Q1 2025 Earnings Summary
- C3 AI is experiencing strong growth in pilot agreements, signing 52 pilots in the quarter—a 117% increase from last year and up 53% from last quarter—with about 70% expected to convert to production, indicating robust demand and significant future revenue potential.
- C3 AI has strong partnerships with major cloud providers, including Google Cloud Platform (with 40 agreements signed in the quarter), AWS, and Microsoft Azure, enhancing their market reach and accelerating deal flow through these collaborations.
- C3 AI is achieving among the highest levels of customer satisfaction in the enterprise software industry, as evidenced by their Net Promoter Scores, which benchmark favorably against other leading AI companies, suggesting strong customer retention and opportunities for upselling.
- Despite strong bookings and pilot growth, C3.ai did not raise its full-year revenue guidance, which remains at $370 million to $395 million, possibly indicating management's cautious outlook or concerns about future revenue conversion.
- Company executives admit that their business is complex and difficult to model, making it challenging for investors to predict future performance and potentially leading to uncertainty in revenue projections.
- C3.ai does not disclose specific conversion rates from pilots to production contracts, stating that they "don't talk about the conversions," which makes it difficult to assess the effectiveness of their pilot programs and the potential for future revenue growth.
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Guidance Remains Unchanged
Q: Why didn't annual guidance increase with strong bookings?
A: Despite strong bookings, guidance remains at 19% to 27% revenue growth, still making us one of the fastest-growing public software companies. -
Confidence in Revenue Growth
Q: What gives confidence in Q2 revenue growth acceleration?
A: We've been public for 15 quarters and consistently met guidance each time. Our best professional judgment suggests we'll achieve the midpoint of 24% revenue growth next quarter, and we're working diligently to meet or exceed that. -
Services Revenue and Margins
Q: Are services revenue trends sustainable, and what's the margin outlook?
A: Services revenue was 16% this quarter, within our guidance of 10% to 20% per quarter. Services margins are over 90%, making it a strong business for us. We expect services to average around 15% of revenue over the next couple of years. -
Pilot Sizes and Conversion Rates
Q: Are pilot sizes and values as expected?
A: Yes, the average enterprise AI pilot is valued at $0.5 million, and generative AI pilots at $0.25 million. Generative AI pilots take 3 months, enterprise AI pilots 6 months. We expect about 70% of pilots to convert to production contracts. -
Competitive Landscape
Q: Any changes in competitive dynamics?
A: Our main competition is internal IT organizations attempting to build AI applications themselves. They often realize the difficulty without the right platform, making them prospects for us down the road. -
Partnerships Beyond GCP
Q: How are partnerships outside GCP performing?
A: While I don't have exact bookings data, our relationships with AWS and Microsoft Azure are strong. We work closely with all partners to deliver value quickly to customers, consuming their cloud resources in the process. -
Market Complexity and Business Tone
Q: Can you comment on the tone of business in Q1?
A: The AI market is highly complex with various flavors of enterprise and generative AI applications. It's challenging to model, but we're amazed by the broad range of applications and unexpected opportunities, like in the public sector, law firms, and medical diagnostics. -
State and Local Agreements
Q: Were most state and local agreements pilots?
A: Yes, they almost all began as pilots lasting 1 to 3 months, and the great majority convert to production. We had 52 pilots closed in the quarter.