C3.ai Inc (AI) 2022 Q1 法說會逐字稿

Good day, and thank you for standing by.

Welcome to the C3 AI First Quarter Fiscal Year 2022 Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

(Operator Instructions) I would now like to hand the conference over to your first speaker today, Mr. Paul Phillips, Vice President of Investor Relations.

Please go ahead, sir.

Good afternoon, and welcome to C3 AI's earnings call for the first quarter of fiscal year 2022, which ended July 31, 2021.

This is Paul Phillips, Vice President of Investor Relations of C3 AI, and with me on the call today are Tom Siebel, Chairman and CEO; and Dave Barter, CFO.

After the market closed today, we issued a press release with details regarding our first quarter results as well as a supplement to our results, both of which can be accessed on the IR section of our website at ir.c3.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 relating 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 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'll 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 response 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 in the future.

With that, let me turn the call over to Tom for his prepared remarks.

Tom?

Okay.

Thank you, Paul, and good afternoon, everyone.

I am most pleased to provide you an update on our first quarter results and provide some comments on the state of the business as we see it.

We posted another set of strong results in the first quarter.

We continue to make great progress in solidifying our position as the pure-play enterprise AI application software company.

Our progress continues as planned, on track.

Our products are powering some of the world's largest enterprise AI application deployments as we extend our production footprint across industries and regions globally.

Our first quarter performance was a strong start to the new fiscal year.

Let's look at some of the financial and business highlights.

Total revenue for the quarter was $52.4 million, up from $40.5 million a year ago, an increase of 29% year-over-year.

Subscription revenue was $46.1 million, up from $35.7 million 1 year ago, an increase of 29% year-over-year.

Non-GAAP gross profit was $40.9 million, a 78% gross margin compared to $30.2 million gross profit, a 75% gross margin a year earlier.

This was an increase in gross margin of 35% year-over-year.

Our remaining performance obligations, or RPO, was $290.6 million compared to $275.1 million a year ago, an increase of 6% year-over-year.

Non-GAAP RPO was $357.3 million compared to $279.5 million a year ago, an increase of 28% year-over-year.

We ended the quarter with 89 (sic) [98] enterprise AI customers, an increase of 85% year-over-year.

As we have previously discussed, historically, our business has been characterized by quarter-to-quarter lumpiness due to the substantial size of our average order value.

Now as application sales become an increasingly large part of our revenue mix, roughly 50% of our subscriptions last quarter in Q1 accrued from application software.

We are increasingly offering lower-priced high-value products like C3 AI CRM and Ex Machina.

And as we've discussed, we've been diversifying our distribution model to complement enterprise selling with telesales, distributors, market partners and direct marketplace selling.

While we have not yet fully eliminated the lumpiness from our business model, we have made great progress, with average subscription total contract values shrinking from $16.2 million in fiscal year '19 to $12.1 million in fiscal year '20 to $7.2 million in fiscal year '21 to $4.5 million in the quarter ended July 31.

It's my expectation that this average contract value will continue to increase going forward as we continue to add diversity to both our product mix and our distribution model.

Our average revenue per customer in the first quarter was $535,000.

Let's talk about our market partner ecosystem.

We significantly expanded this partner ecosystem in Q1, entering an important highly strategic alliance with Google Cloud to allow the entire Google Cloud global sales and service organization to co-sell and service the entire family of C3 AI applications globally.

The 2 companies will tightly integrate C3 AI and Google Cloud technologies and go-to-market initiatives with the effect of accelerating enterprise AI adoption.

The comprehensive alliance includes coordinated software development road maps, tight product integration as well as joint selling, joint marketing and joint customer success programs at global scale.

C3 AI and Google Cloud will regularly synchronize our software engineering road maps and activities to ensure that the Google Cloud, Google Cloud applications and the C3 AI suite and AI enterprise applications are fully optimized and tightly integrated.

The companies will engage in significant ongoing marketing development activities and will coordinate sales and service activities globally to assist small, medium and large enterprise customers to accelerate the adoption and time to value of their enterprise cloud AI applications.

We expect this partnership would dramatically accelerate the adoption of enterprise AI applications across all industry segments and will prove an additional growth engine for C3 AI.

Microsoft.

Our partnership -- our strategic partnership with Microsoft continues to expand.

To date, we have closed more than $200 million in business with Microsoft.

Our joint teams are currently working a pipeline of more than $350 million in specific opportunities.

Recent wins with Microsoft include the United States Missile Defense Agency, Cargill, Ball, Cummins, the United States Air Force Rapid Sustainment Office.

And we continue to make great strides in the market in Europe, in North America, in federal, and it is a very, very important relationship.

C3 AI CRM.

We are seeing increased interest in the C3 AI CRM bandwidth applications that address the currently installed investments of CRM systems estimated -- and these investments are estimated to be well in excess of $500 billion.

When you think about it, C3 -- CRM sales and software sales this year will be $120 billion, this year alone.

So we put some number of years of investments.

So Salesforce, Siebel, SAP, Dynamics, Accenture, PwC, Deloitte, et cetera, this is -- there's no way you don't get to a number greater than $0.5 billion installed -- $0.5 trillion installed base.

Now with C3 AI CRM, companies can easily upgrade their existing Salesforce deployments, their Dynamics deployments, Siebel deployments, ServiceNow, Veeva, SAP, CRM and retain those investments but at the same time, make them fully predictive, including now precise AI revenue forecasting, AI product forecasting, next best product, next best offer, customer retention and customer satisfaction management.

As you can imagine, we are seeing really substantial interest from the largest integration partners that see this as an opportunity to upgrade and add additional services into their existing CRM installed base.

And so you can expect from this to see additional market partner announcements in this area in the coming quarters.

Customer momentum.

We expanded our enterprise AI footprint in the first quarter in defense, in chemicals, in financial services, manufacturing, oil and gas, energy, sustainability and utilities.

We have new, quite significant enterprise production deployments went live at LyondellBasell, Shell, ENGIE and Con Edison.

We initiated new enterprise AI projects with Baker Hughes, Ball Corporation, Cargill Cummins, ENGIE, FIS, Koch Industries, the Missile Defense Agency, Morsco and Standard Chartered Bank.

And we significantly expanded business with Cargill, LyondellBasell and Standard Chartered Bank.

In the course of the quarter, we continued to advance our product leadership position in enterprise AI.

In the first quarter, we released 2 major upgrades to the C3 AI suite, and we have now released 40 enterprise AI software applications into production release for banking, for manufacturing, for telecommunications, public sector, energy, utilities, defense and intelligence.

We also released a new version of C3 AI Energy Management, our solution that helps enterprise control and mitigate greenhouse gas emissions and manage energy consumption and energy costs.

And we launched C3 AI Ex Machina, our no-code AI and analytics platform that anyone can use and continue to deliver new features to enhance and simplify the user experience.

We gained quite a bit of additional industry recognition in the course of the quarter.

C3 AI was named the leader in the IDC MarketScape worldwide for industrial IoT applications.

The C3 -- IDC Marketplace (sic) [MarketScape] positioned C3 AI as the leader for being an AI platform provider.

Importantly, our customer at the Air Force Rapid Sustainment Office was selected as a finalist for the Constellation SuperNova AI and data award.

This is the highest honor in enterprise AI application excellence, and this is an award that was won last year by C3 AI customer, Shell, for its C3 AI enterprise AI accomplishments in production use.

We continue to grow our enterprise AI production application footprint through both new customer acquisitions and expanded use by existing customers.

We had 101 discrete applications in production at the end of the first quarter, up from 67 a year earlier.

Operating at massive scale as of the end of the first quarter, the C3 AI Suite and applications were integrated with roughly 850 unique enterprise and extraprise data sources.

We are processing 1.7 billion predictions per day.

We're managing in excess of 24 trillion data elements and evaluating in excess of 33 billion machine learning features daily.

We've been doing a lot of work, as you have seen, in the media and online in brand awareness.

And we've considerably extended our brand leadership for enterprise AI, capturing both the #1 and #2 Internet search positions for that category in the first quarter, and we exceeded the next closest competitor by a factor of 3:1.

C3.ai Digital Transformation Institute, I want to make a few comments about that important initiative.

We continue to invest in our important university partnerships at UC Berkeley, the University of Illinois at Urbana-Champaign, Princeton, MIT, Carnegie-Mellon, Stanford, The University of Chicago and KTH in Sweden with the C3.ai Digital Transformation Institute.

In the first quarter, we announced and funded $4.4 million of initial cash awards to support 21 kind of groundbreaking research projects focusing on using the C3 platform, okay, and developing new AI techniques to advance energy efficiency and lead the way to a lower-carbon, higher-efficiency economy.

We have been doing a lot of work really in focusing in leadership and sales leadership in the company.

Importantly, with the addition of former VMware and SAP executive, Sam Alkharrat as President and Chief Revenue Officer, to lead the global expansion of C3 AI's sales and customer service organizations.

Sam is an experienced and proven sales executive with a long track record of building and managing highly effective sales and customer service teams.

Sam previously served as Senior Vice President and Global Head of Sales for VMware's Tanzu portfolio of applications.

That was roughly a $1 billion software business.

And prior to VMware, Sam held a number of senior executive positions at SAP.

We -- human capital.

We continue to be just extraordinarily fortunate in the quality of human capital that we're able to attract from leading universities and from other organizations globally.

In the first quarter, believe it or not, we received just shy of 6,200 -- I'm sorry, 9,200 employment applications, okay?

And from that, I think we interviewed 1,500 people and added 54 net new employees.

These people are as bright and experienced as they get.

We ended the quarter with 628 full-time employees; and as you can see on the Internet, C3 AI continues to be ranked amongst the best places in the world to work by Glassdoor.

So in summary, the enterprise AI application software market is rapidly growing.

We see accelerating interest in our applications across industries, geographies and market segments.

We are aggressively investing to extend our product and technology leadership, to expand our market partner ecosystem and the associated distribution capacity that comes along with that ecosystem.

As we continue to execute in delivering high-value outcomes for our customers, we are increasingly well positioned to establish a global leadership position in enterprise AI application software.

Bottom line, our performance in the first quarter was strong across the board, and we're planning for continued growth in this year and accelerated growth next year.

Overall, I would say the progress of the company is exactly on track with the plan that we laid out for you during -- before the IPO and during the IPO and as updated in the past 2 quarters.

I believe the company has never been better positioned to achieve its objective of establishing a clear market leadership position in enterprise AI application software globally.

I'll now turn this over to our CFO, David Barter, for more color on the quarter.

David?

Thank you, Tom.

We delivered another strong performance in the first quarter with revenue and profitability that exceeded our guidance.

We ended the quarter with a healthy contractual backlog.

It provides us with meaningful revenue coverage, and it supports our growth ambitions.

Revenue was $52.4 million, an increase of 29% year-over-year.

Subscription revenue was $46.1 million, an increase of 29% year-over-year.

This level of growth represents a substantial increase from the fourth quarter and subscription revenue grew 17% year-over-year.

Professional services revenue in Q1 was $6.3 million.

Subscription revenue represented 88% of total revenue in the quarter.

This is an increase of 6 percentage points from Q4.

We continue to expect our mix of subscription revenue to trend in the high 80% range.

Our revenue growth was highlighted by continued diversification and broad-based strength in our industry verticals.

Five industry verticals each contributed over 10% of our revenue this quarter.

This includes the financial services industry vertical, which grew 45% year-over-year.

Geographically, our revenue diversification also improved.

During the first quarter, revenue from customers in EMEA and APAC grew 37% year-over-year and represented over 30% of our revenue.

From a backlog perspective, total remaining performance obligations were $290.6 million, up 6% year-over-year and current RPO, which we expect to recognize over the next 12 months, was $145 million, an increase of 10% from a year ago.

We ended the quarter with an additional $66.7 million in backlog from contracts with a cancellation right.

When combined with our GAAP RPO, we ended the quarter with non-GAAP RPO of $357.3 million, an increase of 28% from a year ago.

As I noted last quarter, our non-GAAP RPO does not include any backlog associated with Baker Hughes that does not have an existing end customer contract.

The Baker Hughes commitment at the end of the first quarter represented an additional $204.4 million of backlog.

In the first quarter, total revenue from our partnership with Baker Hughes was $16.1 million, up 69% year-over-year.

As a reminder, a portion of this revenue is reported as related party revenue, where the end customer contracted directly with Baker Hughes or where their revenue relates to Baker Hughes as a customer.

The total amount included in related party revenue was $12.3 million in the first quarter.

Turning to expenses and profitability.

I will be referring to non-GAAP metrics, which excludes 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 first quarter was 78%, up 340 basis points from a year ago.

The margin expansion reflects the strong growth of our subscriptions.

Subscription gross margin in Q1 was 81.8%.

This compares favorably to Q4 when margin was 80.7% and a year ago when it was 76.5%.

The persistent margin expansion illustrates the leverage generated by our operating model.

Operating expenses were $62.6 million compared to $31.1 million a year ago, reflecting planned strategic investments to drive our long-term growth.

Operating loss was $21.8 million in the first quarter and better than our guidance of an operating loss of $28 million to $35 million.

We continue to invest thoughtfully in headcount in programs to accelerate our revenue growth.

Turning to our balance sheet and cash flows.

We ended the quarter with $1.09 billion in cash, cash equivalents and investments.

We generated positive operating cash flow of $1 million in the first quarter; and with capital expenditures of $1 million, free cash flow was breakeven for the quarter.

Deferred revenue grew to $99.9 million, up a very healthy 33% from the fourth quarter.

It's important to note that 2 deals closed in the first quarter included a structure and billing terms that led to less deferred revenue than our typical deal.

All in all, Q1 nicely built on a very strong fourth quarter and supports our confidence for the remainder of the year.

Turning to our guidance for the second quarter and the full fiscal year.

In Q2, we expect total revenue in the range of $56 million to $58 million, representing growth of 35% to 40% and an acceleration in top line growth from the first quarter and prior fiscal year.

We anticipate subscription revenue mix will continue to trend in the high 80% range.

We expect to make growth investments and anticipate a non-GAAP operating loss in the range of $30 million to $37 million.

For full fiscal year 2022, we continue to expect revenue in the range of $243 million to $247 million, representing growth of 33% to 35%, with a focus on making thoughtful growth-oriented investments over the balance of the year.

To accelerate our growth, we anticipate a non-GAAP operating loss in the range of $107 million to $119 million.

In summary, we delivered first quarter results that were above our guidance, coupled with healthy sales activity.

We believe we are well positioned to meet the increasing demand for our technology from customers who realize significant economic benefit in deploying our solutions and remain optimistic about our ability to penetrate a very substantial opportunity over the long term.

Thank you for joining today's call.

Now I'll turn the call over to the operator for questions.

Operator?

(Operator Instructions)

Your first question comes from the line of Michael Turits from KeyBanc.

I wanted to ask you, Tom, about the diversification down market and to more of a run rate business that you discussed.

Sounds like you've made good progress on reducing the TCO and -- TCV, excuse me.

Can you talk a little bit about what you're doing to get yourself there?

Are you adding more people?

You've talked a little bit about partnerships.

And how much progress are you actually making with Ex Machina to get you there also?

Thank you, Michael.

I think a lot of it is really we're seeing -- we saw a dramatic increase -- we're seeing an increase in application software versus platform as a component of our revenue mix.

And the applications sell for substantially less money than the platform does.

So that's a big contributor.

Ex Machina is making a positive contribution to it, but I really would expect to see that kick in, in the fourth quarter of this year and next year and getting into big numbers.

But I think it's mostly a move towards applications are what is moving the needle on bringing the TCV down.

And it's come down substantially.

Again, a couple of years ago, it was $16 million average TCV.

In last quarter, it was $4.5 million, so we're making good progress.

Great.

And then, Dave, a couple of comments on the always fascinating RPO calculation.

So RPO, the GAAP RPO declined slightly sequentially.

And if I add all the pieces together, the adjusted total did also.

But the one that looked like it was up sequentially was that cancelable piece, which I think is mostly government.

So can you talk about what the puts and takes are on those different components of RPO?

Absolutely, Michael, and thank you for your question.

You're right.

When we think about structuring our deals, we do include that cancelable portion because it is a right and it's a piece of flexibility that with the literature, it gets carved out of GAAP.

And so we find the GAAP RPO as an incomplete measure, which is why we provide you with a non-GAAP RPO, which increased 28%.

In terms of the adjusted RPO, which includes the Baker Hughes component, you might remember that that's a 5-year commitment.

So when it first signed, you got the step-up and then it amortizes over time, which is why that is not increasing when you think about the adjusted RPO.

So the non-GAAP RPO really is the measure you should look at because it's reflective of our commercial activity.

Right.

And the cancelable piece that -- I'm sorry to interrupt, my bad.

There's the cancelable piece that went up really nicely sequentially from 51 it looks like, up to 66 if I do the math.

But is that expressive of some strong government contracts?

No.

Those are -- Michael, it's Tom.

No, those are almost all -- those are exclusively nongovernment.

So the government contracts are always, by definition, kind of 12 months in duration, okay?

Even if it's funded for multiyears, the part here that's irrevocable, nonrefundable is only 12 months at a time.

So the cancelable deals tend to be where we do 3- or 4- or 5-year transactions with a large private sector corporation where if it's not going well after the first year, they have the right to cancel.

And so you can be certain that we have every incentive, make sure that customer is highly satisfied at the end of the first year.

So there's almost no public checks or anything.

And Michael, you raised a great point.

When we're signing multi-year federal contracts, that's over and above this number.

So that's...

That's not recorded here at all.

And so we actually do have quite a few of those.

We have multi-year federal agreements.

And because the way that the GSA, those contracts were -- we don't report that at all.

So that would be on top of anything that we've reported.

Your next question comes from the line of Mark Murphy from JPMorgan.

Yes.

I'll add my congrats.

So Tom, I wanted to ask you about the Google Cloud relationship and just whether you're expecting that to appeal to a different type of customer because I think we're aware that the Google Cloud platform has a different architecture.

There's more private cable.

They have larger pipes.

They can absorb more traffic.

There's more local points of presence.

Just wondering if it fits a different need, maybe certain verticals or machine learning models that are maybe a little more demanding in some ways.

Well, this -- Thomas Kurian has really changed the nature of Google Cloud in a big way as you're well aware.

I think they've gone from maybe 400 salespeople of a couple of years ago who were kind of in -- middleware salespeople to order of 4,000 salespeople today, and these are kind of experienced enterprise sales men and women.

Their focus is very much on the enterprise.

And I don't think it's that different.

It's just that Thomas has made a decision, a very concerted decision to approach the market in a different way, so rather -- than the other hyperscalers and rather than sell CPU seconds and storage hours, which -- and they have an argument that I won't go into and I'm not really qualified.

They've argued successfully that what they do is technically superior to other people.

Maybe it's true.

I don't know.

Okay?

But rather than compete based upon speeds and feeds, they've made a decision they're going to compete based on applications.

So they're going to be selling stochastic optimization of the supply chain.

They're going to be selling supply network risk.

They're going to be selling anti-money laundering, fraud detection, what have you, and that's just how -- this is how they're positioning their company as a deliverer of turnkey solutions, and we're very fortunate that they've decided to partner with us in that effort.

Well, this gives them kind of a unique position in the hyperscaler market, okay?

We're in the hyperscale market where they're selling turnkey applications and everybody else is selling CPU seconds.

Now the net result of these applications is when they're up and running, they do nothing but consume CPU seconds and storage hours.

But it's a -- I think we're seeing a changing dynamic in the hyperscaler market that you might want to take a look at.

I think that's what's going on.

Okay.

Understood.

And then as a quick follow-up, there's a comment regarding the Microsoft relationship that you've closed deals worth over $200 million to date, obviously a great accomplishment.

And I was just wondering maybe, David or Tom, you could clarify.

Is that a specific reference to the CRM use case that you've mentioned with Dynamics and other systems?

Or is that all of the C3 deployments of any product that are running on Azure?

And if you could just clarify what -- is that $200 million sitting in the RPO balance?

Some of it is -- most of it is.

First of all, it is not specifically CRM, Mark, okay?

It really -- all of our applications support Azure, okay?

Microsoft has been enormously supportive and provide tech support to make sure we take full advantage of all the Azure resources.

They are a great partner.

A very small component of it is CRM.

And it's -- these are commercial applications.

These are federal applications, supply chain, predictive maintenance.

This is kind of bread and butter stuff, and most of it is sitting in RPO.

Your next question comes from the line of Sanjit Singh from Morgan Stanley.

Tom, with this sort of shift towards an applications-focused strategy versus kind of the C3 AI Suite as the business shifts more towards application, what does that imply in terms of future revenue growth?

Because if I look at the growth in your -- in the number of applications developed really solidly, I think, 50% plus versus your RPO growth of -- in the high 20s.

Does that mean that, over time, we should see RPO growth sort of converge to the growth in sort of the application sales that you're sort of seeing?

Okay.

We're kind of keeping this kind of some analyst math here that I can't quite keep up with, okay?

But let me -- so Sanjit, first of all, this -- our emphasis on applications is not new.

No -- there's no change here at all, okay?

So we've been selling -- I mean, you will recall during the IPO road show, I was leading with applications, applications for utilities, oil and gas companies, manufacturing companies, financial services companies, what have you.

And so there's no change in our efforts.

We sell both applications and we sell the platform, and we kind of sell whatever the market wants that -- this quarter.

And I wish I could give you guys some guidance, okay, kind of going forward.

But we took a hard look at the data yesterday in anticipation of kind of this question of what we're going to expect to be, the applications versus platform in the coming quarters.

And it just jumps around so much from quarter-to-quarter that we can't tell you that.

But there is no change in emphasis in applications on our part, okay?

We've always led with applications.

There is certainly a change in the part of Google's part, and it just happens to bode very well for us.

Makes total sense, Tom.

Maybe a follow-up question on the Google partnership.

How should we think about that as the opportunity?

Is this about going for net new customers?

Or is there a certain percentage of the 80 or 98 enterprise customers that you have today that are Google Cloud customers?

Any sort of sense of what the overlap is between C3 and Google within your current customer base?

I'd say a relatively small, a very small segment of our existing customers are Google customers.

Google, as you know, is #3 in the market to AWS and Azure, but they are, by far, the most rapidly growing.

And so -- and they're closing some very large accounts like Walmart and Deutsche Telekom and others.

And you can say, from our perspective, this is really a focus on net new customers for us.

For them, it's a focus on both net new customers and providing the customers the applications they want to consume the commitments they've made to Google.

Your next question comes from the line of Brad Sills from Bank of America.

This is Adam on for Brad.

Congrats on the quarter, too.

So just on the Google partnership also, can you guys share any expectations you have in terms of them being able to cross sell?

You mentioned that the focus is on net new just now.

But within the, I guess, applications that you guys provide, do you expect it to benefit more towards the applications or towards the suite?

Or how should we be thinking about the benefits of the partnership?

We'll be leading.

First of all, we've been working on this for -- the guy who runs sales at Google and the -- Rob Enslin and the person who runs sales here, Sam Alkharrat, our colleagues from SAP, so these guys know each other really well.

And we've been working on aligning the sales organizations across industries, across geographies and focusing on target strategic accounts.

So this is pretty well orchestrated.

And we will most certainly, okay, be leading with applications.

But where we're getting large automotive companies or large financial service institutions, will they want to license the platform?

Absolutely, and that will be available in Google's bag to sell it.

We will jointly sell it with them.

But this is a -- this might be an inflection point in the hyperscale market.

Got it.

And then just as a follow-up, is there any commentary you can provide on some of the [large] verticals?

You guys kind of called out financial services in the prepared remarks.

Are there any other to call out?

Anybody have any data on our distribution [list]?

Hold on, Adam.

I think actually have this data right here.

Just give me a second.

It's pretty high as a vertical.

Well, I can't see it by percentages.

It's pretty highly diverse across telecommunications, high tech, life science, aerospace and defense, manufacturing, financial services, utilities, oil and gas.

I don't see what the percentages are here, but it was something that used to be 100% utilities not too long ago.

It's gone along -- what do I have here?

[Those would be booking diversity].

[I just got] the percentages.

(inaudible) the percentages.

Okay.

So you're looking at roughly 40% manufacturing, 7% aerospace, 3% utilities, 3% this -- what is it?

27% oil and gas, 22% high tech.

And then we're just starting making inroads now into life sciences, 7% aerospace.

So that's what it looks like today.

Your next question comes from the line of DJ Hynes from Canaccord.

Congrats on the quarter.

Tom, I wanted to ask about CRM.

I mean the commentary this quarter seemed to suggest an uptick in activity there, maybe even more interestingly on the SI partner side.

Can you just talk about what you're seeing with the CRM?

And I'm curious, like is there any installed CRM platform that you're seeing particular traction with?

Any color there would be helpful.

Well, the CRM installed base is quite large, okay?

And everybody wants to go predictive.

Okay, there's kind of 2 ways to do that.

And you can -- you guys know the math better than I, but no way, it can't be less than $0.5 trillion market.

And everybody wants to go into predictive, and there's 2 ways to do it.

You can rip and replace or you can add on top of it.

So the way that our CRM product works, it sits on top of Dynamics, on top of Salesforce, on top of Siebel, on top of SAP, on top of Veeva and it installs very quickly.

It aggregates those data, and that allows you to aggregate any other data you want about the market, okay?

And those data that you're going to aggregate are like 3 or 4 orders of magnitude more the data you have of record in the CRM system, econometric data, stock prices, NLP on news, NLP on social media, NLP on analyst reports, NLP on annual reports and financial statements, GDP growth rates, unemployment rates, commodity prices as it relates to that industry.

Maybe it's corn and beans as it relates to ag.

And we have weather, rain, or it's in oil and gas, it's going to be in transportation -- travel and transportation, maybe it's Jet A.

But when we aggregate all of these data, we can build very precise machine learning models that -- for revenue prediction, revenue forecasting, product forecasting, customer churn, what have you.

So we are seeing a lot of interest amongst the same partner ecosystem that we put in place that you might recall at Siebel Systems.

We know these guys pretty well.

And they see this as an opportunity to upgrade all of their existing applications.

So keep your eye on this space, A.J. (sic) [DJ] This is going to be a big business for us.

And we're not going to be really -- we think what we're doing is entirely complementary to Salesforce, Dynamics, Siebel, SAP.

And it gets the customers where they want to go quickly, and it gives us the systems integrators an opportunity to generate business now in a way that drives enormous value to their customers.

You're going to see also that we're -- we have reinvented -- and I'm not going to preannounce it now, okay, but we have fundamentally reinvented, okay, the human-computer interaction model as it relates to CRM.

And when you see it, I think you'll be quite impressed.

And I've been -- we've been working on this, and I personally have been working on this really hard.

And it's -- this is going to be a bigger business than I thought.

Yes.

Look forward to that.

It sounds interesting.

David, as a follow-up to you, do you have a growth rate for current non-GAAP RPO?

I don't have a breakout of current non-GAAP RPO.

Okay.

Because it seems like that cancelable backlog portion, which is, by nature, multiyear is increasingly contributing to non-GAAP RPO.

So it would be helpful to get a view of that at some point.

Your next question comes from the line of Patrick Colville from Deutsche Bank.

This is [Dan] on for Patrick.

Congrats on the quarter.

You guys said earlier in response to a question that the average contract size is declining because you're selling more applications as opposed to platform.

And that makes a lot of sense.

I guess my question would be -- on that is, I guess, kind of 2 parts.

One is, is that leading to more traction with smaller customers, like actually smaller businesses.

Or they're still primarily sort of large businesses that are buying enterprise type apps?

Or has there been any -- in that move toward the selling more applications, has that led to any more deals kind of down market at all?

And then two, I mean, I guess, can you kind of comment on -- you said in response to another question, you mentioned that it's not been a change in strategy.

So I wonder if you can comment kind of why you think you're seeing that shift.

Hold on.

Why are we seeing what shift, smaller customers?

Shift towards, I guess, more applications and less of the platform.

Well, that's why we lead with applications.

I mean that's always the way the -- it's always the way the sales cycle begins.

We're solving a business problem, whether it's anti-money laundering, cash management, cash optimization, the supply chain, customer churn.

We're always solving a business problem where we lead with the application.

And an application might sell -- list price for an application might be like $0.5 million a year.

Now the -- and then what happens is we'll get involved in a pilot and then it looks like they want 1 or 2 or 3 applications that they might license.

I think our average contract, I think we've disclosed this, is like order of 36 months or something, okay, plus or minus something, okay?

So then sometimes in the course of finding 1 or 2 or 3 applications, they decide they want to [build] 12 and then they license the platform also, and they want to license the platform for 25 developers or 50 developers.

So this is multiple years.

So what we thought started out as a transaction that was going to be like $1.5 million turns into $39 million.

So this is how it happens.

So we just let them happen at what -- however the customer wants to buy it.

Now there is a customer list here some place.

And yes, we are -- yes, we're absolutely selling to smaller customers.

There's no question about it.

We used to only sell to companies like -- it wasn't [all that] Shell.

It wasn't Bank of America.

We didn't call on them, okay?

But here, we have relatively small businesses by our standards, would be places like Morsco, Ball, Spearstone, Skillion, CerebralEdge, ABCDust.

And so we're absolutely seeing that we're not -- we used to be in the business of just elephant hunting, but now we're out elephant hunting and we're deer hunting and we're squirrel hunting and in a pretty big way at global scale.

Your next question comes from the line of Jack Andrews from Needham.

Just in light of the Google announcement and just other relationships you have with companies like Microsoft and Snowflake, could you just update us in terms of what type of technology vendors do you feel are natural allies for you versus maybe other types that you view as potentially more competitive?

Well, natural allies would certainly be all the hyperscalers.

Natural allies would be a lot of the people who make componentry that (inaudible) like Snowflake makes a platform independent storage system, and that's certainly complementary to us.

I think companies like -- who make -- who have products that compete with us like AutoML.

I mean, we partner with H2O.

We partner with DataRobot.

I think we partner with DataRobot at Shell, and so people can use our AutoML or they can use DataRobot's AutoML.

Databricks, many of our customers use Databricks, so we partner with them.

So I think the component providers are individually potential partners.

I don't -- do they look like distribution channels?

No.

Okay.

I don't think they do.

The real competitor, what we do are all those components in aggregate.

And Jack, where the IT organization decides that they want to build this project themselves in one of these kind of multi-year, multi-hundred-million-dollar science projects, all of which seem to come crashing down after a few years.

And so I guess the real competitor is the CIO who wants to build it him or herself, and we just have to let that process run its course because it's virtually impossible they're going to succeed at it.

And after they get through -- after they crash and burn, like they've done in virtually every one of our customers, then we come in and bail them out.

It's just a natural part of the process of adopting new technology.

Appreciate the context.

And just as a quick follow-up, when we think about the cash on your balance sheet, I was just curious, are you contemplating any sort of technology-related M&A that could potentially accelerate what you're doing on the product development front?

Or do you feel that it's still important to keep developing things internally?

Okay.

It's a great question, and make no mistake, we are focused on growing the business organically, okay?

So we don't see M&A as being part of the equation.

Might we buy something if we see that there's a unique piece of technology there that complements our technology stack, that would make sense for us to own it because we see something really unique there?

Yes, we might.

Okay.

But M&A, there is nobody here who's in charge of that.

The default answer when the bankers send us these decks around M&A is we kind of say no before we even read them.

And we're focused on growing the business organically because I think for us to get involved in M&A would really be a distraction.

I think if we stick to our knitting, okay, we continue to move the product footprint, continue to grow the customer base, continue to make our customers successful.

I think everything is going to work out just fine.

Your next question comes from the line of Pat Walravens from JMP.

Great.

I have one for Tom and one for David if that's okay.

Tom, for you first.

What's the opportunity look like for C3 in federal and Department of Defense?

And as I asked that question, I realize that, obviously, you have to be careful what you say.

But all you have to do is go on the Department of Defense website; and 2 weeks ago, Vice Admiral Hill was talking about the missile defense testing, which you have something in your press release that looks similar.

And in June, the Deputy Defense Secretary, Kathleen Hicks, had a big thing where she was talking about the AI and data acceleration initiatives.

So it seems like a lot of that is out there publicly already.

So whatever you can say about what the opportunity looks like for C3 would be great.

It's staggering, Pat, okay?

That's how big it is.

It's endless.

And just from you to me, there's a really interesting book up there called The Kill Chain written by a guy named Christian Brose.

If you don't like it, I'll give you your $19 back from Amazon -- about kind of how the whole nature of warfare is changing between us and China and where AI fits into this.

But you get to this level of the Joint Chiefs of Staff, okay?

And all of the leaders, all these ministers, all they're thinking about is AI and how they're going to AI enable everything.

So that is a -- almost -- that is a business opportunity without bounds.

One of -- this is one of the reasons we brought General Cardon in, Ed Cardon, as the Chairman of Federal Systems, and he formally ran the U.S. Cyber Command.

And so he -- and so Paul Nakasone, who runs the NSA and the Cyber Command was his deputy.

And so Paul knows all these guys, and we do spend a lot of time in The Pentagon.

And I think that, to the extent that we have the opportunity to serve the United States government, we're privileged to do so.

I think we're involved in about 12 projects today and know that we invest a lot of time there.

We recently, in addition to Ed Cardon, we brought on Tod Weber as the General Manager of C3 Federal.

So we are expanding that business, and we think that market is so big, it's scary.

And as it relates to the war that's going on between the United States and China in AI, if we lose that war, the story is not going to end well.

And we think there's an opportunity for us to play a role in that.

You had a question for David?

Yes.

So David, I think like if you look at the stock in the aftermarket now, it's down 8%.

And I think 1 thing that is confusing is, I mean, last quarter, you grew 26%.

This quarter, you grew 29%, so generally, people like acceleration.

And then you just guided, if I'm doing my math right, to 38% growth at the midpoint for next quarter.

And usually, people guide to deceleration and then try to beat it.

You guys are guiding to acceleration.

So normally, that would be well received but the RPO and the billings are bouncing around so much that it's really confusing.

So any clarity you can help provide for why revenue is accelerating and yet the bookings metrics this last quarter decelerated and why we should have confidence in that revenue acceleration, I think, would be really helpful.

There's still lumpiness in the book in the bookings, Pat.

This is Tom.

And we're still doing big deals.

While we've got -- they're not as big as they used to be, there's still lumpiness.

And the bottom line is we had some deals move out of Q1 and into Q2.

And so there's still -- do I believe we have a mechanism in place to get the lumpiness out of the bookings?

I do, but they're still there.

David, do you have anything you want to add to that?

I think you covered it well.

There are no further questions over the phone line at this time.

I would now like to turn the call back to Mr. Tom Siebel for the closing remarks.

Sir?

Okay.

Ladies and gentlemen, thank you for your time.

We appreciate your -- all of your questions and your time, and we will look forward to giving you an update on the business when we see you next or at the end of the quarter, whichever happens first.

So have a great day, everybody, and thank you.

Ladies and gentlemen, this concludes today's conference call, and we thank you all for participating.

You may now disconnect.