many people. They are working on projects to between 112 kind of thing.
Hundreds because they are of a 100 projects and flight.
The smart grid analytics for.
And.
And now and and now I would say, that's the largest AI application and production and the non classified space.
And the Earth.
We don't know how you think about how the grid operates but we know about using AI to do what they wanted to do which is bolt vars for any of the maintenance for devices and customer churn and what have you.
And we're doing AI based predictive maintenance for the F 35 joint strike Fighter do you think we of any idea of joint strike fighter operates I assure you we do not okay. One of the people at Lockheed Martin of that Okay and.
And so we're able to build the tools where their subject matter experts can do what they do and that is the beauty of what we've done we're able to apply the same code.
Sure.
Our anti money laundering and of bag and okay and.
Predictive maintenance for F for F 35, joint strike fighter and so I don't think we will be constrained by domain expertise and now that being said.
So one of the end to the extent that we need it and where we can.
And we're getting it through partnerships like Fas like in Florida, Baker Hughes and.
And.
And as it relates to two.
Energy efficiency so.
And of went all around of that but.
And you do not need demand nuclear side is to build the predictive maintenance application for a nuclear reactor and that's that's the beauty of what we built.
Yes.
Makes perfect sense very helpful. Thank you guys.
Your next question comes from the line of Peggy <unk> with Morgan Stanley. Your line is open.
Alright, Thank you for taking my question.
The pipelines, we've mentioned and great art Coppola and so on the pipeline.
Okay.
Last quarter.
One of two.
And if you could give us a little bit color on pipeline conversion from best of luck.
I'm, sorry pipeline and conversion trends.
I know you know I don't have that answer okay and.
You know.
It's a legitimate question.
The next time, we would talk I'll I have the answer and I don't have it okay and so and.
Anything I would give you would be misleading.
It's a good question and I.
And I'm, sorry, you always thought about it.
Very very rarely I get caught absolutely out of high heels and you called me.
And my last fall.
Thank you and the price of the day Okay.
Yeah.
So I guess could you could you talk about and not the.
Gross margin.
Hello, and thank you for.
And it looks like the margin for Q3 operating style of pretty good improvement in Q4.
Hmm.
And down.
From the form.
Q4 margin is down how was the 101 how does one.
The non-GAAP operating loss.
Lighting and the stable.
I think the one of the things that is that is going to contribute to a little bit margin compression and Q4 is we are focused on being a software company. Okay. We're not focused on being a software as a services company as lucrative as it could be and this in this particular market.
Okay.
Okay.
Yahoo Finance every now and then too okay.
That being said, we're going to supplement.
In order to facilitate our customers and not be and the professional services business, we're going to outsource professional services work for some third party providers that we've enabled so we are of this large ecosystem of third party providers.
Like IBM like IBM Global services, and I think Theres about 20 of others and so we will actually give a piece of our contract to them.
I will put some downward pressure on.
I am sorry upward pressure on cost of goods sold and a little bit downward pressure on margins and at the same time.
And keep me out of the services business and.
And.
That's the C.
And thats, what that that it's not a macro trends, but that's what that's all about.
Very helpful. Thank you.
Your next question comes from the line of Arb, and Rob <unk> with Piper Sandler Your line is open.
Congrats on the.
The first quarter are part of the gate.
And I have a question on your vertical partnerships and <unk>.
Indicated and some very important part of the strategy and.
And I wonder if I understand how youre tracking progress with these partnerships, particularly with the newer ones versus the ones that are more and green.
And Youre looking at deals our pipeline and the sudden trigger points that'll get you the switch.
And if I ask the price of and the partnership isn't quite right.
Great and working out.
Just kind of conceptually how are you managing success.
Yes.
And these important partnerships.
We are very and thank them for the question and we are very very impressive of instrumentation here.
And on kind of what's going on and the business, what's going on with the business activity with each partner with each of the vertical what's the rate of which we're growing pipeline what what deals are working together, what's the next step of each deal. What's the expected revenue one of the revenue goals for this year next year of the year after by quarter.
And so we have very tight metrics on that Fortunately, we haven't gotten to the point, where one is not working yet and we need to replace it we're still focused on making every one of them successful and and we believe the with the partners we have that we can.
And that big of how are we going to get to the point, where one doesn't work, we will but we but.
Some time of and when you're here I mean, we.
The kind of show you the metrics that would have retract English and sales operations I believe that we have of finger of the pulse on the pulse of this business.
As it relates to the AI enabled CRM system that we have deployed.
And that is that is absolutely the state of the art.
Yeah.
Perfect. Thank you.
Yeah.
Your next question comes from the line of Pat Walraven with JMP. Your line is open.
Oh, great. Thank you and if I can I'd like that too.
The first of all.
Gulf of our that alright, thank the.
First the for investors as they look at the C. Three grew 71% and fiscal 'twenty you hit Covid and then in fiscal 'twenty, one revenue at the midpoint gross 16.
So how should we think about sort of the durable long term growth rate for this business.
Yeah.
Yeah.
We believe the gross rate will expand.
Okay.
Here's the broader one.
So Tom can you talk a little bit about the deal with the U S. Army that you won with Raytheon.
And those things that are typically supercomputing and O'brien, who is the competition and then just more broadly.
Uh huh.
How how big or talk about the opportunity the C. III has with the defense industry.
Okay now.
This is Eric.
I know the ran this phone and believes that I close every deal that we do okay and.
And.
And I'm going to share that's not true.
And as a matter of fact from August 13th 2020, and till like December 13th of December.
The 21st I did nothing but talk to you guys for about 21 hours per day, and I never talk to a customer of our prospect.
So as much as I would like to talk about that deal with Raytheon on that particular transaction I don't know anything about it okay and.
And.
And we can somehow hold the session to talk about it how big is the opportunity and defense and Intel It's freaking huge.
Okay.
And that.
And the you know.
As it relates to applying AI to military and defense.
This is going to be E of this major.
The initiative for the United States government.
And do you have China spending tens of billions of dollars today of year on AI and were in the United States Government I think been historically under investing there is a lot of talk about it and very little action.
We're now we're seeing I think going forward as it relates the defense and Intel that out of that market opportunity is going to be virtually limitless and.
And I think we're in a position to.
Have makeup and the impact there, which is why you see that and again, the former assistant Secretary of the Navy and.
And the Ric Legit, former Deputy director of the NSA, joining our advisory board to help us figure out how to navigate that.
Beyond the phone on Friday with the one of the.
The immediate past secretaries of the of.
One of the three branches of of the U S military.
To get his the device and how we should structure of this going forward, but you can expect us to be making a very very substantial investment there.
Will they ever be anything like 50% of our business no way no how okay. I mean, we're not going to become of federal contractor.
But.
But who do we expected and if they are large and rapidly growing segment of our business, Yes, we do.
Great. Thank you.
And there are no further essentially the last time I think we might be at the lack of.
But the rest of the shop is that correct.
Yes, there are no further questions at this time, Okay. Let me just provide a couple of closing comments and then we'll.
And.
Put a wrap on the shelf for the first of all thanks, everybody for your attention and of your thoughtful questions and to the extent that day I think there are two questions that I didn't have answered to one was from Pat and one of us from Morgan Stanley and <unk>.
Apologize and we'll figure out of way.
I guess I can't get back to where we need to figure out of way can we follow up.
And.
And the rule of the world of Reg FD I would be we can do this.
Okay, so to the.
I think of that.
And we're really pleased with third quarter results, we think the illustrate the power of potential of this.
Highly differentiated model driven architecture that is enabling enterprises across a wide range of initiatives to rapidly and efficiently develop and operate complex predictive AI applications of scale.
We think we.
And really well positioned to address this rapidly growing.
Greater than $200 billion addressable market opportunity and.
And as we enter the our fourth fiscal quarter of 2021, I believe the C. III has never been more strongly positioned and the market I believe that we are demonstrating clear technology leadership and enterprise AI. We are building a powerful brand our human capital resources are second to none of our customer and market partners.
The success of speak for themselves and the competitive landscapes landscape does not appear to be limited.
So thank you so much for your time.
We look forward to sharing our progress with you and the months and years ahead, and we wish you all a great day and of Great link. So thank you for your for the courtesy of your time today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
And.
And then.
Yes.
And.
And.
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And.
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