C3ai Inc

Previous wording

•C3 AI Platform, our core technology, is a comprehensive, end-to-end application development and runtime environment that is designed to allow our customers to rapidly design, develop, and deploy Enterprise AI applications.

Current wording

•The C3 AI Platform, our core technology, is a comprehensive, end-to-end application development and runtime environment that is designed to allow our customers to rapidly design, develop, and deploy Enterprise AI applications.

Previous wording

•C3 AI Applications, built using the C3 AI Platform, is a portfolio of pre-built, extensible, industry-specific and application-specific SaaS Enterprise AI applications that can be rapidly installed and deployed.

Current wording

•C3 AI Applications, built using the C3 AI Platform, is a portfolio of pre-built, extensible, industry-specific and application-specific Enterprise AI applications that can be rapidly installed and deployed.

Previous wording

•C3 Generative AI Product Suite, our latest innovation, combines the utility of large language models, generative AI, reinforcement learning, natural language processing, and the C3 AI Platform to rapidly locate, retrieve, and present information, disparate data stores, applications, and enterprise information systems.

Current wording

•C3 Generative AIcombines the utility of large language models, or LLMs, generative AI, reinforcement learning, natural language processing, and the C3 AI Platform to rapidly locate, retrieve, and present information, disparate data stores, applications, and enterprise information systems.

Previous wording

When we founded C3 AI, we believed the market for elastic cloud computing, IoT, big data, and predictive analytics software was destined to be large. That proved true. However, in 2009 the market was nascent, and the specific applications and markets were unknown. In 2008, the global public cloud market was less than $20 billion;1 in 2023, it was expected to approach $500 billion.1 In 2008, there were less than 1 billion IoT devices worldwide;2 in 2023, that number was expected to exceed 55 billion.3 In 2008, AI software — as we think about it today — did not exist. This year the AI software market is expected to exceed $450 billion.4 We believe that by any standard that constitutes explosive growth.

Current wording

When we founded C3 AI, we believed the market for elastic cloud computing, IoT, big data, and predictive analytics software was destined to be large. That proved true. However, in 2009 the market was nascent, and the specific applications and markets were unknown. Based on Forrester’s report on the Public Cloud Market Outlook, in 2008, the global public cloud market was less than $20 billion; in 2023, it was expected to approach $500 billion. In 2008, there were less than 1 billion IoT devices worldwide;1 in 2023, that number was expected to exceed 55 billion based on the IDC report. In 2008, AI software - as we think about it today - did not exist. This year the AI software market is expected to exceed $450 billion based on the IDC report. We believe that by any standard that constitutes explosive growth.

Previous wording

2 https://www.statista.com/statistics/764026/number-of-iot-devices-in-use-worldwide/

Current wording

1 https://www.statista.com/statistics/764026/number-of-iot-devices-in-use-worldwide/

Previous wording

When we consider mega-market developments like the internet, the smartphone, and AI, it is impossible to anticipate a priori exactly how these markets will develop. With the advent of the Mosaic internet browser in 1993, who could have anticipated Amazon and Google? With the founding of Apple Computer Company in 1976, who could have anticipated the iPhone? The Apple Store? Apple TV? iTunes? These mega-markets develop in unanticipated ways.

Current wording

When we consider mega-market developments like the internet, the smartphone, and AI, it is impossible to anticipatea priori exactly how these markets will develop. With the advent of the Mosaic internet browser in 1993, who could have anticipated Amazon and Google? With the founding of Apple Computer Company in 1976, who could have anticipated the iPhone? The Apple Store? Apple TV? iTunes? These mega-markets develop in unanticipated ways.

Previous wording

We founded C3 in January of 2009 and developed some of the core components of what is now the C3 AI Platform within the first year. You may recall there was much discussion and interest in the 2008 – 2011 timeframe about what we now consider sustainability initiatives, including clean tech, energy management, LEED certification, and cap and trade vs. carbon offsets; and as a result, we decided to focus our first use case on energy management. That proved to be a good decision.

Current wording

We founded C3 in January of 2009 and developed some of the core components of what is now the C3 AI Platform within the first year. There was much discussion and interest in the 2008 – 2011 timeframe about what we now consider sustainability initiatives, including clean tech, energy management, LEED certification, and cap and trade vs. carbon offsets; and as a result, we decided to focus our first use case on energy management. That proved to be a good decision.

Previous wording

This expansion into energy markets proved successful as the company booked 5 approximately $83 million in contracts and recognized $63.9 million in revenue during this period.

Current wording

This expansion into energy markets proved successful as the company booked 2 approximately $83 million in contracts and recognized $63.9 million in revenue during this period.

Previous wording

This market and product line expansion again proved successful as the company booked 5 approximately $203 million in contracts and recognized $120.4 million in revenue from 2016 – 2018.

Current wording

This market and product line expansion again proved successful as the company booked 2 approximately $203 million in contracts and recognized $120.4 million in revenue from 2016 – 2018.

Previous wording

In addition to the products and services that the company offered since its inception, C3 AI again expanded its product offerings that now include over 40 AI production applications for the utility, oil & gas, financial services, manufacturing, health, and communications industries, and U.S. defense and intelligence sectors. Across industries, we introduced a number of AI application products that serve all vertical markets including C3 AI Ex Machina to address the needs of the growing citizen data science market, C3 AI CRM, C3 AI Data Vision, C3 AI ESG, and C3 Generative AI.

Current wording

In addition to the products and services that the company offered since its inception, C3 AI again expanded its product offerings that now include over 90 AI production applications for the utility, oil & gas, state and local governments, financial services, manufacturing, health, and communications industries, and U.S. defense and intelligence sectors. Across industries, we introduced a number of AI application products that serve all vertical markets including C3 AI Ex Machina to address the needs of the growing citizen data science market, C3 AI CRM, C3 AI Data Vision, C3 AI ESG, and C3 Generative AI.

Previous wording

Again, this market expansion proved successful, enabling C3 AI to book over $1.2 billion in additional contracts and recognize $951.1 million in revenue from 2019 – 2023.

Current wording

Again, this market expansion proved successful, enabling C3 AI to book 2 over $1.4 billion in additional contracts and recognize $1.3 billion in revenue from 2019 – 2024.

Previous wording

We generate revenue primarily from the sale of subscriptions, which accounted for 90% and 86% of our total revenue in the three months ended January 31, 2024 and 2023, respectively, and 88% and 89% of our total revenue in the nine months ended January 31, 2024 and 2023, respectively. Our cloud-native software offerings allow us to manage, update, and monitor the software regardless of whether the software is deployed in our public cloud environment, in our customers’ self-managed private or public cloud environments, or in a hybrid environment. Our subscription contracts are generally non-cancellable and non-refundable.

Current wording

We generate revenue primarily from the sale of subscriptions, which accounted for 84% and 85% of our total revenue in the three months ended July 31, 2024 and 2023, respectively. Our cloud-native software offerings allow us to manage, update, and monitor the software regardless of whether the software is deployed in our public cloud environment, in our customers’ self-managed private or public cloud environments, or in a hybrid environment.

Previous wording

Historically, we primarily recognized revenue from subscriptions on a ratable basis over the contract term or on a usage basis for consumption-based arrangements. In addition, customers typically pay a usage-based runtime fee for production use of our C3 AI Software for specified levels of capacity. Customers who choose to run the software in our cloud environment pay the hosting costs charged by our cloud providers. In the second quarter of fiscal year 2023, we announced a new consumption-based pricing model, frequently beginning with a pilot phase which may include unlimited or limited developer access to the C3 AI Platform, one C3 AI Application and C3 AI Center of Excellence, or COE, support services. After the pilot phase ends, the customer has an option to convert to a month-to-month contract for C3 AI Software with a minimum fee and overage charges if the customer utilizes greater than a specified number of vCPU or vGPU hours in a month. Customers have the option to commit to a one-year, two-year or three-year term. Our subscriptions also include our maintenance and support services. Additionally, we offer premium stand-ready support services through our C3 AI COE which is included as part of the subscription when purchased.

Current wording

We primarily recognize revenue from subscriptions on a ratable basis over the contract term or on a usage basis for consumption-based arrangements. In addition, customers typically pay a usage-based runtime fee for production use of our C3 AI Software for specified levels of capacity. We also recognize revenue upon delivery to the customer for software licenses that do not require maintenance and support services. Customers who choose to run the software in our cloud environment pay the hosting costs charged by our cloud providers. In the first quarter of fiscal year 2023, we announced a consumption-based pricing model, beginning with a pilot phase which may include access to the C3 AI Platform, one C3 AI Application or C3 Generative AI, and C3 AI Center of Excellence, or COE, support services. Following the pilot period, customers either pay a monthly fee and consumption charges using vCPU and vGPU hours as the metric to calculate payment, or enter into a time-certain multi-period commitment that may include consumption charges. Our subscriptions also include our maintenance and support services. Additionally, we offer premium stand-ready support services through our C3 AI COE which is included as part of the subscription when purchased.

Previous wording

We also generate revenue from professional services, which primarily include implementation services, training, and prioritized engineering services. Professional services revenue represented 10% and 14% of our total revenue for the three months ended January 31, 2024 and 2023, respectively, and 12% and 11% of our total revenue in the nine months ended January 31, 2024 and 2023, respectively. Our professional services are provided both onsite and remotely, and can include training, application design, project management, system design, data modeling, data integration, application design, development support, data science, and application and C3 AI Software administration support. Professional services fees are based on the level of effort required to perform the specified tasks and the services are typically provided under a fixed-fee engagement with defined deliverables and a duration of less than 12 months. We recognize revenue from our professional services over the period of delivery as services are performed.

Current wording

We also generate revenue from professional services, which primarily include implementation services, training, and prioritized engineering services. Professional services revenue represented 16% and 15% of our total revenue for the three months ended July 31, 2024 and 2023, respectively. Our professional services are provided both onsite and remotely, and can include training, application design, project management, system design, data modeling, data integration, application design, development support, data science, and application and C3 AI Software administration support. Professional services fees are based on the level of effort required to perform the specified tasks and the services are typically provided under a fixed-fee engagement with defined deliverables and a duration of less than 12 months. We recognize revenue from our professional services over the period of delivery as services are performed.

Previous wording

Our total revenue was $78.4 million and $224.0 million for the three and nine months ended January 31, 2024, respectively, representing a 18% and 15% increase, respectively, compared to the same periods last year. Our subscription revenue grew to $70.4 million and $198.2 million for the three and nine months ended January 31, 2024, respectively, representing a 23% and 14% increase, respectively, compared to the same periods last year.

Current wording

Our total revenue was $87.2 million for the three months ended July 31, 2024, representing a 21% increase compared to the same period last year. Our subscription revenue grew to $73.5 million for the three months ended July 31, 2024, representing a 20% increase, compared to the same period last year.

Previous wording

We believe the transition from a primarily subscription-based pricing model to a consumption-based pricing model brought us into line with industry-standard cloud software pricing standards, making it easier and less costly for new customers to initially acquire our solutions and then increase their spending if their usage and adoption increased. We anticipated and announced that this transition would have a short-to-medium term negative effect upon revenue growth and remaining performance obligations, or RPO, as the average sales price was significantly reduced and the contracts often lacked a time-certain multiperiod commitment.

Current wording

We believe the transition from a primarily subscription-based pricing model to a consumption-based pricing model brought us in line with industry-standard cloud software pricing standards, making it easier and less costly for new customers to initially acquire our solutions and then increase their spending if their usage and adoption increased. We anticipated and announced that this transition would have a short-to-medium term negative effect upon revenue growth, as the average sales price was significantly reduced and the contracts often lacked a time-certain multi-period commitment. We are still in the process of working through the transition to the new pricing model.

Previous wording

As shown below, revenue growth initially decreased and then increased as the consumption-based pricing model went into effect. ASP and RPO have generally decreased. Customer Engagement has increased.

Current wording

As shown below, revenue growth initially decreased and then increased as the consumption-based pricing model went into effect. Average selling price, or ASP, and remaining performance obligations, or RPO, have generally decreased. Customer Engagement has increased.

Previous wording

Particularly as it relates to our legacy subscription-based pricing agreements, we monitor remaining performance obligations, or RPO, as a metric to help us evaluate the health of our business, identify trends affecting our growth, and formulate goals and objectives. RPO is not necessarily indicative of future revenue growth because it is not applicable to pay-as-you go consumption pricing agreements. Moreover, RPO is influenced by several factors, including the timing of renewals, the timing of purchases of additional capacity, average contract terms, and seasonality. Due to these factors, it is important to review RPO in conjunction with revenue and other financial metrics disclosed elsewhere in this Quarterly Report on Form 10-Q. RPO was $286.9 million and $381.4 million as of January 31, 2024 and April 30, 2023, respectively. In fiscal year 2023, we successfully completed our transition from a subscription-based pricing model to a consumption-based pricing model for new customers. While the immediate-term effect of this transition lowers revenue growth and decreases RPO, we believe the medium- and long- term effect provides a substantial accelerator to revenue growth.

Current wording

As it relates to our legacy subscription-based pricing agreements, we monitor remaining performance obligations, or RPO. RPO is not necessarily indicative of future revenue growth because it is not applicable to pay-as-you-go consumption pricing agreements. Moreover, RPO is influenced by several factors, including the timing of renewals, the timing of purchases of additional capacity, ASP, average contract terms, and seasonality. Due to these factors, it is important to review RPO in conjunction with revenue and other financial metrics disclosed elsewhere in this Quarterly Report on Form 10-Q. RPO was $204.5 million and $244.3 million as of July 31, 2024 and April 30, 2024, respectively.

Previous wording

RPO represents the amount of our contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancellable contracted amounts that will be invoiced and recognized as revenue in future periods. Our RPO as of January 31, 2024 is comprised of $41.3 million related to deferred revenue and $245.6 million of commitments from non-cancellable contracts. Our RPO as of April 30, 2023 is comprised of $47.9 million related to deferred revenue and $333.5 million of commitments from non-cancellable contracts.

Current wording

RPO represents the amount of our contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancellable contracted amounts that will be invoiced and recognized as revenue in future periods. Our RPO as of July 31, 2024 is comprised of $40.3 million related to deferred revenue and $164.2 million of commitments from non-cancellable contracts. Our RPO as of April 30, 2024 is comprised of $39.0 million related to deferred revenue and $205.3 million of commitments from non-cancellable contracts.

Previous wording

RPO excludes amounts related to performance obligations and usage-based royalties that are billed and recognized as they are delivered. This primarily consists of monthly usage-based runtime and hosting charges in the duration of some revenue contracts. RPO also excludes any future resale commitments by our strategic partners until those end customer contracts are signed. Cancellable backlog, not included in RPO, was $44.9 million and $40.2 million as of January 31, 2024 and April 30, 2023, respectively.

Current wording

RPO excludes amounts related to monthly usage-based runtime and hosting charges.

Previous wording

In the second quarter of fiscal year 2023, we announced a change to our go-to-market strategy including a way for new customers to subscribe for our products at smaller initial contract sizes and pay for services based on their monthly consumption of vCPU and vGPU hours. Customers generally begin with a one to two-quarter-long pilot which includes the necessary resources required to deploy the C3 AI Platform and/or C3 AI Applications and receive necessary training to operate and maintain the software in production use. Following the pilot period, customers either pay a monthly fee and consumption charges using vCPU and vGPU hours utilized as the metric to calculate payment or enter into a time-certain multiperiod commitment that may include consumption charges.

Current wording

In the first quarter of fiscal year 2023, we announced a change to our go-to-market strategy including a way for new customers to subscribe for our products at smaller initial contract sizes and pay for services based on their monthly consumption of vCPU and vGPU hours. Customers generally begin with a one to two-quarter-long pilot which includes the necessary resources required to deploy the C3 AI Platform and/or C3 AI Applications and receive necessary training to operate and maintain the software in production use. Following the pilot period, customers either pay a monthly fee and consumption charges using vCPU and vGPU hours utilized as the metric to calculate payment or enter into a time-certain multi-period commitment that may include consumption charges.

Previous wording

•Industry Partners. We have developed an alliance program to partner with recognized leaders in their respective industries, such as Baker Hughes, and Raytheon, to develop, market, and sell solutions that are natively built on or tightly integrated with the C3 AI Platform.

Current wording

•Industry Partners. We have developed an alliance program to partner with recognized leaders in their respective industries, such as Baker Hughes, and Booz Allen, to develop, market, and sell solutions that are natively built on or tightly integrated with the C3 AI Platform.

Previous wording

•Hyperscale Cloud and Infrastructure. We have formed global strategic go-to-market alliances with hyperscale cloud providers including Amazon Web Services, or AWS, Microsoft Azure, and Google Cloud. In addition, we have strategic alliances with leading hardware infrastructure providers to deliver our software optimized for their technology. These partners include Hewlett Packard Enterprise and Intel. These partners supply infrastructure solutions, data management and processing services, or hardware and networking devices (e.g., IoT gateways) to support C3 AI product implementations and complement C3 AI’s products.

Current wording

•Hyperscale Cloud and Infrastructure. We have formed global strategic go-to-market alliances with hyperscale cloud providers including Amazon Web Services, or AWS, Microsoft Azure, and Google Cloud Platform, or GCP. In addition, we have strategic alliances with leading hardware infrastructure providers to deliver our software optimized for their technology. These partners include Hewlett Packard Enterprise and Intel. These partners supply infrastructure solutions, data management and processing services, or hardware and networking devices (e.g., IoT gateways) to support C3 AI product implementations and complement C3 AI’s products.

Previous wording

Over the course of our history, we have continued to innovate our product offerings, expand our market reach, and evolve our business model to better serve the needs and use cases of our ever-growing customers. Today, our relationships with customers take a myriad of different forms, ranging from free trials of C3 Generative AI on the AWS Marketplace, $25 licenses of C3 AI Ex Machina to individual data scientists, to enterprise-level limited time trials and pilots, to multi-million-dollar long-term enterprise-wide agreements for C3 AI Applications and/or the C3 AI Platform. The number of individual departments and divisions within our customer base using our applications and/or applications they have built on our platform continues to expand. The move to our new consumption-based pricing model, while being the right model for our business evolution, adds yet another permutation to our customer relations. While the bulk of our new business volume consists of pilots followed by consumption-based pricing or time-certain multiperiod commitments that may include consumption-based pricing, we continue to employ our historic pricing models in certain circumstances, including the expansion of existing agreements and renewals. We also have reseller relationships that sell our solutions to their end customers.

Current wording

Over the course of our history, we have continued to innovate our product offerings, expand our market reach, and evolve our business model to better serve the needs and use cases of our ever-growing customers. Today, our relationships with customers take a myriad of different forms, ranging from free trials of C3 Generative AI on the AWS and GCP Marketplaces, $25 licenses of C3 AI Ex Machina to individual data scientists, to enterprise-level limited time trials and pilots, to multi-million-dollar long-term enterprise-wide agreements for C3 AI Applications and/or the C3 AI Platform. The number of individual departments and divisions within our customer base using our applications and/or applications they have built on our platform continues to expand. The move to our new consumption-based pricing model, while being the right model for our business evolution, adds yet another permutation to our customer relations. While the bulk of our new business volume consists of pilots followed by consumption-based pricing or time-certain multi-period commitments that may include consumption-based pricing, we continue to employ our historic pricing models in certain circumstances, including the expansion of existing agreements and renewals. We also have reseller relationships that sell our solutions to their end customers.

Previous wording

To help us better articulate the growth in our customer base and use cases, we retained external consultants to recommend a best-practice customer count methodology that is consistent and relies on system data and is reproducible. As a result of that review, we previously decided to change our definition to better reflect the number and level of activity of our customers, which we now define as Customer Engagement:

Current wording

To help us better articulate the growth in our customer base and use cases, we retained external consultants during the fiscal year ended April 30, 2023 to recommend a best-practice customer count methodology that is consistent and relies on system data and is reproducible. As a result of that review, we previously decided to change our definition to better reflect the number and level of activity of our customers, which we now define as Customer Engagement:

Previous wording

Our best estimate of Customer Engagement was 445 and 247 as of January 31, 2024 and 2023, respectively.

Current wording

Our best estimate of Customer Engagement was 551 and 334 as of July 31, 2024 and 2023, respectively. As noted below under Key Business Metric, we are seeing an increasing number of customers adopting our solutions via pilots and trials. As part of this evolution, we believe that Customer Engagement is no longer an effective metric for investors to use in understanding our business and its growth drivers, so we do not expect to continue reporting on Customer Engagement.

Previous wording

We have built a high-performance, customer-focused culture and have implemented proactive programs and processes designed to drive customer success. These include a robust customer support and success function. For example, as part of our subscription offerings, we provide our customers with the ability to establish a Center of Excellence, or COE, utilizing our experienced and specialized resources in key technical areas like application development, data integration, and data science to accelerate and ensure our customers’ success developing applications on our C3 AI Platform. We closely monitor the health and status of every customer account through multiple activities, including real-time monitoring, daily and weekly reports to management, as well as quarterly reviews with our customers.

Current wording

We have built a high-performance, customer-focused culture and have implemented proactive programs and processes designed to drive customer success. These include a robust customer support and success function. For example, as part of our subscription offerings, we provide our customers with the ability to establish a COE utilizing our experienced and specialized resources in key technical areas like application development, data integration, and data science to accelerate and ensure our customers’ success developing applications on our C3 AI Platform. We closely monitor the health and status of every customer account through multiple activities, including real-time monitoring, daily and weekly reports to management, as well as quarterly reviews with our customers.

Previous wording

In the third quarter of fiscal year 2024, we announced the AWS Marketplace listing of our no-code, self-service generative AI application in AWS Marketplace. C3 Generative AI—AWS Marketplace Edition offers a simple self-service setup that allows users to begin asking questions about their data in minutes. This new application is designed with an intuitive search and chat interface that allows users of all levels to easily and quickly find information with high precision, perform data analysis, and discover insights from documents and data.

Current wording

In the third quarter of fiscal year 2024, we announced the AWS Marketplace listing of our self-service generative AI application, C3 Generative AI: Standard Edition. This applications offers a simple self-service setup that allows users to integrate their data, tune retrieval performance, and begin asking questions about their data in minutes. This application is designed with an intuitive search and chat interface that allows users of all levels to easily and quickly find information with high precision, perform data analysis, and discover insights from documents and data.

Previous wording

We expect to invest heavily in generative AI to leverage these advanced technologies to enhance our existing offerings and create innovative solutions that cater to the evolving needs of the enterprise AI market.

Current wording

We expect to continue to invest heavily in generative AI to leverage these advanced technologies to enhance our existing offerings and continue to create new, innovative applications that cater to the evolving needs of the enterprise AI market.

Previous wording

In addition to the activities of our field sales organization, our success in attracting new customers will depend on our ability to expand our ecosystem of strategic partners and the number of industry verticals that they serve. Our strategic go-to-market alliances vastly extend our reach globally. Some of our most notable partners include AWS, Baker Hughes, Microsoft, and Google Cloud. Each strategic partner is a leader in its industry, with a substantial installed customer base and extensive marketing, sales, and services resources that we can leverage to engage and serve customers anywhere in the world. Using our C3 AI Platform as the development suite, we leverage our model-driven architecture to efficiently build new cross-industry and industry-specific applications based on identifying requirements across our customer base of industry leaders and through our industry partners. Our strategy with strategic partners is to establish a significant use case and prove the value of our C3 AI Platform, C3 Enterprise AI Applications, and C3 Generative AI with a flagship customer in each industry in which we participate. We have done this with our strategic vertical industry partner in oil and gas, Baker Hughes, as well as with our iconic global customers, some of whom are deploying C3 AI technology to optimize thousands of critical assets globally across their upstream, midstream, and downstream operations. We establish formal sales and marketing plans with each partner, including specific sales goals and dedicated budgets, and we work closely with these partners to identify specific target accounts. We intend to grow the business we do with each partner and to add more partners as we expand the vertical markets we serve. We also offer revenue generating pilots of our applications as part of our customer acquisition strategy.

Current wording

In addition to the activities of our field sales organization, our success in attracting new customers will depend on our ability to expand our ecosystem of strategic partners and the number of industry verticals that they serve. Our strategic go-to-market alliances vastly extend our reach globally. Some of our most notable partners include Baker Hughes, AWS, Microsoft, and GCP. Each strategic partner is a leader in its industry, with a substantial installed customer base and extensive marketing, sales, and services resources that we can leverage to engage and serve customers anywhere in the world. Using our C3 AI Platform as the development suite, we leverage our model-driven architecture to efficiently build new cross-industry and industry-specific applications based on identifying requirements across our customer base of industry leaders and through our industry partners. Our strategy with strategic partners is to establish a significant use case and prove the value of our C3 AI Platform, C3 Enterprise AI Applications, and C3 Generative AI with a flagship customer in each industry in which we participate. We have done this with our strategic vertical industry partner in oil and gas, Baker Hughes, as well as with our iconic global customers, some of whom are deploying C3 AI technology to optimize thousands of critical assets globally across their upstream, midstream, and downstream operations. We establish formal sales and marketing plans with each partner, including specific sales goals and dedicated budgets, and we work closely with these partners to identify specific target accounts. We intend to grow the business we do with each partner and to add more partners as we expand the vertical markets we serve. We also offer revenue generating pilots of our applications as part of our customer acquisition strategy.

Previous wording

The international market opportunity for Enterprise AI software is large and growing, and we believe there is a significant opportunity to continue to grow our international customer base. We believe that the demand for our C3 AI Software will continue growing as international awareness of the benefits of digital transformation and Enterprise AI software grows. We plan to continue to make investments to expand geographically by increasing our direct sales team in international markets and supplementing the direct sales effort with strategic partners to significantly expand our reach and market coverage. We derived approximately 14% and 17% of our total revenue for the three months ended January 31, 2024 and 2023, respectively, and 15% and 20% of our total revenue for the nine months ended January 31, 2024 and 2023, respectively, from international customers.

Current wording

The international market opportunity for Enterprise AI software is large and growing, and we believe there is a significant opportunity to continue to grow our international customer base. We believe that the demand for our C3 AI Software will continue growing as international awareness of the benefits of digital transformation and Enterprise AI software grows. We plan to continue to make investments to expand geographically by increasing our direct sales team in international markets and supplementing the direct sales effort with strategic partners to significantly expand our reach and market coverage. We derived approximately 13% and 15% of our total revenue for the three months ended July 31, 2024 and 2023, respectively, from international customers.

Previous wording

Subscription Revenue. Our subscription revenue is primarily comprised of term licenses, stand-ready COE support services, trials and pilots of our applications, and software-as-a-service offerings. Sales of our term licenses grant our customers the right to use our software, either on their own cloud instances or their internal hardware infrastructures, during the contractual term. We also offer a premium service model through our COE. Sales of our software-as-a-service offerings include a right to use our software during the contract term. Our subscription contracts are generally non-cancellable and non-refundable, and we recognize revenue over the contract term on a ratable basis. In addition, customers pay a usage-based runtime fee for our C3 AI Software for specified levels of guaranteed minimum consumption. Our subscriptions also include our maintenance and support services, which include critical and continuous updates to the software that are integral to maintaining the intended utility of the software over the contractual term. Our software subscriptions and maintenance and support services are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract. We currently have a small number of customers that license our offerings under a perpetual license model, and we expect that may continue for the foreseeable future for certain customers due to their specific contracting requirements.

Current wording

Subscription Revenue. Our subscription revenue is primarily comprised of software licenses, software-as-a-service offerings, stand-ready COE support services, pilots and trials of our C3 AI Applications or Generative AI, and hosting charges. Sales of our software licenses grant our customers the right to use our software, either on their own cloud instances or their internal hardware infrastructures, during the contractual term. We also offer a premium stand ready service through our COE. Sales of our software-as-a-service offerings include a right to use our software during the contract term. In addition, customers pay a usage-based runtime fee for our C3 AI Software for specified levels of guaranteed minimum consumption. Our subscriptions also include our maintenance and support services, which include critical and continuous updates to the software that are integral to maintaining the intended utility of the software over the contractual term. For a significant majority of our offerings, our software subscriptions and maintenance and support services are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract. We currently have a small number of customers that license our offerings under a perpetual license model, and we expect that may continue for the foreseeable future for certain customers due to their specific contracting requirements.

Previous wording

Cost of Professional Services Revenue. Cost of professional services revenue consists primarily of compensation, including salaries, bonuses, benefits, stock-based compensation and other related costs associated with our professional service personnel, third-party system integration partners, and allocated overhead and depreciation for facilities.

Current wording

Cost of Professional Services Revenue. Cost of professional services revenue consists primarily of compensation, including salaries, bonuses, benefits, stock-based compensation and other related costs associated with our professional service personnel, prioritized engineering personnel, third-party system integration partners, and allocated overhead and depreciation for facilities.

Previous wording

Research and Development. Our research and development efforts are aimed at continuing to develop and refine our C3 AI Software, including adding new features and modules, increasing functionality and speed, and enhancing the usability of our solutions. Research and development expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, and stock-based compensation for our employees associated with research and development related activities. Research and development expenses also include cloud infrastructure costs related to our research and development efforts, and allocated overhead and depreciation for facilities. Research and development costs are expensed as incurred.

Current wording

Research and Development. Our research and development efforts are aimed at continuing to develop and refine our solutions, including adding new features and modules, increasing functionality and speed, and enhancing the usability of C3 AI Software. Research and development expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, and stock-based compensation for our employees associated with research and development related activities. Research and development expenses also include cloud infrastructure costs related to our research and development efforts, and allocated overhead and depreciation for facilities. Research and development costs are expensed as incurred.

Previous wording

Comparison of the Three and Nine Months Ended January 31, 2024 and 2023

Current wording

Comparison of the Three Months Ended July 31, 2024 and 2023

Previous wording

Subscription revenue accounted for 90% and 86% of our total revenue for the three months ended January 31, 2024 and 2023, respectively. Subscription revenue increased by $13.4 million, or 23%, for the three months ended January 31, 2024, compared to the same period last year. Approximately 29% and 12%, respectively, of the total subscription revenue was attributable to revenue from new customers, and the remaining 71% and 88%, respectively, was attributable to revenue from existing customers for the three months ended January 31, 2024 and 2023, respectively.

Current wording

Subscription revenue accounted for 84% and 85% of our total revenue for the three months ended July 31, 2024 and 2023, respectively. Subscription revenue increased by $12.1 million, or 20%, for the three months ended July 31, 2024, compared to the same period last year. Approximately 19% and 17%, respectively, of the total subscription revenue was attributable to revenue from new customers, and the remaining 81% and 83%, respectively, was attributable to revenue from existing customers for the three months ended July 31, 2024 and 2023, respectively.

Previous wording

The increase in cost of subscription revenue for the three months ended January 31, 2024 compared to the same period last year was primarily due to higher personnel-related costs of $6.6 million as a result of increased headcount and overall costs to support the growth in our business, and increased stock-based compensation primarily related to additional equity awards granted to current and new employees, increased cloud services costs of $2.4 million, increased third-party outsourcing costs of $1.0 million, and increased facilities costs of $0.1 million.

Current wording

The increase in cost of subscription revenue for the three months ended July 31, 2024 compared to the same period last year was primarily due to increased third-party outsourcing costs of $3.7 million, increased data center costs of $1.5 million, partially offset by lower personnel-related costs of $2.4 million.

Previous wording

The decrease in cost of professional services revenue for the nine months ended January 31, 2024 compared to the same period last year was primarily due to lower personnel related costs of $1.9 million, lower facilities costs of $0.5 million, and lower overhead costs of $0.4 million.

Current wording

The increase in cost of professional services revenue for the three months ended July 31, 2024 compared to the same period last year was primarily due to higher personnel related costs of $0.4 million.

Previous wording

The decrease in total gross margins for the three months ended January 31, 2024 compared to the same period last year was driven by a decline in subscription margin. The subscription margin for the three months ended January 31, 2024 decreased due to increased personnel related costs as a result of additional headcount and overall costs to support the growth in our business, and increased stock-based compensation primarily related to additional equity awards granted to current and new employees, compared to the same period last year. The professional service margin was flat for the three months ended January 31, 2024 compared to the same period last year.

Current wording

The increase in total gross margins for the three months ended July 31, 2024 compared to the same period last year was driven by an increase in subscription margin. The subscription margin for the three months ended July 31, 2024 increased due to lower personnel related costs, compared to the same period last year. The professional service margin was flat for the three months ended July 31, 2024 compared to the same period last year.

Previous wording

Sales and Marketing. The increase in sales and marketing expense for the three months ended January 31, 2024 compared to the same period last year was primarily due to increased advertising spend of $5.8 million, increased marketing costs of $2.8 million, increased personnel-related costs of $2.2 millionas a result of additional headcount and overall costs to support the growth in our business, increased stock-based compensation primarily related to additional equity awards granted to current and new employees, and increased marketing event costs of$1.7 million.

Current wording

Sales and Marketing. The increase in sales and marketing expense for the three months ended July 31, 2024 compared to the same period last year was primarily due to increased advertising spend of $5.7 million, increased personnel-related costs of $3.7 millionas a result of additional headcount and overall costs to support the growth in our business, increased stock-based compensation primarily related to additional equity awards granted to current and new employees, increased recruiting expenses of $0.7 million, increased professional services costs of $0.5 million, increased data center costs of $0.5 million, partially offset by lower marketing costs of $3.5 million.