Q2 2024 C3.ai Inc Earnings Call
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Okay.
Good day and thank you for standing by welcome to the C. Three eight our second quarter fiscal year 'twenty Four conference call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you need to press star one on your telephone please be back at todays call is being record.
I would now like turn the conference over to your host.
Mr. Berry. Please please begin.
Good afternoon, and welcome to <unk> earnings call for the second quarter of fiscal year 2024, which ended on October 31, 2023. My name is I'm, a dairy and I lead Investor relations at ETE.
With me on the call today is Tom people try them in it.
Executive Officer, and Europe market, and Chief Financial Officer.
After the market closed today, we issued a press release with details regarding our second quarter results as well as a supplemental to water it up both of which can be accessed through the investor Relations section of our website at IR P. J.
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 law.
And reflect our view only as of today and should not be considered representative of our views.
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.
Further discussion of the material risks and other important factors that could affect our actual results. Please refer to our filings with the SEC.
All figures discussed on a non-GAAP basis, unless otherwise noted.
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 remarks and responses to your questions. We may discuss metrics that are incremental to our usual presentation to give greater insight into the dynamics of our business or our quarterly results.
Please be advised that we may or may not continue to provide this additional detail in the future.
With that let me turn the call over to Tom.
Okay.
Thank you Matt Good afternoon, everyone and thank you for joining our call today.
Results.
Bottom line, we continue to accelerate our revenue growth.
And Aaron Kessler, our customer engagement couch.
And continue to gain traction with tier three generative AI and our enterprise applications in the second quarter total revenue for the second quarter was $73 2 million, an increase of 17% compared to 62.4 million one year ago.
Accelerating from an 11% increase from the first quarter.
The total number of customer engagements with 404, an increase of 81% compared to 223 last quarter.
North American revenue of $61 million increased 28% year over year, while EMEA revenue of $10 6 million decreased 11% year over year federal revenue increased 100% year over year.
Subscription revenue for the quarter was $66 4 million constituted 91% of total revenue increasing 12% from a year ago.
GAAP gross profit for the quarter was $41 1 million, representing a 56% gross margin.
non-GAAP gross profit for the quarter was $54 million, representing a 69% non-GAAP gross margin our GAAP net loss per share.
Yes.
Hum.
The loss was 59 cents and non-GAAP net loss per share was <unk> 13 cents.
We ended the quarter with.
$762 3 million in cash cash equivalents and investments.
She threes.
<unk> partner ecosystem continues to drive significant growth in Q2. The company closed the company closed 40 agreements through our partner network, including AWS Booz Allen Baker Hughes, Google Cloud and Microsoft the qualified opportunity pipeline with partners has increased by 75.
In the past year.
We're excited new and expanded agreements with Nucor Corporation Roche Con Edison Hewlett Packard Enterprise GSK.
Formerly.
Smithkline.
The.
Thats S Navy the administration for children and families. The division of health and human services in DRAM and first bank amongst others over.
Over the past.
Several months C. III has helped nucor the largest steel producer in the United States to better optimize cast their production schedules, specifically to improve production levels and reduce cost levels in the steel casting process C. III is now helping nucor's scale this across several.
Additional mills.
In Q2, <unk> also kicked off two new additional use cases at nucor tackling process optimization and demand forecasting and we also completed a phase III generative AI pilot targeting operational health and safety.
GSK fundamentally glaxosmithkline is now using <unk> AI supply chain suite increased efficiency in our supply chain.
Using AI to optimize yield and improve demand forecasting processes.
Edison.
<unk> customer since 2017 continues to continues to expand its use of the <unk> AI applications.
Most recently.
By adding <unk> generally with AI.
Okay that is using CTG Elliott of AI to help workers quickly find answers to questions.
And analyses related to smart meters service levels and infrastructure data in the second quarter Con Edison completed two pilots of.
C III generative AI, which have now converted to production.
We also continue to expand our footprint in state and local governments with particular interest in situ AI lab law enforcement for San Mateo County, California.
And Ctrip AI residential property appraisal from Stark County, Ohio, and Charlotte County, Florida.
Our federal business continues to show significant strength with bookings up 187% year over year.
We closed new or expanded deals with the United States Navy in the intelligence community Joint staff J H.
Logistics agency and the administration for children and families.
We've talked many times about our success our success in helping them monetize modernized sorry, the driver to pads and we're proud now to say that our products are helping civilian government agencies as well.
This quarter, we began to work with the administration for children and families. A division of the U S Department of health and human services the agreement with Ctrip.
Was part of their first order under a $90 million.
Purchase blanket purchase agreement.
And.
This part of Afcs, Acs work involves helping unaccompanied children across the U S border.
<unk> temporary shelter at Paramount at homes.
Sure.
Our platform will be used in complex modeling and predictive analytics yet.
Acs <unk>.
Keep track of the number of unaccompanied children in the agency's care staffing needs and determine how long these children with their case managers amongst other tasks.
<unk> continues to leverage its extensive commercial supply chain experience in the federal government is now playing applying this experience the defense sector with the C. III AI contested logistics application.
For Transcon.
Transcon and 40 out for DLA.
During the quarter CGI converted to defense logistic agency pilots in the follow on projects for the Department of Defense. The first project delivers.
Comment on operating picture of the supply chain for.
It enables leaders at multiple echelons to see and near real time Global class Guy and supply posture. The application unify desperate supply data and provides the defense logistics.
Agency, the ability to identify supply chain inefficiencies forecast parts consumption in part shortage and conduct impac.
<unk> and put it into place mitigation plans. The second project support DLH Energy Directorate levering, leveraging <unk> commercial expertise in the oil and gas sector. The C. III AI contest and logistics application modernize.
Modernizes and streamlines global fuel distribution for the department of Defense.
Users can see global fuel inventories anticipate fuel consumption.
Identify supply network risks and create distribution and transportation plans to prevent disruption.
And assure supply these applications promise to significantly impact the efficiency of the department of defense logistic enterprise and improve readiness.
Our partnership with AWS deepened with an expanded strategic collaboration agreement in the quarter, Okay, and the availability of our new no code self service generative AI application Cta generative AI now available in the AWS marketplace.
I think we announced that last week. This new application allows customers users of all technicals levels to begin begin using generative AI with the minutes of signing up.
And this application CD generative AI is now available to you.
The AWS marketplace under a 14 day free trial.
So I encourage you to do.
Take a look at it for those of you who are interested under the expanded collaboration agreement with AWS. We are focusing on offering advanced generative AI solutions combined with what Theyre doing and bedrock, okay and other initiatives for enterprises and for AI applications for <unk>.
<unk> in multiple verticals, including manufacturing power and utilities consumer packaged goods state and local government and the federal government <unk> AI and AWS has joined qualified pipeline has more than doubled year over year with heightened interest in the C. Three generative AI suite.
In Q2, <unk> actually been recognized multiple times for its innovation in the AI space, we've been named to the Fortune 50 innovators list and the list goes on and on so im not going to belabor that will get recognized all the time pilot growth. This is important in Q2, we closed 62 agreements including <unk>.
36 pilots and trials are new pilot count is up to quarter at 70% from a year ago, notably 20 of these were generative AI pilots, 150% increase from Q1.
With a lower entry price points of our pilots were more easily able to land new accounts with our pilots, we're engaging customers across a diverse set of industries in this quarter. Our pilots came from manufacturing Federal defense Aerospace Pharmaceuticals, and other industries.
Now we did see sales headwinds in the quarter, while the interest in AI applications, and especially generative.
Substantially we're also seeing in many cases lengthening.
<unk> cycles virtually every company okay in the last three to six months has created a new AI governance function as part of its decision making process. These AI governance functions SaaS and approve those applications that will be allowed to be installed in the enterprise. This.
Candidly additive step to the decision process of AI you might have heard it here first okay, but youll be hearing less SRAM every AI vendor. Okay. In the next few quarters take it to the bank. It is simply it has added a step of the process. It is and it is lengthening.
The normal sales cycles, so it's kind of net.
And so this had a this provided a sales headwind in the quarter and while the increased scrutiny lengthens. The sales prices. We believe this is a healthy process to ensure that companies are adopting safe and appropriate AI solutions. So we're all four okay. Andrea can it move revenue a little bit.
Yes.
Click below et cetera, the range yet okay, but.
Get over it the world a better place people are making.
Very careful well informed decisions they have their best people on it and we will all be happier for this in the long run.
Okay.
So it did that dynamic did provide an unexpected headwind to our Q2 sales revenue performance. In addition, our sales execution in Europe was candidly unacceptable, okay and since then we've taken them through our planning meetings and we've taken appropriate organizational steps to immediately.
<unk> improved sales execution and Europe.
Now, let's take a look at if this is the big story. This is the top line, Okay and really what this whole story has been about for the last six or seven quarters has been from the transition from.
Subscription based pricing to consumption based pricing and before we switch the consumption based pricing Youll recall the company was growing at quite a rapid growth rate like I think seven quarters ago order of 38% year over year growth rate. So we were.
Definitely in the top quartile, Okay, and we announced the transition took.
Tickets option based pricing that we believed would be it has become the standard in the industry. Although the consumption based pricing is based upon poor.
Virtual CPU or virtual GPU are similar to the pricing at Snowflake, Google Cloud AWS, Microsoft Azure et cetera.
Prior to this we were doing large enterprise subscription deals at 1 million $5 million $20 million $50 million and it was a good business that being said the downside of that model was lumpiness in bookings lengthy sales cycles and low level of revenue predictability we believe.
<unk> the transition from a primarily subscription based pricing model to a consumption based pricing model broader centralized with what we believe are today the industry standard cloud pricing standards. Okay.
It easier and less costly for new customers to acquire solutions, and then increase their spending as their usage and adoption increase we anticipated and announced when we made that transition.
Have a short to medium negative effect on revenue growth.
Long term drag on RPM, if the sales price was significantly reduced in the contracts often lack of time certain multi period commitment.
We believed when we made the announcement that the consumption based pricing model would increase the number of customers and increase the total amount of system consult conception, returning resulting in a return to increase revenue growth increased customer growth decreased average selling price.
<unk> decreased RV overtime now while we are still in the process of working through completely through this transition to the new pricing model. They presume preliminary empirical results that we are seeing evidenced by year over year growth rates appear to be proving out exactly as expected and exactly as we predicted.
Since the transition revenue growth initially decreased then it flattened okay and now is increasing as the as the consumption based pricing model take effects takes effect average selling prices decreased our pls decreased customer engagement has increased substantially okay. If we look back over the <unk>.
Last say 1234 quarters four quarters ago, our revenue growth was negative 4% and then zero percent, Okay last quarter. It was 11% now at 17%.
Yes.
Bookings growth, 71% year over year.
Sorry bookings growth, 100% year over year of the new contract growth of 148% year over year pilot.
Pilot growth, 50% quarter over quarter, 170% year over year. So.
This is.
Basically the beginning the middle and the end of the story okay.
Now six seven quarters ago, our transition to two.
Our consumption based pricing, we predicted that revenue would decline and then flatten and then increase and we are now seeing these increases that we predicted.
Now, let's talk about generative AI.
<unk> simply changes everything.
I believe that it more than doubles the size of our addressable market overnight.
<unk> seen the predictions.
Bloomberg that predicts this is up 100 and this is.
In excess of a trillion $1 three trillion dollars market by 2032.
Goldman Sachs predicts that this could increase corporate profits by 30% in the next decade and that generative AI alone raise that global GDP by 7% people. This is a big deal. It is difficult to overestimate the level of interest that we're seeing in the category of January they are.
Now by combining our multibillion dollar say 14 year investment in the <unk> platform with the recent development in life's language models and retrieval augmented generation C. Three AI is unique in the market.
And that we are able.
To solve the disqualifying hobnob ones that are preventing the adoption of generative AI again in government and defense intelligence and the private sector. What are those hop gap. So okay. Those out of the fact that.
The answers that come out of these large like what's your models as the Catholic they're random theyre not traceable.
This hallucination problem, which is extraordinarily problematic okay. We have research.
None of our data access controls yet be it Dod or bank of America Iron Forest. We have these problems with <unk> cost data exploration costs cyber threats and IP liability K. In addition, all the solutions that are out there almost all of those solutions I would say with the exception of.
AWS bedrock tend to be.
Specific and I don't think anybody wants to be <unk>.
Hook their wagon add any given LLM today with all the innovation, that's going on in the market and and to be dependent on any LLM provider that could.
It makes them announcement on Friday and be gone on Monday, <unk> AI for details so yes.
Im agnostic is there so the bottom line is our solution in the market addresses every one of those hob goblins that prevent the installation of.
Generally the AI in the enterprise and so this is really unique in 14 years and $2 billion.
Software engineering for us to be ready for this this is why we can solve it.
While the rest of the world is playing catch up okay.
How about multimodal they were completely nail multimodal, what we've been doing it for 40 years multimodal what does this mean rather than all these airlines solutions basically handle text yeah. We handle text, we added telemetry we handle images, we handle signals. There is we handle enterprise data, we have structured gated with unstructured data.
Our unique in the market and the result is quite exciting so while the rest of the world is playing catch up and we have scores of.
Yes.
The start ups.
Three guys for growth in two cats and apartment in San Francisco being Canada got yes, they are getting.
A billion dollar funding and yes, multibillion dollars market valuation see pitch book for details okay.
I don't know how many customers we have a throw order of 1000 employees and I don't know how many countries and we're delivering these solutions to that.
And so while the rest of the World is playing catch up we're working closely with our customers and new customers to install high value generative AI solutions that rapidly realized value to their organizations. Okay. We believe that our strategic decision to invest in generative AI.
Could address our addressable market opportunity our suite of 28 now I think 29 generally are the AI product wins on reliability flexibility adaptability accuracy and security all of the same qualities that are inherent in our enterprise AI platform.
Our vision to expand our customer base is working okay. The idea and this is very much idea about the work that we're doing on AWS marketplace is to go from eight customers to 80 customers to 8000 customers see 80000 customers. Okay. So so what we're dealing with now is kind of a new.
New game with massive market leverage and we are the first to market again. So I think we have the opportunity here with through our innovation and our applications that will proliferate across the business.
<unk> generative AI has enabled us to land high caliber new customers and expand agreements with current customers gapped the surge of interest.
Third to our <unk> generative AI qualified pipeline increasing.
New opportunities, increasing 55% sequentially quarter over quarter in the second quarter, representing the most rapid acceleration of all our product offerings. We expect this momentum to grow as we continue to innovate and build.
The increasingly exciting part.
Our November announcement of the self service CTG generative AI on the AWS marketplace plays a big part in this story potentially expanding our addressable customer pool, and our user base X exponentially. This new application allows users of <unk>.
All technical levels.
To enroll in the application and begin productively using generative AI in minutes.
Again this product is available today on the AWS marketplace should be of interest.
As I.
Introduced last quarter, we made a well considered decision to seize the immediate and candidly staggering market opportunity and see that we see in general a day on <unk>.
As such.
We are making and increasing.
Sizable and timely investment in application development model engineering lead generation branding and market wariness to seize market share and generative AI as rapidly as possible.
This will put short term downward pressure on free cash flow and profitability.
Closing thoughts.
The generative AI opportunity is staggering.
We believe that is in the best interest of our shareholders to further accelerate our investment and generate AI deepening our investments in lead generation branding market awareness and customer success, given our substantial cash balance we believe it is a strategic imperative.
Further in the degenerative AI opportunity at this time.
Separately now with the release of our platform version.
Of our $8 three product line, which is really quite remarkable in terms of the benefits that it brings to our customers and an increase in performance that it brings to our customers. We have decided to further invest in our customer base to accelerate their upgrade from version seven diverse and $8 three which we believe will further increase our customer.
Satisfaction levels that are already quite high.
We continue to that being said, we continue to expect positive cash flow in Q4, and while we're not giving fiscal year 'twenty five guidance, yet we continue to expect positive.
Cash flow for full year fiscal year 'twenty five.
<unk> remains focused we are one of the few AI software pure plays that has established relationships tried tested and proven technology platform.
Ed.
Reputational equity to capitalize on this generative AI market opportunity now ill turn the all over I will turn the call over to U haul parking and our Chief financial Officer to talk more about our financial performance and provide guidance for the remainder of the fiscal year.
Europe.
Thank you, Tom and I will now provide a recap of our Q2 financial results and some additional color on our consumption based revenue model, which we introduced five quarters ago.
I will discuss factors that would drive our financials in the back half of the year.
Figures are non-GAAP unless otherwise noted.
Total revenue for the second quarter increased 17, 3% year over year to $73 2 million subscription revenue increased 11, 7% year over year to $66 4 million and represented 97% of total revenue professional services revenue was $6 8 million and represented nine 3%.
Total revenue.
Gross profit for the second quarter was $50 4 million and gross margin was 68, 8%.
As a reminder, we continue to expect short term pressure on our gross margins due to a higher mix of targets, which carry a greater cost of revenue during the pilot phase of the customer lifecycle.
Operating loss for the quarter was negative $25 million compared to our guidance range of negative 27% to negative 40 million the improvement in operating loss versus guidance was driven by timing and amounts of degenerative AI related investments, we made to capture market share as well as our teams ongoing focus on disciplined.
Management at.
At the end of Q2, our accounts receivable was $143 $2 million, including Unbilled receivables of $104 8 million.
The general health of our accounts receivable remained strong.
Now turning to our Po and bookings.
Reflecting our transition to consumption based contracts, we reported second quarter GAAP ARP $303 6 million, which is down 27, 3% from last year and current GAAP ARPA of $172 million, which is up three 5% from last year.
We continue to see positive trends in the diversity of our pilot bookings with 10 industry segments represented in Q2 pilots as compared to eight in Q1.
Free cash flow for the quarter was negative $55 1 million, we continue to be very well capitalized and closed the quarter with $762 3 million in cash cash equivalents and marketable securities.
Now I'll provide an update on our consumption business model for the second quarter. During the quarter. We started 36 targets a 50% increase from last quarter. We are pleased to report that the actual CPU consumption data that we're seeing from pilot activity has validated the assumptions we made when we transition to the consumption based.
This model five quarters ago.
Our pilot conversion rates are trending upwards or getting close to our target of 70%.
At quarter end, we had cumulatively signed 109 pilots of which 103 are still active. This means they are still in their regional three to six month term extended for one to two months convert it to consumption or a license contract or are currently being negotiated for a production license.
Finally, our customer engagement count for the quarter was 404, and 81% increase from 223 a year ago.
Turning to guidance.
As Tom mentioned, we expect tiered revenue Q3 revenues to range from 74 million to $78 million non-GAAP loss from operations to range from negative $40 million to negative $46 million we.
We remain committed to delivering positive cash flow in Q4, FY 'twenty four and for the full year of fiscal year 'twenty five and.
non-GAAP profitability in the second half of fiscal 'twenty.
For the full fiscal year 'twenty four we are maintaining our previous revenue guidance in the range of 295 million to $320 million.
We are increasing our non-GAAP loss from operations guidance to a range of negative $115 million to negative $135 million.
I'd like to turn the call over to the operator to begin the Q&A session.
Operator.
Okay.
Okay.
Great.
Our first question comes from the line of Timothy Horan of Oppenheimer. Your line is open.
Thanks, a lot guys really appreciate the time.
Can you give us.
A sense of what Youre seeing in terms of productivity improvements.
And what what is the major bottleneck that you think customers need to overcome to really start implementing surfaces. Thanks.
I'm sorry, the question related to Gen AI.
Specifically on Gen AI, what type of productivity improvements.
Customers can see on specific applications and what is the major.
Bottleneck for them adopting J&J Ali thanks.
The major bottleneck as it relates to generative AI relates to the problems that are inherent in this large clinical trials and they are very real I mean, as you know as easy as Chad GBT or Google Bard, both of which are like excellent products.
The answers tend to be stochastic okay. So every.
Let me ask a question <unk> answer.
If it doesn't know the answer its hallucinates.
The data access controls are not enforce so the CEO and the person on the.
Factory floor get to get access to the same information.
We're Carnegie Mellon and others are now identifying huge.
<unk> security risks that are associated with these larger language models.
Two corporations and government entities.
We have.
P liability problems that people are concerned about because these large language models are trained and have access to all the data is that the internet. This is play whether stock prices what have you and those somebody has the copyright to all but those data be it the weather company or Bloomberg and they want to get money.
So.
The quantum areas of the world are going to build big businesses litigate. These issues over the next 10 years.
We have.
Sure.
Sure, there's very real issues.
The other issue as it relates to almost all of the solutions that are being offered.
<unk> specific.
And to say December 2023.
And under any any specific LLM is kind of crazy because next week somebody's going to leave profit by a factor of 10, so you need to be able to switch do you need to be alloy and agnostic. So I think those are really the hobgoblin cyber security hallucination information security that our base.
Making it so many organizations will not allow.
Any general of AI applications to be installed.
What's unique about the <unk> solution.
Talk about the some other time or you can look it up on the area by combining it with our 14 years of work that we did with the <unk> platform. We've addressed all of those problems cyber security data security elucidation, what happened so I think that blah blah blah.
That's what slows things down and people need to be need to be satisfied those issues resolved and therefore not resolved not being installed at some at any reasonable organization like general motors or.
J P Morgan Chase or you name it okay now as it relates to productivity increases Holy moly, they've gotta be staggering, whether you're a lawyer, where their reorder where their position or whether you are wrong.
Our paper machine.
Or whether we're what we're operating in the Internet.
Interest rate or the space command and then view.
It is.
If you do not have not being supercharged by generative year competition will be okay, and if they are not they win you lose hard stock.
So specific to your customers what do you think the bottleneck is for adoption. If you have it sounds like you have all these problems are pretty much resolved for them.
What do you think they require at this point do you really start adopting.
Well.
Our sales cycles are pretty fast or sales cycles regenerative I has been close to 24 hours. So basically our offering is it will bring the application layer. Okay in one or two months. If you like it for I don't know a quarter million dollars or something and if you like it keep so this has to do with people evaluating bond portfolios people running paper machines people running <unk>.
<unk> Mills.
The Intelligence Committee missile Defense agency, others. So we just.
We many of them are existing <unk> customers.
Although increasingly we will be serving.
Nine out of 10 will not be existing Sierra customers.
But you know we we.
We have to address the concerns that identified we seem to be able to address those after that would just bring the application live we get it live in four to eight weeks and if they like it keep it and sell it.
Pretty short sales cycle for us and you are seeing.
Very substantial increase in the pilots that were that were deploying.
You can expect we're expressing pilot to production conversion rate right.
It looks like about 70%.
So it does look like a big opportunity.
Thank you.
Thank you again, ladies and gentlemen, if you would like to ask a question. Please press star one wondering your telephone again to ask a question. Please press star one one.
One moment for our next question. Our next question comes from the line of Mike Seacoast.
Needham Your line is open.
Hey, Thanks for taking my questions here guys.
I wanted to ask first about the subscription gross margins in this probably goes back to your host prepared remarks, but was.
Good to see.
Gross margin has actually increased sequentially. Despite the increased pilot count and I know that you guys are calling out.
Short term pressure just based on the growing mix of pilots.
And so can you help us think about like what was it actually went better for you guys. Because I think we were expecting a little bit more degradation on the subscription gross margins versus how you guys have a quarter actually came through.
Thanks, Mike.
So yes.
In the Big picture as we announced five quarters ago as we're seeing we are expecting.
Gross margin degradation.
The subscription to continue now in the in this particular quarter. We were very pleased to see some improvement on a sequential basis, but I think we would expect.
Flattening to down again on the next quarter as the targeting pilot count increase system is going to put pressure before the consumption amount start picking up and offsetting that.
Got it thank you and if I just shift down to Opex for a second as well.
I guess, a two parter here. So first I know that you guys are increasing the anticipated operating losses here.
Last quarter, we had we decided to increase investment in branding lead Gen and awareness right. So can you help us think through where you guys are doubling down and then the second piece there.
There was obviously that article that came out on Bloomberg I think mid to late November sighting.
Head count costs.
Cutting I'm sorry, so could you just comment on the <unk>.
Solidity of the Bloomberg article just because I think people are trying to see if you did make those cuts how much are we doubling down on these investments.
Or if that article proved to be false.
Hi America comp.
Doubling down we're doubling down on data scientists with that regard.
No.
Largely language model engineers, we're doubling down.
A lot of it is going into engineering, but also candidly in lead generation I mean, there is an opportunity now as we move to these marketplaces.
<unk> dealing transactions in hundreds to thousands to tens of thousands of units rather than scores and in that I can assure you is the plan that we have as it relates to the I'm not familiar with Bloomberg article that you talked about it sounds like somebody mentioned something that we did some layoffs in the quarter.
Mike We do performance related layoffs every quarter okay.
So we I think last quarter, we had 42000 job applicants.
How many people that we hire you hope.
The order of 100 or order of 100, and these people, yes, they want to.
Yes, they worked with bank of America, yet yesterday.
GSP and they command an F 18 squadron and so we're constantly.
Upgrading our human capital and do.
We move we move Underperformers out.
No.
So if somebody said that in a Bloomberg article I don't know what they said what I told you is the truth.
Got it. Thank you I'll turn it over to my colleagues good. Thank you for the color there.
Sure.
Thank you one moment please.
Our next question comes from the line of Kingsley Crane of Canaccord Genuity. Your line is open.
Hi, Thanks for taking the question wanted to touch on the pilot program. You mentioned that you would move to a lower entry price point for pilot could you give us a sense of the magnitude of that change and it has a minimum fee post pilot also changed I'm curious what kind of upsell youre seeing upon conversion if any.
Taking slightly it's Tom.
I think the standard pilot that we have regenerative and the enterprises like $230000, but that being said you can get.
AWS.
Generative AI for AWS, which basically handles documents like every other al avid.
Handles taxes, its not really multimodal, but that's free for 14 days.
So that would be.
Pretty available.
Does your question that he asked that I didn't answer.
Great.
Okay, Yes. Thank you that's helpful.
Just wanted to touch on Opex as well so I think it makes sense that you want to invest more in both.
Our engineers and lead Gen and it looks like Thats, particularly hitting harder in Q4 of this year.
But as we think about fiscal 'twenty five it seems like some of the nature of those investments.
Would naturally continue as you.
Can you scale on that.
Large opportunity so.
Is it about timing in this year are you expecting those to continue next year.
Kingston I expect them to continue next year, but if you look at the guidance that we gave you in terms of about six quarters ago or what we see is the consumption over the first 12 quarters in terms of the CPU seconds.
Per new customer, we just did an analysis of you who I don't know they are about 30 customers that would progress.
And that those data that we that we that we predicted.
I think six or seven quarters ago, and provided you it's on candy and how accurate. It is it's basically plus or minus 10% and so if you look as these things kick in.
In quarter, 567, and eight the consumption numbers get pretty big So you can expect to that.
We don't really need to cut back on the investments to get to the point of cash.
Cash positive and non-GAAP profitable so the top line kind of takes care of that.
Okay.
Makes perfect sense. Thanks, Tom.
Thank you one moment please.
Our next question comes from the line of Sandeep Singh of Morgan Stanley. Your line is open.
Great. Thank you this is <unk> on for <unk>.
Tom maybe starting with you I mean with a couple of quarters of consumption are all now under your belt.
Clearly you're seeing a lot of.
Sort of quantity of deals in pilots.
Any way that you can frame will give us a sense of the quality of those customers went with a consumption model early on.
Is there any sort of.
Scale in terms of spending growth profile that theyre hitting now that you can kind of shed some light and give us the quality piece, where you've given us I think a lot on kind of the quantity piece of those yields and then for you or maybe.
Could you just give us some color on the subscription revenue because the services revenue. This quarter and then also maybe if a partner impact and sort of what that looks like on a go forward basis. Thank you.
Hi, Sanjay Okay regarding quality I think there's only two ways to look at pilot quality is going to be what's the conversion rate.
And what's in the K and what are they going to consume.
Based upon our best guess at this time okay.
Based on looking at every pilot we have out there going on like what actually has converted what we think we will convert we think our guesstimate that we gave you six or seven quarters ago, 70% is about right. So there is one indication of quality. The other indication of quality is how many cpus seconds are they consuming.
Okay over as you go from quarter zero to quarter 12, and it's tracking right in line I mean, it varies a little bit from one quarter to another but it's basically.
Right in line with what we told you that the quality is pretty high now that being said.
As we move now to mass markets and start dealing with hundreds of thousands of people.
Just either kind of ordering less online and playing with it youre going to expect that conversion rate from that level of pilot to be.
I would say I mean, the quality there will be much lower okay.
Think we need to measure quality by conversion rate and concession levels a lot of those people will drive for five minutes and drop off and that's just the way that it is with three stuff.
Now the rest of the question I think goes to you, yes, right. So.
Your second part about subscription versus services so.
We were $9 three.
3% professional services this period, which is to get a bit lighter than our expected long term model of 10% to 20% on professional services.
We expect that we will be at that range on a go forward basis, and then I think you were asking about how we feel about the partners in a go forward basis from partners are hugely important for us.
We continue to believe that they are the key part of our go to market approach going forward.
Excellent. Thanks.
Thank you.
It looks like we have time for one last question. Our last question will be from Pat Walraven of JMP Securities. Your line is open.
Hey, everyone. Thanks for taking the questions. This is Owen horizontal Pat I guess first one for Tom.
What would you say are the top one or two federal.
Cases, regenerative AI that you're seeing with those new slide new federal degenerative AI deals this quarter.
Our largest federal use case as you know is predictive maintenance in the United States Air Force. Okay. This was chosen by <unk>.
The chief of staff and and we now are doing that but the panda system, which is the only AI.
Our system of record that we're aware of it all of.
So this is a system of record for airports for predictive maintenance for all assets. So far we have loaded the data I believe 22 weapons systems at 15 F. 16 F 18 F 35, KC 135 F. 'twenty, two et cetera into a unified generate amitabh. This is a 100 terabytes of data okay. Some of it is yes.
Maintenance data, Saudi dated inventory data flight data flight history.
Telemetry and one aircraft like a <unk> 50, each each b. One bomber has 42000 sensors out at amending telemetry and I'm not sure what hurts cycles, but pretty fast. So this is a stack of data okay I will be there on in Monday.
Good day.
But that's Monday I'll be in Washington D C.
And are those to our customers with a generative AI finance, so think about business that mosaic browser front end, where a general officer can ask any question about.
100 terabyte production system. This is this is one of the largest.
Production.
Enterprise AI applications in existence, okay, and that person will be able will ask on Monday.
To be able to ask any question you could ask of the weapon system. For example, when aircraft are operative Travis Air Force base now what is my cost of operated B. One bomber program in the last year, what is the as it relates to F 35, whether whereby a largest part shortages on rather than going south.
There are some.
Cold War era.
<unk>.
Or even stabilize I don't want to take shots.
<unk>.
Enterprise information system.
User interface that our cargo looks like your Bloomberg terminal, Okay, which is I have one on my gaskets unusable okay.
The.
Just be a mosaic browser you can ask any question.
Get the answer related to any one of these weapons systems in the United States Air Force I guess their production data and we will show it on Monday, and Tuesday, and Wednesday, and I am telling you we expect some light bulbs to flash.
Great. Thank you and if I could sneak one last one in for you all.
Can you please explain the dynamics between the increase in accounts receivable.
Last quarter to this quarter, despite revenues kind of staying flattish.
Yes.
While accounts receivable is timing of invoicing.
So obviously when we drop an invoice shows up into your accounts receivable. So it's just trying to go into Boston.
Great. Thank you guys.
Thank you.
Ladies and gentlemen, I think we're at end of program. We appreciate your time and your attention.
Thank you very much and we look forward to.
Talking with you next quarter standby it does appear to be game on in the industry, a global scale and I can assure you we are very much in the game. So thank you all.
Were signing off.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating and have a good night you may now disconnect.
Okay.
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Okay.
Okay.
Okay.