Welcome to the C3 AI First Quarter Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Paul Pilots, Vice President of Investor Relations.
Please go ahead, sir.
Good afternoon, and welcome to C3AI's earnings call for the Q1 of fiscal year 20 '22, which ended July 31, 2021. This is Paul Phillips, Vice President of Investor Relations of C3AI. 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 sales regarding our Q1 results as well as a supplement to our results, both of which can be accessed on the IR section of our website at dotc3.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 Finally, at times in our prepared comments, in response to your questions, we may discuss metrics that are incremental 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. Thanks, Paul, And good afternoon, everyone. I am most pleased to provide you an update on our Q1 results And provide some comments on the state of the business as we see it. We posted another set of strong results in the Q1. Our company, our progress continues as planned on track.
Our products are powering some of the world's largest enterprise AI application deployments As we expand our production footprint across industries and regions globally. Our first quarter performance was a strong start to the Let's look at some of the financial and business highlights. Total revenue for the quarter was $2,400,000 up from $40,500,000 a year ago, an increase of 29% year over year. Subscription revenue was $46,100,000 up from $35,700,000 1 year ago, an increase of 29% year over year. Non GAAP gross profit was 40,900,000 a 78% gross margin compared to $30,200,000 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 $290,600,000 compared to $275,100,000 a year ago, an Increase of 6% year over year. Non GAAP RPO was $357,300,000 compared to 200 $79,500,000 a year ago, an increase of 28% year over year. We ended the quarter with 89 enterprise AI customers, the 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 As application sales become an increasing 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 C3AI, 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 replace selling, while we have not yet fully eliminated the lumpiness from our business model, we have made great progress With average subscription total contract value shrinking from $16,200,000 in fiscal year 2019 to 12 point $1,000,000 in fiscal year 2020 to $7,200,000 in fiscal year 2021 to $4,500,000 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 Q1 was $535,000 Let's talk about our market partner ecosystem. We Significantly expanded this part of our ecosystems in Q1, entering an important highly strategic alliance with Google Cloud to allow the entire Global Cloud Global Sales and Service Organization to co sell and service the entire family of C3AI applications globally.
The 2 companies will tightly integrate C3AI The comprehensive alliance includes coordinated software development roadmaps, tight product integration, as well as joint selling, joint marketing and joint customer success programs at global scale. C3AI and Google Cloud Google Cloud Applications and the C3 AI Suite and AI Enterprise Applications are fully optimized end tightly integrated. The companies will engage in significant ongoing marketing development activities and will coordinate sales and service activities globally time, the value of their enterprise cloud AI applications, we expect this partnership will dramatically accelerate adoption of enterprise AI applications across all industry segments and will prove an additional growth engine for C3AI, Microsoft. Our partnership, our strategic partnership with Microsoft Our joint teams are currently working a pipeline of more than $350,000,000 in specific opportunities. Recent wins with Microsoft Food, the United States Missile Defense Agency, Cargill, Ball, Cummins, the United States Air Force Rapid Sustained for 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.
The end of the quarter, we expect to see a $500,000,000,000 CRM Sales and Software Sales this year, we've put some number of years of the Investor Relations segment, so Salesforce, Siebel, SAP, Dynamics, Accenture, PwC, Deloitte, etcetera. This is there's no way you don't get to a number greater than a $500,000,000,000 installed $500,000,000,000 installed base. Now with C3AI CRM, Companies can easily upgrade their existing sales force 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 attention 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 customer momentum, we expanded our enterprise AI footprint in the Q1 in defense, in chemicals, in financial services, manufacturing, oil gas, energy, sustainability and utilities, we have new quite significant enterprise production deployments with Edison.
We initiated new enterprise AI projects with Bigger Hughes, Ball Corporation, Cargill, Cummins, NG, FIS, Coke Industries, the Missile Defense Agency, Morrisco 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 Q1, we released 2 major upgrades to the C3AI suite and we have now released 40 enterprise AI software applications into production for Banking for Manufacturing, for Telecommunications, Public Sector, Energy, Utilities, Defense and Intelligence. We also released a new version of C3AI Energy Management, a solution that helps enterprise control and mitigate greenhouse gas emissions and manage energy consumption and energy costs and we launched C3AI Atchmakana, 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 the quarter, C3AI was named the leader in the IDC market scale all IoT applications, the C3 IDC marketplace positions C3AI as the leader customer shell for C3AI 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 Q1, up from 67 a year earlier, Operating at massive scale, as of the end of the first quarter, At the same time, we're integrated with roughly 850 unique enterprise and enterprise data sources. We're processing 1.7 1,000,000,000 predictions per day, we're managing 24 in excess of 24,000,000,000,000 data elements and evaluating in excess of 33,000,000,000 machine learning features daily. We've been doing a lot of work, as you've Capturing both the number 1 and number 2 Internet search positions for that category in the Q1.
And we exceeded the next closest competitor C3AI Digital Transformation Institute, I want to make a few comments CAGO and KTH in Sweden with the C3AI Digital Transformation Institute. In the Q1, We've 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, Saum Alkarat as President and Chief Revenue Officer to lead the global expansion of Senior Vice President and Global Head of Sales for VMware's Tansu portfolio of applications that was roughly $1,000,000,000 software business. And prior to VMware, Saab held a number of senior executive positions at SAP. Weak 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 Q1, 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 1500 people And added 54 net new employees and the 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, C3AI 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 Enterprise AI Application Software. Bottom line, our performance in the Q1 was strong across the board time, we're planning for continued growth in this year and accelerating growth next year. Overall, I would say the progress of the company is 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 core, David?
Thank you, Tom. We delivered another strong performance in the Q1 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 $52,400,000 an increase of 29% year over year. Subscription revenue was $46,100,000 an increase of 29% year over year.
This level of growth represents a substantial increase From the 4th quarter, our subscription revenue grew 17% year over year. Professional services revenue in Q1 was 6 $300,000 subscription revenue represented 80% 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 In broad based strength in our industry verticals, 5 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 Q1, 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 $290,600,000 up 6% year over year and current RPO, Which we expect to recognize over the next 12 months was $145,000,000 an increase of 10% from a year ago. We ended the quarter with an additional $66,700,000 in backlog from contracts with a cancellation right. When combined with our GAAP RPO, We ended the quarter with non GAAP RPO of $357,300,000 an increase of 28% from a year ago.
As I go to last quarter, our non GAAP RPO does not include any backlog associated with Baker Hughes an additional $204,400,000 of backlog. In the first quarter, total revenue from our partnership with Baker Hughes was $15,100,000 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 the revenue relates to Baker Hughes as a customer. The total amount included in related party revenue was $12,300,000 in the Q1. 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 Q1 was 78%, up 3 40 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 percent and a year ago when it was 76.5%. The persistent margin expansion this time, it illustrates the leverage generated by our operating model.
Operating expenses were 62 $600,000 compared to $31,100,000 a year ago, reflecting planned strategic investments to drive our long term growth. Operating loss was $21,800,000 in the first quarter and better than our guidance of an operating loss of $28,000,000 to 35,000,000 We continue to invest thoughtfully in headcount and programs to accelerate our revenue growth. Turning to our balance sheet and cash flows. We ended the quarter with $1,090,000,000 in cash, cash equivalents and investments. We generated positive operating cash flow of $1,000,000 in the Q1 and with capital expenditures of $1,000,000 free cash flow was breakeven for the Deferred revenue grew to $99,900,000 up a very healthy 33% from the 4th quarter.
It's important to note that 2 deals closed in the Q1 included a structure in billing terms that led to less deferred revenue than our typical you. All in all, Q1 nicely built on a very strong 4th quarter and supports our confidence for the remainder of the year. Turning to our guidance for the Q2 and the full fiscal year. In Q2, we expect total revenue in the range of $56,000,000 to $58,000,000 representing growth of 35% to 40% and an acceleration in top line growth from the Q1 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 $30,000,000 to $37,000,000 For full fiscal year 2022, we continue to expect revenue in the range of $243,000,000 to $247,000,000 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 100 and $7,000,000 to $119,000,000 In summary, we delivered 1st quarter results that were above our guidance, coupled with healthy sales activity. 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?
And may we also ask the analysts to limit themselves to asking one question and one follow-up each only. Thank you. Your first question comes from the line of Michael Turits from KeyBanc. Your line is open.
Hey, guys. I wanted to ask you, Tom, about the diversification down market and to more of run rate business That you discussed, sounds like you've made good progress on reducing the TCO and TCD, excuse me. Can you talk a little bit about what you're doing to get yourself there? Are you adding more people? You talked a little bit about partnerships.
And how much progress you're 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 your 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 Ekshmapenah is making a positive contribution to it, but I really would expect to see that kick In the Q4 of this year and next year in getting into big numbers. But I think it's mostly a move Applications are what is moving the needle on Bringing the TCV down and it's come down substantially.
Again, it's come down a couple of years ago with $16,000,000 average TCV and last quarter it was 4.5%. So we're making good progress.
Great. Thanks, Tom. And then Dave, a couple of comments on the always fascinating RPO Calculation, so RPO, the GAAP RPO just declined slightly sequentially. And if I add all the pieces together, Adjusted total did also, but the one that looked like 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 cancellable portion because it is a right and it's a piece of flexibility that with the literature gets 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 if I did. There's the cancelable piece that went up really nicely sequentially from 51, it looks like up to $66,000,000 if I do the math. But is that is that expressive just some strong government contracts?
No, those are Michael, hi, it's No, those are almost all those are exclusively non government. So the government contracts are always by definition kind of 12 months in duration, okay? Even if it's funded for multi years, the cognitive part that's irrevocable, non refundable 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 1st year, they have the right to cancel. And so you can be certain that we have every incentive to make sure that customer is highly At the end of the 1st year.
So there's almost no public checks or anything.
Okay. Thanks, Tom. Thanks, David.
And Michael, you raised a great point. When we're signing multiyear federal contracts, that's over and above this number.
Yes, 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.
Got it. Thanks, Tom. Thanks, David.
Thanks, Mike.
Your next question comes from the line of Mark Murphy from JPMorgan, your line is open.
Yes, thank you very much and 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 different architecture. There's more private cable. The larger pipes, they can absorb more traffic, there's more local points of presence. I'm 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 Crane 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 sales People a couple of years ago who were kind of middleware salespeople to a quarter of 4,000 salespeople today and these are kind of experienced enterprise sales men and women, their focus is very much on the enterprise. 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, And they have in arguments 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 decisions they're going to compete based upon applications. So they're going to be selling stochastic optimization of the supply chain.
They're going
to be
selling supply network risk. And this is how they're positioning their company as a deliverer of turnkey solutions And we're very fortunate that they decided to partner with us in that effort. Well, this gives them kind of a unique position in the hyperscale 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 hyperscale 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 200,000,000 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 mentioned with Dynamics is that all of the C3 deployments of any product that are running on Azure? And if you could just clarify, is that $200,000,000 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 is all of our applications support Azure, okay. Microsoft this time, there's been enormously supportive and provide technical 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. Got it. Thank you.
Your next question comes from the line of Sanjit Singh from Morgan Stanley. Your line is open. Tom, with this sort of shift towards an applications focused strategy versus kind of the C3aix 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, it's up 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 roadshow, 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 application. We sell both applications and we sell the platform. And we kind of Sell whatever the market wants this quarter. And I wish I could give you guys some guidance, okay, Going forward, we took a hard look at the data yesterday in anticipation of kind of this question, What we're going to expect to be applications versus platform in 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're always led with applications. There is certainly a change on 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 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?
A relatively small, a very small segment of our existing customers are Google customers. Google, as you know, is number 3 in the market to AWS and In 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
This is a focus on
net new customers for us. From 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.
Makes perfect sense. Thank you, Tom. Your next question comes from the line of Brad Sills from Bank of America. Your line is open.
Hey, guys. 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 that being all across you mentioned that the focus was 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, 1st of all, we've been working on this for The guy who runs sales at Google and the Rob Enslin and the person interim sales here, Sam Alcarotte, 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 are we getting into 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 and we will jointly sell it with them. 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 North verticals? You guys kind of called out Financial Services in the prepared remarks are there any other call out?
Anybody have any data on our distribution? Hold on, Adam, I think I actually have this data right here. Just give me a second. It's pretty high 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 used to be 100 percent utilities not too long ago.
It's gone a long way. What do I have here? Just
bought percentages.
Okay. So, you're looking at roughly 40% manufacturing, 7% aerospace, 3% utilities, 3%.
This what is oh, 27% oil
and gas, 22% high-tech and then we're just going to make an inroads now into life sciences, 7 Percent Aerospace. So that's what it looks like today.
Awesome. Thank you.
Your next question comes from the line of D. J. Hynes from Canaccord. Your line is open.
Thanks guys. Congrats on the quarter. Tom, I want to ask about CRM. I mean, the commentary this quarter seemed to suggest an uptick an 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, but it's not, it's no way it can't be less than $5,000,000,000,000 market.
And everybody wants to go into predictive and they've had 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 Cboe 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 a 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 weather, wind, rain or it's Oil and gas is going to be in transportation, travel and transportation, maybe it's Jet A. But when we All of these data, we can build very precise machine learning models 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. This is going to be a big business Chorus. And we're not going to be really I 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 the systems integrators an opportunity to generate business now in a way that It provides enormous value to their customers. You're going to see also that 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. 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 ARPU.
Okay. It seems like that cancelable backlog Portion, which is by nature multi year is increasingly contributing to non GAAP RPO. So it would be helpful to get a view of that at some point. So Thank you, guys. I'll jump back in the queue.
Thanks, TJ.
The next question comes from the line of Patrick Colvin from Deutsche Bank. Your line is open.
This is Dan on for Patrick. Congrats on the quarter. You guys said earlier in a sponsored 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.
1 is, is that leading to more traction with smaller customers like actually smaller businesses or is it still primarily very 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 2, I mean, I guess, can you kind of comment on you said in response to the other 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. Thanks.
Hold on. Why are we seeing what shift?
Smaller customer?
Shift forward, I guess, more applications and less of the platform.
Well, that's what we lead with applications. I mean, that's always the way the sales cycle begins We're solving a business problem, whether it's anti mining laundering, cash management, cash optimization of supply chain, For an application, it might be like $500,000 a year. Now the and then what happens is we'll get involved in a pilot And they'll decide 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 30 months or something, okay, plus or minus something. Okay, so then sometimes in the course of Finding 1 or 2 or 3 applications, they decided they want to build 12 and then they license the platform also and they want to license the platform for 25 drill operators or 50 developers.
So, and this is multiple years. So, what we thought started out as a transaction that was going to be like $1,500,000 turns into $39,000,000 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 someplace. And yes, we are absolutely selling to smaller customers.
There's no question about it. We used to only sell to companies, but it wasn't At Shell, it wasn't Bank of America. We didn't call on Okay. But here we have relatively small businesses by our standards would be places like Maerskow, Ball, Spearson, Skillion, CerebralEdge, ABC And so we're absolutely seeing that the year, 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. Makes sense.
Thanks.
Your next question comes from the line of Jack Andrews from Needham. Your line is open.
Good afternoon. Thanks for taking my question. 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. A lot of the people who make componentry, the company in this market like Snowflake makes a platform independent Storage system and that's certainly complementary to us. I think companies like who make We then have products that compete with us like AutoML. I mean, we partner with H2O. We partner with DataRobot.
I think We partner with Databrobot at Shell and some people can use our AutoML or they can use Databrobot'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 of what we do are all those components in aggregate. And Jack, where the IT organization 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 in 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 at 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.
Thanks. 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 and A that could potentially Accelerate, what are you doing on the product development front? Or do you feel that it's still important to keep developing things internally?
It's a great question. And make no mistake, we are focused on growing the business organically, Okay. So if we don't see M and A as a big 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 Because we see there's something really unique there, yes, we might, okay. But M and A, there is nobody here who's in charge of that. The default answer when the bankers send us these tax on M and 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 and A would really be a distraction. I think if we stick to our needing, 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
Thanks for the color, Tom.
Your next question comes from the line of Pat Walravens From JMP, your line is open.
Great. Thank you. 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 ask 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 Yes, something in your press release that looks similar. And in June, the Deputy Defense Secretary, Kathleen Hicks, had the big thing where she was talking about the AI and data acceleration initiative. 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 out there called Kill Chain, written by a guy named Christian Bros.
If don't like it, I'll give you $19 back from Amazon about kind of how the whole nature of warfare is changing between us in China and where AI fits into this, but you get to this level of the Joint Chiefs of Staff, okay, that And all of the leaders involved, 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 Lounge, this is one of the reasons we brought General Cardone in. I had Cardone as the Chairman of Federal Systems, and he Formerly ran the U. S. Cyber Command. And so Paul Naccassoni, who 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 Cardone, we brought on Todd Webber 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. Thank you for that. And so David, I think like if
you look at the stock in
the aftermarket now, it's down 8%. And I think one 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, just 38% growth at the midpoint for next quarter. And usually people guide the deceleration 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 would be really helpful.
There's still lumpiness in the bookings, Pat. This is Tom. And we're still doing big deals. While we've got it, 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 Q2. And so there's still do I believe I was 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
And 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 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.