Q2 2022 C3Ai Inc Earnings Call
Excuse me the call will begin momentarily again, the call will begin momentarily.
[music].
And we really thank you for attending today's C. Three eight our second quarter fiscal year 2022 earnings call. My name is to me and I will be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if he would like to ask a question. Please press star one on.
Your telephone keypad I would now like to pass the conference over to our host Paul Phillips with Seabury a I. Please go ahead.
Good afternoon, and welcome to <unk> earnings call for the second quarter of fiscal year 2022, which ended October 31, 2021. This is Paul Phillips, Vice President of Investor Relations of C. Three AI with me on the call today are Tom Siebel, Chairman and Chief Executive Officer, and David Barter Chief financial.
Lobster after the market closed today, we issued a press release with details regarding our fourth our results as well as a supplement to our results both of which can be accessed on the investor Relations section of our website at IR Dot <unk> Dot AI. This call is being webcast and a replay will be available on.
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 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.
City of risks and uncertainties that could cause actual results to differ materially from expectations.
For a further discussion of the material risks and other important factors that could affect our actual results. Please refer to our filings with the SEC also during the course of today's call. We will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release.
Finally at times in our prepared comments and responses to your questions. We may discuss metrics that are incremental to our usual presentations to get greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future with that let me turn the call over to Tom for his prepared remarks.
Tom.
Thank you Paul.
Good afternoon, everyone.
Please provide an update on our second quarter results and give me a feel for the state of the business. We finished Q2 quite strong exceeding company guidance and analyst expectations on almost all fronts topline revenue for Q2 was $58 $3 million of 40.
1% increase over the prior year this exceeded company guidance and all published sell side analysts expectations.
Customer count at the end of quarter increase to 104 up from 64.
Ah, 63% increase over Q2 of last year.
GAAP R. P M.
Ended at $465 5 million, an increase of 74% year over year, our cash burn for the six months first six months of fiscal year 'twenty two was $19 8 million.
Reflecting increased investments in human capital marketing and brand equity we finished Q2 with.
1.8.
$8 billion in cash and cash equivalents and investments, enabling us to continue to invest in growth for some time.
As we enter Q3, our increased revenue visibility and improved sales processes lead us to raise revenue guidance to 62 to 68 million for Q3, and 248 million to 251 million for the for fiscal year 'twenty two representing.
A 35% to 37% growth rate year over year up from 17% growth rate in fiscal year 'twenty one.
Let's address customer momentum, we expanded and extended our strategic partnership with Baker Hughes, a last quarter for the second time.
In June of 2020, we extended the agreement for the first time by extending the agreement for two years and increasing the cash and revenue commitments to see three from Baker by $130 million.
This October we increased the value of the contract again this time by an additional 45 million to 495 million and extended the next chart is term from five to six years.
Importantly, now guaranteeing a minimum of $357 million in revenue to <unk> over the next three and a half years.
Now historically.
She has three AI has relied upon a high touch white glove service strategic selling model to acquire and retain customers.
In July of 2021 in an attempt to further accelerate revenue scalability and customer adoption, we reorganized sales as an independent units along kind of a traditional hierarchically regimented selling structures like those in place at S&P and IPF.
That proved to be a mistake.
While the revenue.
Payment in the quarter was strong the overall performance of the sales organization and specifically new sales activity in the second quarter was unacceptable.
Management team and I have spent the past month restructuring and the global sales function molded in the traditional model that we know to be effective as a high touch classic strategic selling machine.
That process is now complete and the early indicators are quite positive.
NFC has increased our sales visibility has increased and the amount of revenue of Q3 revenue that we have closed as of the end of November gives us very high confidence levels in our Q3 revenue forecast.
On a positive note.
We expanded our enterprise our enterprise AI footprint in a number of diverse industries, including agriculture agricultural implements manufacturing oil and gas insurance financial services life Sciences energy with new.
Enterprise production deployments at Cargill, with Johnson controls shell and new contracts signed with see NHI Liberty mutual a top five life Sciences company, and new additional business with existing customers, including cargo and now <unk>.
Mosaic and PTT global chemical.
We substantially increased our public sector business in defense and intelligence with new production deployments in the U S Air Force New business with the U S space Force and additional business with the missile Defense agency in Q2, our public sector business grew 33% year over year, we expect that growth rate in this sector to increase substantially.
Actually in the last two quarters of fiscal year 'twenty two.
Let me talk a little bit about our partner ecosystem we.
We are off to a strong start with our new strategic partnership with Google Cloud, making significant progress on joint product Roadmaps enjoy sales pipelines are significantly growing joint sales pipeline with Google cloud contributes to our confidence in increased growth in the second half of this year.
Here.
I think our pipeline that we're currently working with the Google Cloud team is over 98 transactions.
Totaling.
As of today, we have $58 million in business that we're working together for the second half of this year.
R.
Our significant partnership with Microsoft continues at pace I think to date, we've closed over $220 million of business with Microsoft or something like that but if I look at the forecast that we're that the joint pipeline, there or with Microsoft in the second half of this year looks like.
It looks like roughly 120 transactions that were working that total $140 million in business that we're currently tracking and all of these pipelines will continue to create increase and of course Q3 and Q4.
Through our growing partnership with energy services leader Engie, we advanced our position in energy and sustainability and ESG across multiple industries with deployments at a.
Multinational packaging leader, a major hotel group and an iconic global coffee shop, Brad where CGI is helping manage it manage energy consumption and <unk> emissions at more than 12000 sites.
We are seeing huge interest in the news C. Three AI CRM offering.
CRM software and service represents a $120 billion market in 2021.
Our best guess is that the total installed base of CRM has to exceed a trillion dollars. Okay. Many companies have hundreds of millions of dollars invested in there our CRM installations that have been highly customized by their systems integration partners and they are not seeing returns from those investments.
Now we are seeing substantial interest.
From the larger CRM systems integrators in leveraging <unk> as a complementary adjunct share their customers' existing installed CRM systems.
On top of their existing CRM systems and on top of the customization.
Modifications they have made adding modern.
Simple.
Intuitive user.
Use your experience and making their existing CRM investments instantly predicted including precise AI revenue forecasting precise AI product forecasting.
AI enabled customer retention next best product next best offer predictive inner relationship management customer service optimization, AI based predictive maintenance and service et cetera. This will be a very large market and a huge growth opportunity for <unk> AI.
Maybe talk a little bit about product innovation, we continue to advance and we continue to advance our product leadership in enterprise AI in Q2, <unk> announced the launch of <unk>. We believe the <unk> AI data vision represents a fundamental paradigm shift in the enterprise.
Application user experience model from today's rather clunky farms and payable based metaphor to a highly visual interactive dynamic knowledge graph experience go take a look at it at the website, it's really exciting.
<unk> introduced two new applications last quarter to serve the needs of county tax assessors, the new C. III AI applications AI residential property appraisal and C. III commercial property appraisal will be market internationally and have broad applicability for state.
And local governments and counties as well as financial services institutions engaged in mortgage lending and related services. Okay. This basically is dramatically accelerates.
Time.
To generate a highly accurate highly defensible up property appraisal, where they complete deferred.
Evidence package to basically support that appraisal should be adjudicated. We think this represents a significant growth opportunity to the company.
This along with the <unk> CRM <unk> market.
Sure.
And other initiatives further our efforts to increase revenue diversity.
<unk> production applications showed expanded industry diversification in the quarter growing now to a 14 industries in Q2 fiscal year 'twenty, two compared to seven industries, a year ago, including notable expansions in financial services life Sciences, healthcare manufacturing and I am sorry.
Manufacturing agriculture and agricultural instruments.
The address company leadership.
We significantly strengthened our leadership team this quarter.
We did so in our federal business with the addition of Lieutenant General HR Mcmaster a U S. Army retired to the <unk> Advisory Board a graduate of the U S Military Academy.
<unk> of the Gulf War.
Operations enduring freedom and operation Iraqi Freedom Lieutenant General Mcmaster served as the United States National Security adviser.
From 2017 to 2018 ESL multiple roles in the United States Central Command and is a senior fellow at the Hoover institution and lecture at the Stanford Graduate school of business.
Also most pleased to announce a deal Mazor has joined the company in the role of senior Vice President and Chief administrative officer.
Deal has a rich history in information technology, formerly serving as Chief financial Officer at calling out a wireless location based services Corporation.
Prior to that he served as a vice president in business unit CFO of the storage big data and value compute business at Hewlett Packard Enterprise. He also served as vice President and business unit CFO of the converged infrastructure business unit at HB effective December 3rd a deal will also.
I assume the role of CFO at C III AI.
I am disappointed to announce that David barter will be retiring from <unk> AI for personal reasons effective later this month, David as said made many substantial contributions to the success of the company and he will be missed.
You touched a little bit about your new University relations because I think this is a particular area of strength for C. III AI, we continue to support our powerful university ecosystem through the C. III AI digital transformation Institute. This is a public private partnership that.
That consists of C. Three AI, Microsoft Lawrence, Berkeley Labs, the National Center for Supercomputing applications, UC, Berkeley University of Illinois at Urbana.
Carnegie Mellon, Princeton, Stanford and <unk> suite.
The C III AI DTI sponsors advanced primary research in AI for digital transformation sponsors industry Colloquia and has awarded significant reach research funding to develop advanced AI techniques in precision medicine Covid pandemic.
Mitigation and energy and climate security.
Touched a little bit about human capital, we continue to attract exceptional talent to the company. The company received believe it or not over 18000 employment applications in the course of Q2.
We ended the quarter was 668 full time employees, an increase of 39% year over year.
So in summary.
Well, we havent see three AI is a high growth story and we are laser focused on growth attainment, we've established a substantial leadership position in the nascent stage.
The enterprise AI market, the addressable market opportunity in enterprise AI is staggering.
<unk> to exceed a $300 billion software market by 2025, our purpose is clear.
We are here to establish a clear global market leadership position.
To establish and maintain clear technology and product leadership to continue to attract and retain the highest quality human capital to operate our high performance global enterprise to maintain the highest levels of customer satisfaction to establish thought leadership in enterprise AI and importantly in ethical AI.
Hi.
I believe our technology Foundation is without compare our human capital is exceptional our brand equity is increasingly positive.
Positive.
The enterprise market is large and rapidly growing we have the technology. We have the leadership we have the human capital we have the capital and we have a huge market opportunity I believe the market growth opportunity facing cc AI has never been greater than it is today.
And the company has never been in a better position to establish a global market position and that is what we intend to obtain.
So with that I will conclude my comments and turn it over my colleague David Barter to drill down further into the.
Financial details David.
Thank you Tom.
We delivered strong second quarter results that again exceeded our guidance ranges for revenue and operating income at.
At the same time, a notable increase in backlog helps improve our revenue visibility and provides us with confidence in our outlook for the full year.
Revenue was $58 3 million, which.
Which is above the high end of our guidance and it represented an increase of 41% from the prior year.
Within revenue subscription revenue was $47 4 million up 32% from a year ago.
Professional services revenue increased to $10 9 million. Despite the higher proportion of professional services revenue in the second quarter, we continue to target our subscription revenue mix in the high 80% range.
Our revenue continues to be well diversified across industry verticals and geographies.
Five industry verticals each contributed over 10% of our revenue this quarter.
Revenue growth from oil and gas in financial services led the way in Q2.
We're also excited about the growth being generated by sales to federal government agencies, and we expect growth in this vertical increased meaningfully in the second half of the year.
Geographically, we also are well diversified APAC continues to perform particularly well with revenue up 77% in the second quarter revenue from customers in EMEA and APAC represented 28% of our first half revenue.
The amendment of our JV with Baker, Hughes, which Tom referenced in his remarks enhances our backlog and our revenue visibility.
The amendment includes several noteworthy improvements one it increased the total contract value by $45 million to it extended the Gd term by one year and three a new pricing model makes it easier for Baker Hughes to further accelerate the sales of <unk> AI software.
Since future revenue from Baker Hughes is now contracted and committed the majority of the future revenue related to the JV agreement now included Jamar view.
With this in mind at the end of the second quarter current <unk> was $179 4 million up 34% from a year ago and 24% from last quarter total GAAP RVO was $465 $5 million, an increase of 74% from a year ago and 60% from last quarter.
Our tangible backlog, which is not included in GAAP RP O. What has historically convert into revenue with an additional $63.
Yeah.
Combining our GAAP RPI plus tangible backlog leads to a non-GAAP <unk> of $529 $3 million up a meaningful 74% from a year ago and 48% from the prior quarter. We believe these are very healthy metrics, which further raises our confidence and visibility.
As a reminder, revenue associated with the Baker Hughes J D.
A related party revenue contracted directly with Baker Hughes for their own use or sell through to their end customers in oil and gas.
The related party revenue in the second quarter was $15 $9 million non.
Non related party revenue derived from transactions.
But the end customer contracted directly with <unk> AI was $4 $7 million.
In total is produced $26 million of revenue from our JV in the second quarter.
With the Baker Hughes GE D Amendment executed in the second quarter, we expect to related party disclosure to be less relevant due to the change in sales model going forward.
Turning to expenses and profitability I will be referring to non-GAAP metrics, which exclude stock based compensation expense and the employer portion of payroll tax expense related to stock transactions a GAAP to non-GAAP reconciliation is provided with our earnings press release.
Gross margin in the second quarter with 77, 8% up 160 basis points from a year ago, reflecting leverage in our operating model as our business continues to scale.
Subscription gross margin in the quarter was 81% consistent with a year ago and professional services gross margin was 63, 8% compared to 47% a year ago.
Operating expenses were $67 9 million up 66% from last year as we continue to focus on executing planned strategic investments to drive our long term growth.
Operating loss was $22 $6 million in the second quarter better than our guidance of a loss of three 7% to $30 million.
Turning to our balance sheet and cash flows we ended the quarter with $108 billion in cash cash equivalents and investments.
Operating cash flow was an outflow of $18 9 million in the second quarter and after capital expenditures of <unk> 9 million free.
Free cash outflow was $19 $8 million.
Deferred revenue was $72 9 million at the end of the quarter compared to $82 million in the prior year.
Turning to our guidance for the third quarter and the full year.
<unk> amended Baker Hughes GE agreement reinforces our confidence as we look forward.
In Q3, we expect total revenue in the range of $60 million to $68 million.
Representing growth of 34% to 38% from a year ago.
We expect to invest thoughtfully in head count and initiatives that will drive our continued growth and anticipate non-GAAP operating loss in the range of 3% to $26 million for full fiscal year 2022, we are increasing our revenue guidance to the range of 248 to three to.
$251 million.
Representing growth of three 5% to 37%.
We now anticipate non-GAAP operating loss in the range of $180 million to $100 million, which also represents an improvement from our prior guidance.
In summary, we are pleased to deliver second quarter results that exceeded our guidance ranges. We are optimistic about the momentum we are generating in the marketplace, which further supports our outlook for fiscal year 2022.
Finally, I'd like to add that this has been a privilege to have been apart from the <unk>.
Very appreciative of the opportunity provided to me and for all the support we have a strong finance and accounting team and I'm looking forward to supporting Tom and a deal with a smooth and thoughtful transition.
Before opening up the call for questions I'd like to invite Ms. <unk>, our new Chief Financial Officer to say a few words are new.
Thanks, Tom and Dave for the warm welcome to CCI.
I'm incredibly excited to be part of the team. The company has established such a strong leadership position and is off to a good stock.
I'm looking forward to working with Tom and the team to drive growth annualized in vehicles.
I'm also looking forward to working with you all.
With that I'll turn the call over to the operator for any questions that you may have for us operator.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question Press Star one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question we will pause.
So you briefly ask questions are registered.
The first question is from the line of Sanjay <unk> with Morgan Stanley. Your line is now open.
Thank you for taking my questions and sorry to see you.
So Dave David Best of luck with all your endeavors in the future tomo.
Tom I was wondering if you could talk a little bit about.
Some of the motivations around the restructuring of the contract. The first go round with Baker Hughes was right smack in the middle of the pandemic and made a lot of sense to restructure that contract extends the life of it what was the sort of motivation this time and that's where the contribution into in terms of.
<unk>.
Our new RP O.
And then if you sort of exclude.
The bookings from that front.
Baker Hughes.
Just sort of look at the business ex Baker Hughes in the quarter, how would you sort of characterize the bookings performance in the quarter because it seems like a pretty good two by our numbers, but then you sort of hinted at a sort of.
Restructuring of the sales force I'm trying to put these pieces together and understand like how did bookings evolved relative to your expectations in Q2.
Well.
Number of questions. There, let me see if I can tease this apart.
Real motivation behind the restructuring.
Baker Hughes was to basically kind of realigned the sales structure. So bigger he is I think roughly a $20 billion business and they run for essential business units and the real relationship with Baker Hughes has to do with a deep deep energy.
Expertise in oil and gas processing as cheese and kind of manifest in chemicals petrochemical business. I mean, they are kind of the masters of the universe of that and they have these unbelievably close relationships going back now I think 70 years with everybody in the world from Raws NAFTA gas problem to have right.
<unk> go to shell Chevron you name it.
And those relationships and that expertise are in their four business units. When we first put together their relationship with Baker with C. III AI Baker Hughes, they basically formed a you know.
New business unit that was called bigger you'll see three that AI that sat.
Kind of outside of those organizations and so they really werent that people with their relationships and they werent the people with the quotas and they werent the people with the with the deep industry expertise and what we really did here was on that.
As we we restructured it in a way that we put all of the sales resources and the quota in the operating units of Baker Hughes Okay.
So that's where the relationships are that's weird or whether we're talking about the eagle patrols the Qatar gases.
The kmt's whoever it might be a shell.
And so we put the quota and of the people and the operating units that was because that was the nature of the restructuring, but we're also we also did this in a way that gave them.
Increased pricing flexibility to price.
In a manner, that's consistent with that business segment be it LNG, okay be it.
Deep water be it renewables be petrochemicals. So we gave them the flexibility in consideration what they are for us given them that flexibility.
They gave to US was zero vocal nonrefundable revenue commitment so that becomes hard RP O I think $352 million, if I'm not mistaken I guess, that's about 357 over the next three or 357 over the next three and a half years. So that's a pretty significant roughly $100 million a year baseline that we start.
From that we can build on top ups.
So I'm confident that's in the best interest of shareholders.
<unk> and.
So it's a win win relationship that allows them to accelerate their business as the oil and gas industry recovers and and it's a good day.
As it relates to the sales organization.
No.
The attempt was and candidly I think we did it too early was to put together kind of your traditional highly hierarchical highly a regimented kind of independent business unit sales organization Okay.
Like they have an SAP like they have at IBM like they used to have at Oracle.
And.
And and you know the idea as you, let a sales organization like that run kind of independently and theoretically the.
The scale of the business at a greater rate now that's a different model than we're used to using because I know many of you kind of always asked well how many people do we have the sales organization and it's really you know.
Answer was how many people will have in the company that's already available in our sales virtually.
Always put together sales teams from engineering from forward deployed engineering from product marketing from the office of the CEO whatever it took to take care of the customer.
And.
No.
I think candidly, we did it too early and and you know the performance of the organization was unacceptable.
So we watched it we watch it very carefully it became apparent that it was not going to meet the growth needs of the company going forward. So basically we reverted to our old all selling all strategic selling model.
Which is a tried and tested proven techniques that many companies are familiar with I think it was developed in 1988 buy up.
Yeah, Robert Miller, and Steven Hyman, and a book called strategic salaried pretty good book, if you haven't read it and.
So now every week.
We've gone back to what we what we did before is for every account.
Put together a team of four or five six or seven people, who we think are just the best people in the company to handle that cannot be they from finance be there from the engineering organization and product marketing from the sales organization or from the office of the CEO to surround the customer develop a strategic partnership with the customer.
<unk> make sure that trial's successful their implementation.
Successful that their production deployments are successful and this is what we've done.
It took us about two weeks. So you put all that in place at all at all.
Basically has been in place since the first day of this quarter, it's a done deal or off to the races added based about what we're seeing now it was absolutely the right thing to do we have a lot of visibility into Q3 and and at a large pipeline for Q4 and and you know.
To the extent that going into a hierarchical model was a mistake I guess I'm. The CEO. So I have to accept prescribe the ability for that.
But we've we've made a course correction or more back on track.
Yes.
I appreciate all the color Tom that's helpful. One more if I might and so on these sort of partnerships go to market I think you called out a number of them, but the one that sort of perked my years with Google Cloud and Microsoft.
Driving the momentum behind that partnership is it wanted to.
The specific apps that you guys are at the Cri map, that's driving a lot of the go to market collaboration around that particular ops or is it the broader platform or even a whole host of other other apps, if you could sort of give us.
All are out there.
So between.
With Microsoft or Google cloud that would be really helpful.
It's really it's really different between the two I would say that if you look at the DNA between the Microsoft sales organization and the <unk> sales organization, they're actually very similar I mean, these people are really highly professional experienced.
Enterprise sales professionals and really we're just kind of you know.
And how to approach accounts together, you know how to how to address opportunities together with their talk together in shorthand and figure out how to get the deal done to the customer satisfaction and how to make the customer succeed that is been a hugely hugely successful relationship it is directly between.
<unk> and Sofia NII.
And I'd add and everybody else, but it's at the highest levels and we and that is a very very successful relationship. They look at their motivation is to drive Azores. Okay. Now Google approach test from a very different perspective, so Thomas kurian, when he took over Google.
And I think he had about 400 salespeople I suspect, they're all gone Okay and now he has got about 4000 sales grab more most of them are kind of experienced enterprise sales men and women from another.
Other companies he decided to approach the hyper scaler market. He has been very clear that he wanted to approach the hyperscale market.
From a different.
Competitive edge, so rather than approach rather than compete with AWS and azure.
<unk> based upon.
<unk> CPU seconds and storage hours.
And.
With arguably a better architecture. He wanted to approach it to the application layer and deliver a family of applications for manufacturing for consumer packaged goods for telecommunications for life Sciences for.
For financial services and for Aerospace Defense intelligence. So he wanted to approach it by delivering applications.
Tried tested proven enterprise AI applications that run on top of the Google cloud that deliver solutions rapidly to the customer and that's a pretty interesting and I think defensible and creative.
Market differentiating differentiating strategy now the net effect of it is.
It accelerates the sale of CPU seconds of storage hours. It just gets you there a lot quicker.
If you were in the market and you wanted to partner with somebody that say had.
10, 2030, 40 turnkey enterprise applications that run on top of the Google cloud that address the value chains of oil and gas utilities energy manufacturing healthcare financial services manufacturing et cetera.
Argue there's exactly one door in the world if you knock on okay, and that's the door right on the front of this building and so that's the door that knocked on vascular relationship we put together and now we are jointly selling these applications globally.
It's a really interesting and productive relationship.
I appreciate all the detail Tom Thank you.
Thank you Mr <unk>.
The next question is from the line of David Hynes with Canaccord. Your line is now open.
Hey, guys. This is Luke on for D. J. Thanks for taking the question. So you called out in your prepared remarks, the fairly significant uptick in professional services revenue in the quarter could you just expand there and discuss what drove that dynamic.
Is that just a reflection of new large customer relationships ramping.
Or is there anything else to call out there.
That's a great question Theres really nothing to call out or our subscription revenue overtime has averaged 86%, but it's moved around five or six points in any quarter given quarter and this just has to do with timing of projects and delivered.
More to that than just timing and execution.
So you're going to expect that stay that professional services will stay in.
14% to 20% range of revenue in perpetuity.
That's kind of where we have a targeted.
Got it. Thanks, that's helpful. And then maybe just another on sort of the government opportunity out there you obviously had a big quarter in terms of signing new contract value with those three agencies you called out do you feel like there is.
Fruit to be had there or how would you characterize that opportunity going forward I think that opportunity is huge.
And I think you know we've had generally I'd card Don joined us as as the capacity of chairman of Federal systems.
Hey, John Macmaster General Mcmaster has now joined us.
I think you're going to expect some significant announcements going forward.
We're quite confident that our business and federal police.
The defense and Intel is going to grow at a substantially increased rate in the second half of this year.
Great. Thank you.
Thank you Mr. Huang.
The next question is from the line of Jack Andrews with Needham Your line is open.
Good afternoon, Thanks for taking my question.
Tom you talked about sort of this continued need for a high touch sales approach and so I was wondering if you could maybe tie that into just.
The overall state of the market here.
There's so much noise it feels like around AI in general So could you just maybe frame for us I mean do your customers given the healthy pipeline activity you do it because everyone up there really understand.
Concept of enterprise AI and all the use cases or do you still need to spend time sort of evangelizing.
<unk> proposition of everything that you can deliver to customers.
Great question.
You are right now if you look at the pipeline that we're working going out the next four quarters, it's about $1 billion to okay. The pipeline that we're working for the second half and what we see as qualified opportunities second half of this year is about $800 million.
You know we are looking at a market that is in this first half of the first inning okay.
Apprise AI and people are just starting to figure it out.
And.
We're not really spending a lot of time evangelizing, we're not spending basically there's kind of two schools of three schools of thought as it relates to AI, what I'm like completely confused and I don't get it yet that would be the largest segment. Okay. The next largest segment is.
Well I'm going to take 20000 people in Bangalore, and I'm going to build this platform myself okay.
And virtually every one of our trusted customers has tried to build this themselves.
As long it's expensive it never works I mean, GE I think spent $6 billion.
Shell tried to build it and now trying to build with Cove tried to build Theres no United States Air Force God knows time, so how many times they've tried to build it.
And you know, we don't really fight that fight.
People will kind of go through that first deciding that they want once they get to the point that they are going to.
Take advantage of enterprise AI, that's the first qualifying issue and then when they've gotten to the point, where they're excited they're not going to build it themselves. So we're not going to stay around and talk him out of building. It themselves, we're not gonna stay around and convince them why AI is good we're mostly in the business of just finding that customer.
<unk> that is never one committed to digitally transform the organization and it is this.
No way no how are we going to build it themselves because that stupid, okay. When we buy that customer. That's so we're not we're spending time qualifying not evangelizing.
It is a you know before it's all over everybody will be in that third.
The sector I'm quite confident of that and we will be looking at a 300 billion dollar addressable market. It's just an evolution of the market has to go through them and we're.
You know we have no problem with that.
Got it thanks for the color around that that's really helpful. Framing maybe just as a follow up question just given the.
Sort of the sales changes that you've made could you maybe update us in terms of your hiring plans and priorities for the balance of the fiscal year here.
Well, we had 18000 job applications in the last quarter.
So we are very I mean were for some reason, we're just I think last time I looked in the last year. We had 52000, okay, but right now I think 18000 annualized as to what 70000 okay.
Right, Okay, and so swap for people want to come to work here and sales in data science.
Marketing.
You can expect.
That we will.
So we're very selective about who we hire.
Both the <unk>.
Both in terms of personality type and in terms of skill set I think something like.
86% of our people will have advanced degrees, though I read about that Jack.
A huge number I think excuse me I am sorry, 68% of our people will have a advanced degrees, 10% of our people at ph DS.
Rough numbers you can give me a couple of points one way or the other around those guys, who don't have that I don't have these numbers right in front of me, okay, but it's.
You can expect that we will hire every person that we deemed duly qualified who we think can succeed here. Okay. In the next two quarters and in the next two years and so we are open for business. We're hiring we're hiring in Guadalajara, we're hiring in New York at Paris, and Rome in.
In the U K, and New York Atlanta Chicago.
And right here in Redwood City, we're hiring so it's.
And we're we feel very fortunate about the people that we're able to attract and retain.
That's great to hear thanks for the update.
Thank you Mr. Andrews. The next question is from the line of Michael <unk> with Keybanc. Your line is open.
Hi, This is Michael on for Michael.
Thanks for taking my question.
You called out strength in APAC and I was wondering if you could dive into that a little bit and then compare that to what youre seeing in EMEA. Thanks.
Sure I think what we shared on the call was at APAC was up 77%.
I think the strength if I think about the deals that we've had in APAC.
Thinking about on the last couple of quarters, it's been certainly financial services I think we've seen some oil and gas and chemicals.
I think it hits, a number of industry verticals as well.
What we've seen in APAC.
Okay. Thanks, and then if I could just a quick follow up so anything you'd comment on the billings sequential change any timing or just strange seasonality around that thanks.
I don't think so I think overall, if you think about billings probably the most noteworthy element is just to kind of keep in mind that sequentially things have been very.
Very strong if you were to kind of go back.
Over 121%.
Going back to Q4, 18% sequential so I think sequentially. When you think about it we were kind of coming off of a higher rate.
Period.
So that's just I'd just keep in mind that there is going to continue to be some movement around invoicing and how that FERC really through the P&L.
Thank you Mr. Turin.
The next question is from the line of Brad Sills with Bank of America. Your line is now open.
Oh, great. Thanks for taking my question guys.
Wanted to ask about some of the newer vertical industries that you are going after life Sciences manufacturing services as you kind of expand into these other verticals what kind of traction are you seeing there.
And any any color on perhaps applications that youre seeing some early pilots with.
And what pipelines look like potentially in those industry. Thank you.
Hi, Brad I wish I had all the pipelines in front of me I don't have that turn to Jack do you have the sheet by by vertical.
They look at financial services is going to be huge Brad.
That's a big win I mean, now we're moving into agriculture believe it or not.
Cultural implements.
Insurance.
Telco I mean, this is kind of go everywhere.
I think consumer package goods will be good we're not it won't be big one out there at the largest unquestionably the largest but we haven't made a lot of traction yet will be precision medicine.
No way that cannot be the largest has to be.
So I mean.
Just a matter of these markets will develop for some reason the utility I know why the utilities market was the first to develop because they you know when you remember when you say everybody has to talk about Iot. These are the guys that had all the sensors out there.
And gas kind of came as a complete surprise maybe that came in the course of a gift horse that walked in the door.
The person of Baker Hughes.
And then.
You know.
Defense and intelligence, Oh, My God I mean.
Big well that'd be I mean, these guys are.
Our financial services pipeline is very large in the second half of the year telecommunications as very large defense and intelligence.
That's at Intel.
You guys have to keep up with the Chinese and God knows how many scores of $1 billion to Chinese you're spending on this and so then.
They have some work to do and I think you'll find a weak part of the solution. So.
We're just you know.
We're going after the verticals in a very pragmatic coin operated fashion.
And you know as the co op co auction in the door.
And you know where the checking a mandate and it happens to run Boeing where the aerospace business.
That's how it works.
Great. Thanks, Tom and then also if I could ask about some of these vertical partnerships that fire.
If you could elaborate just a little bit on the commitment their go to market resources any traction youre seeing in those partnerships would be would be really helpful. Thanks again.
And he is pretty mature and that's one where we're seeing a lot of traction and I candidly, what they're doing is they're using our technology to provide energy services to large organizations like Ohio State University and others are large retailers of coffee that will remain unnamed.
A number of the University systems, where they're basically.
Almost stepping in as the role of the utility Okay, where they are you know kind of guaranteeing them a reduction in their energy and carbon footprint over the next decade or 20 years.
They're using our software.
You know as the heart of that service that they provide so that's that is mature growing hugely successful FIS is relatively new.
<unk>.
As Youre aware I think it was put in place.
A couple of quarters ago.
Where we're seeing slow but steady progress there.
<unk> regularly with the guys who run the business that is.
Yeah.
You know right now I'm optimistic about it but we have not yet generated a lot of results. There I think in the next two quarters, we'll know whether that's going to succeed or not I think it will.
Spent the morning.
Ready to go and buy a regular communication with the person who runs the kind of defense business at Raytheon, who is our partner in the defense and intelligence community and their levels of Covid met are definitely increasing.
We're involved in some very large projects with them.
And you can expect to see that those projects will contribute.
Some of the growth that we've.
David mentioned Nif's mentioned, you know in the spin in the second half of this year.
So that that Raytheon is a good one.
Thanks, Tom.
Thank you Mr sales.
Yeah.
The final question is from Mark Murphy with J P M.
Line is now open.
Yes.
Thank you very much.
So Tom.
I was curious when you look back on it but with a few more quarters under your belt. What is your preferred route to market or what is more efficient is it selling direct and letting companies build their own machine learning and AI models or is it the is it weaponized <unk> the older applications by.
Hi.
Working the way you are with Microsoft and Adobe and Infor and other application vendors.
Great question.
I'd tell you it's a lot it's a lot easier mark to.
To weaponize existing systems.
Okay. It really is or just go taken account SaaS shall saying it now said Coke say missile defense agency taken account and make them successful build their first happened in the second half and but I think in for example at the Air Force. We must have 22 applications live in readiness will be live.
I think in March.
So there's that's preferred it's easiest okay.
It's highly certain okay, because you have control over the situation youre dealing directly with the customer.
You can.
You could not only set their expectations, you'll get influence what theyre going to do first and second and third and be you know very much about succeeding at this is picking the right project. As you know you know the reason that I think a lot of these companies fail at these projects just because of the big projects that are a either impossible or like.
Let's say somebody wants to build an AI applications, though like.
Predicts the price of pork bellies next month, well, if we could predict the price of pork.
AI without sophisticated we could predict the price of gold next month, and we could predict that I said, Google stock next month, and then we could do that none of us would be in the software business would be okay people actually do try to do these applications believe me. One was explained to me yesterday, so either people choose applications that are impossible or people choose applications that are of low vol.
<unk>.
Now when you're dealing with them directly you can coach them and keep them on high value applications, where AI is an appropriate tool.
Now.
That being said if you want to establish and maintain a market leadership position as you know, we do we need to thinking about market leverage okay. And this is when you're going through you're going to do at much larger scale through distribution partners like Microsoft like Google like F. I asked like Baker Hughes, Okay. The advantages you have scale, we have 12000 people at Baker.
<unk> 4000 people at K at Google I think 60000 people at Microsoft.
And I don't know what the number is but its some staggering number like that.
So the good news is there you have leverage okay.
It's harder you need to be much more sophisticated about the way you're doing it you need to be willing to allow people to make mistakes you're going to have higher rates of failure. At the same time, you do have Margaret ledger leverage and if you do it if the goal is to establish and maintain my our clear market leadership, you need to do it through a partner ecosystem. So.
As much as I would prefer to do it the easy way is not going to achieve the desired objective salary to kind of go full circle on it but I mean it was it was a really good question.
Yes, Okay, yes. Thank you Tom I appreciate that.
That.
Insight into into the strategies, but my other question is.
Just observing what has happened with commodity prices.
And they are up so much.
Year over year you have this.
Some of the business in oil and gas and utilities, although youre diversifying very rapidly.
Is the commodity price, creating more budget there.
For that end market would you head into 2022, and I guess I was just curious.
If that's benefiting Baker Hughes.
Has that given them more confidence to kind of make this a stronger commitment to you.
Well, there's no question that as it relates to that segment of our market. You know, it's a lot easier to do business, there where oil prices are like above zero.
Sure.
Right.
I think negative $37 a barrel I mean, all of these companies were thinking about is how fast they can lay people off right.
As they get slashed budgets, there relative to shock now with I don't know where oil is today, you probably do but I suspect, it's something like $86 a barrel, but I don't know I don't really track it okay, but it's significantly non zero and they're all investing or they are all investing in the future interestingly enough most of.
There are their best domain come in becoming non hydrocarbon companies.
Aramco is certainly Shelly is there they are all investing in reinventing themselves you're talking about reinventing say, a $300 billion business is entirely to that and on hydrocarbons to be entirely dependent on the operating on clean energy, it's a pretty significant transformation, but theres. No question. They are looking at but it's you know.
And now there are budgets and they are investing and I suspect. This is one of the reasons.
That motivated Baker Hughes to restructure I agree with the way they did.
Okay understood. Thank you very much appreciate it.
Thank you Mr. Murphy there are no additional questions waiting at this time I will now turn the conference back over to Tom for any closing remarks.
Okay, ladies and gentlemen, we're oh. Thank you so much for your time and attention and we look forward to.
You know keeping you posted on the progress of our business.
And Mike were very clear on what the mission here this year and that is to establish and maintain our market leadership position globally in enterprise AI. If we do that I suspect this will be a pretty successful company more successful than that.
We.
I appreciate your time courtesy attention.
We look forward to staying in touch and thank you all very much.
That concludes the CBRE AIG second quarter fiscal year 2022 earnings conference call. Thank you for your participation you may now disconnect your lines.
Yes.