C3ai Inc
For the period ended Oct 31, 2024. Filed Dec 10, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Oct 31, 2024 · Filed Dec 10, 2024
AI$11.69+2.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-07-31; filed 2024-09-05.
0001628280-24-039467
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-10-31; filed 2024-12-10.
0001628280-24-050538
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 173 previous paragraphs and 179 current paragraphs.
123 unchanged; 30 reworded; 22 added; 18 removed; 2 previous and 4 current paragraphs rearranged.
Tables are not compared: 13 previous and 13 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (22)
Current report
We also generate revenue from professional services, which primarily include service fees and prioritized engineering services. Professional services revenue represented 14% and 9% of our total revenue for the three months ended October 31, 2024 and 2023, respectively, and 15% and 12% of our total revenue in the six months ended October 31, 2024 and 2023, respectively. Service fees include revenue from services such as consulting, training, and paid implementation services. For service fees, revenue is typically recognized over time as the services are performed.
Current report
Prioritized engineering services are undertaken when a customer requests that we accelerate the design, development, and delivery of software features and functions that are planned in our future product roadmap. When we agree to this, we negotiate an agreed upon fee to accelerate the development of the software as well as other terms, such as relevant specifications. When the software feature is delivered, it becomes integrated to our core product offering, is available to all subscribers of the underlying software product, and enhances the operation of that product going forward. Such prioritized engineering services result in production-level computer software – compiled code that enhances the functionality of our production products – which is available for our customers to use over the life of their software licenses. Prioritized engineering services revenue is recognized as professional services over the period in which the software development is completed. Prioritized engineering services revenue accounted for 73% and 72% of total professional services revenue for the three months ended October 31, 2024 and 2023, respectively, and 75% and 74% of total professional services revenue for the six months ended October 31, 2024 and 2023, respectively.
Current report
As the AI landscape continues to evolve, we remain at the forefront of generative AI technologies. This is clear in the product innovations we continue to roll out. In early fiscal year 2024, we launched the C3 Generative AI, with 28 domain-specific generative AI offerings that addressed needs unique to industries, business processes, and enterprise systems.
Current report
C3 Generative AI is a vehicle that allows us to diversify our customer base and market reach. Aiming to develop technology that serves high impact, under-served verticals, we launched the C3 Generative AI for Government Programs application. This application was built to help government agencies and the residents they serve navigate public benefits programs more efficiently and effectively. With C3 Generative AI for Government Programs, federal, state, or local government agencies can eliminate service delays, reduce wait times, make contact centers more effective, and improve the citizen experience.
Current report
The value of our innovations is evident in the benefits customers are realizing as adoption grows. In fiscal year 2025, we continue to have strong customer demand and adoption in diverse use cases, including operator assistance, intelligence analysis, complex documentation drafting, and customer service.
Current report
To help customers get started with C3 Generative AI faster and allow enterprises to truly understand the value of our technology, we launched C3 Generative AI Accelerator Program. This program is a three-day workshop designed to help organizations implement generative AI solutions effectively. The in-person program emphasizes a hands-on approach with participating teams engaged in unstructured and structured data integration, accuracy tuning, and application configuration using C3 Generative AI and the C3 AI Platform. At the end of the Accelerator, participating teams have working prototype applications that they can showcase within their organizations. Participants also work with C3 AI experts to develop customized AI scale-out and value capture plans that are tailored to each organization’s specific requirements.
Current report
Our intellectual property advancements in generative AI highlight our power as a pioneer in Enterprise AI. In October 2024, we were awarded a foundational U.S. patent (US 12,111,859) for our generative AI agentic technology. The patent details a sophisticated system and method for orchestrating multiple AI agents using multimodal foundation models. This patent reinforces C3 AI’s commitment to innovation and its leadership in generative AI. Key patented technologies include:
Current report
•AI Orchestrator: The C3 AI orchestrator coordinates multiple AI agents, invokes specialized machine-learning models or mathematical tools as necessary and handles all data types and tasks.
Current report
•Autonomy: Meaning the AI agents can operate independently to perform tasks across various business functions like sales, service, marketing, and commerce. AI agents can be fully customized to fit the specific needs of any industry or business process, using tools that are already familiar to programmers and data scientists.
Current report
•Multimodal Model Integration: The system integrates advanced multimodal models to break down inputs into a series of instructions for a multiplicity of AI agents.
Current report
•Natural Language Summarization: The technology generates comprehensive summaries from varied data sources, significantly improving decision making.
Current report
We announced a new global alliance agreement with Microsoft — focused on sales, marketing, and solution delivery across all geographies and all industries — to accelerate the adoption of Enterprise AI. The agreement establishes us as a preferred AI application software provider on Microsoft Azure. The collaboration includes joint sales, joint go-to-market strategies, and immediate availability of all C3 Enterprise AI solutions through Azure sales channels, including the Microsoft Commercial Cloud, technical integration, and aligned product development. We plan to invest aggressively to support this distribution channel.
Current report
Professional services revenue increased by $6.4 million, or 94%, for the three months ended October 31, 2024, compared to the same period last year, predominantly due to an increase in prioritized engineering services of $4.8 million and an increase in professional services of $1.6 million as a result of an increase in the number of service projects for C3 AI Platform and C3 AI Application customers.
Current report
Professional services revenue increased by $9.1 million, or 51%, for the six months ended October 31, 2024, compared to the same period last year, predominantly due to an increase in prioritized engineering services of $7.2 million and an increase in professional services of $1.9 million as a result of an increase in the number of service projects for C3 AI Platform and C3 AI Application customers.
Current report
The increase in cost of subscription revenue for the six months ended October 31, 2024 compared to the same period last year was primarily due to higher third-party outsourcing costs of $9.1 million and higher data center costs of $3.0 million, partially offset by lower personnel-related costs of $5.1 million.
Current report
The increase in cost of professional services revenue for the three months ended October 31, 2024 compared to the same period last year was primarily due to higher third-party outsourcing costs of $0.2 million.
Current report
The increase in cost of professional services revenue for the six months ended October 31, 2024 compared to the same period last year was primarily due to higher third-party outsourcing costs of $0.3 million and higher other service costs of $0.2 million.
Current report
The increase in sales and marketing expense for the six months ended October 31, 2024 compared to the same period last year was primarily due to higher advertising spend of $8.7 million, higher personnel-related costs of $7.6 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, higher recruiting expenses of $1.2 million, higher data center costs of $0.8 million, higher professional services of $0.8 million, higher travel and entertainment expenses of $0.7 million and higher marketing event costs of $0.5 million, partially offset by lower marketing costs of $7.2 million.
Current report
The increase in research and development expense for the six months ended October 31, 2024 compared to the same period last year was primarily due to higher professional services costs of $11.4, partially offset by lower personnel-related costs of $2.6 million and lower data center costs of $1.1 million.
Current report
General and Administrative. The increase in general and administrative expense for the three months ended October 31, 2024 compared to the same period last year was primarily due to higher personnel-related costs of $0.8 million 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 and higher professional services costs of $0.6 million.
Current report
Other Income (Expense), Net
Current report
Critical Accounting Estimates
Removed paragraphs (18)
Previous report
Customer Engagement and Product Adoption
Previous report
We define a Customer-Entity as each entity that is the ultimate parent of a party contracting with us. We commonly enter into enterprise-wide agreements with Customer-Entities that include multiple operating units or divisions. Our customer composition is diverse and includes various customer segments with discrete purchasing decisions and pricing models. We offer a wide range of products and services, which results in a complex sales tapestry.
Previous report
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 report
While this may seem inordinately complex, it is in fact appropriately complex. Our flexibility in customer arrangements speaks to our agility in working with our customers and providing value-add products and solutions through those contractual agreements and pricing arrangements most convenient to our customers, while also enabling profitability and growth for C3 AI.
Previous report
Over time, we have done our best to provide a quarterly customer count as a proxy to highlight the adoption and acceptance of our products and services by customers.
Previous report
That being said, there is so much variety in the C3 AI sales tapestry, the types of customers, the broad range of products and solutions, the disparity in contract terms, our relations with resellers, and the range of prices that, to add them together into numbers that are meaningful to compare from one quarter to the next does not fully articulate the depth and breadth of the use cases and the value-add our products and solutions provide.
Previous report
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 report
For products and services including paid trials, one-time, subscription, and professional service offerings, we count unique contacting customers by SKU that generate revenue in a given period (i.e., if a contracting customer generates revenue across four SKUs in a period, that would be counted as four Customer Engagements).
Previous report
For products that are priced based on unique assets to which the customer is applying our solutions, we count distinct production applications by customer asset for which the product is used.
Previous report
For resellers and federal customers, we count the number of reseller end customers and the number of federal departments utilizing our solutions.
Previous report
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 report
In the first quarter of fiscal year 2024, we announced the launch of the C3 Generative AI Suite including 28 new domain-specific generative AI offerings available to address the unique needs of industries, business processes, and enterprise systems. These new offerings combined C3 AI’s deep enterprise domain and industry expertise with the latest innovations in generative AI.
Previous report
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 report
In the fourth quarter of fiscal year 2024, we announced the C3 Generative AI: Standard Edition, our no-code, self-service generative AI application on GCP Marketplace supporting Google’s newest and most advanced LLM, Gemini.
Previous report
In the first quarter of fiscal year 2025, we announced the launch of C3 Generative AI for Government Programs application with Google Cloud. With C3 Generative AI for Government Programs, federal, state, or local government agencies can eliminate service delays, reduce wait times, make contact centers more effective, and improve the citizen experience. In the same quarter, we also achieved the AWS Generative AI Competency. This specialization recognizes C3 AI as an AWS Partner that helps customers and the AWS Partner Network drive the advancement of services, tools, and infrastructure pivotal for implementing generative AI technologies.
Previous report
Professional services revenue increased by $2.7 million, or 25%, for the three months ended July 31, 2024, compared to the same period last year, predominantly driven primarily by an increase in prioritized engineering services of $2.4 million.
Previous report
Other (Expense) Income, Net
Previous report
Critical Accounting Policies and Estimates
Reworded paragraphs (30)
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 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.
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 100 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
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.
Current wording
We generate revenue primarily from the sale of subscriptions, which accounted for 86% and 91% of our total revenue in the three months ended October 31, 2024 and 2023, respectively, and 85% and 88% of our total revenue in the six months ended October 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
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.
Current wording
Our total revenue was $94.3 million and $181.6 million for the three and six months ended October 31, 2024, representing a 29% and 25% increase, compared to the same period last year. Our subscription revenue grew to $81.2 million and $154.6 million for the three and six months ended October 31, 2024, representing a 22% and 21% increase, compared to the same period last year.
Previous 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.
Current wording
As shown below, revenue growth initially decreased and then increased as the consumption-based pricing model went into effect. Remaining performance obligations, or RPO, have generally decreased over the last two years.
Previous 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.
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, 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 $260.5 million as of October 31, 2024, which includes $87.8 million of non-cancellable commitments where actual product selection and quantities of specific products or services will be determined at a later date. RPO was $244.3 million as of April 30, 2024.
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 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.
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 October 31, 2024 is comprised of $35.8 million related to deferred revenue and $224.7 million of commitments from non-cancellable contracts. Our RPO as of April 30, 2024 was comprised of $39.0 million related to deferred revenue and $205.3 million of commitments from non-cancellable contracts.
Previous wording
A consumption-based pricing model begins with a paid “Pilot” phase of up-to six months that may include developer access to the C3 AI Platform, one C3 AI Application or C3 Generative AI and COE support services. Trials are limited period agreements where a defined business problem or use case is addressed with C3 AI software and the customer is presented with the resulting insights and a working application showcasing the utility, benefit and economic value to be gained from a production deployment. Following the pilot and trial periods, 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.
Current wording
A consumption-based pricing model begins with a paid “Pilot” phase of generally up-to six months that may include developer access to the C3 AI Platform, one C3 AI Application or C3 Generative AI and COE support services. Trials are limited period agreements where a defined business problem or use case is addressed with C3 AI software and the customer is presented with the resulting insights and a working application showcasing the utility, benefit and economic value to be gained from a production deployment. Following the pilot and trial periods, 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.
Previous wording
We executed 52 and 24 pilots and trials during the quarter ended July 31, 2024 and 2023, respectively.
Current wording
We executed 36 and 36 pilots and trials during the quarter ended October 31, 2024 and 2023, respectively.
Previous wording
Going forward, we expect we will attract new customers who prefer to subscribe to the C3 AI Platform and C3 AI Applications with our consumption-based pricing model. For further discussion, see the section titled “Overview—Go-to-Market Strategy” included in Part I, Item 2 of this Quarterly Report on Form 10-Q.
Current wording
We expect that we will continue to attract new customers who prefer to subscribe to the C3 AI Platform and C3 AI Applications with our consumption-based pricing model. For further discussion, see the section titled “Overview—Go-to-Market Strategy” included in Part I, Item 2 of this Quarterly Report on Form 10-Q.
Previous wording
Investing in generative AI positions us as leaders in the enterprise AI space. It allows us to offer innovative solutions, improve operational efficiency for our customers, and address a broader market with our Enterprise AI applications. As the AI landscape continues to evolve, staying at the forefront of generative AI technologies is crucial for us for sustained growth and relevance in the industry.
Current wording
Investing in generative AI positions us as leaders in the Enterprise AI space. By offering innovative generative AI solutions that improve operational efficiency for verticals, we enable more enterprises across industries to benefit from technology advancements as we address a broader market with our Enterprise AI applications.
Previous 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.
Current wording
C3 Generative AI is a highly differentiated product offering that provides customers with safe, secure, fast, and reliable insights from data across the enterprise. A key priority for us is not just to meet but anticipate the needs of the Enterprise AI market. In many ways, generative AI is accelerating our strategic initiatives to achieve this goal. We expect to continue to invest heavily in generative AI, leveraging these advanced technologies not only to enhance our existing offerings, but also to create new, innovative applications that expand our impact in Enterprise AI.
Previous wording
We intend to continue to invest in our research and development capabilities to extend our C3 AI Software, to expand within existing accounts, and to gain new customers. Our investments in research and development drive core technology innovation and bring new products to market. Our model-driven architecture enables us and our customers to rapidly address new use cases by building new applications and extending and enhancing the features and functionality of current C3 AI Software. By investing to make it easier to develop applications on our C3 AI Platform, our customers have become active developers. With our support, our customers have developed and deployed almost two-thirds of the applications currently in production and running on the C3 AI Platform. Research and development spending has fueled enhancements to our existing C3 AI Platform.
Current wording
We intend to continue to invest in our research and development capabilities to extend our C3 AI Software, to expand within existing accounts, and to gain new customers. Our investments in research and development drive core technology innovation and bring new products to market. Our model-driven architecture and generative AI agents framework enables us and our customers to rapidly address new use cases by building new applications and extending and enhancing the features and functionality of current C3 AI Software. By investing to make it easier to develop applications on our C3 AI Platform, our customers have become active developers. With our support, our customers have developed and deployed almost two-thirds of the applications currently in production and running on the C3 AI Platform. Research and development spending has fueled enhancements to our existing C3 AI Platform.
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 13% and 15% of our total revenue for the three months ended July 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 17% of our total revenue for the three months ended October 31, 2024 and 2023, respectively, and from 13% and 16% of our total revenue for the six months ended October 31, 2024 and 2023, respectively, from international customers.
Previous wording
Comparison of the Three Months Ended July 31, 2024 and 2023
Current wording
Comparison of the Three and Six Months Ended October 31, 2024 and 2023
Previous 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.
Current wording
Subscription revenue accounted for 86% and 91% of our total revenue for the three months ended October 31, 2024 and 2023, respectively. Subscription revenue increased by $14.7 million, or 22%, for the three months ended October 31, 2024, compared to the same period last year. Approximately 24% and 24%, respectively, of the total subscription revenue was attributable to revenue from new customers, and the remaining 76% and 76%, respectively, was attributable to revenue from existing customers for the three months ended October 31, 2024 and 2023, respectively.
Previous 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.
Current wording
The increase in cost of subscription revenue for the three months ended October 31, 2024 compared to the same period last year was primarily due to higher third-party outsourcing costs of $5.2 million, and higher data center costs of $1.5 million, partially offset by lower personnel-related costs of $2.6 million.
Previous 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.
Current wording
The increase in total gross margins for the three months ended October 31, 2024 compared to the same period last year was driven by an increase in both subscription margin and professional services margin. The subscription margin for the three months ended October 31, 2024 increased due to lower personnel-related costs, compared to the same period last year. The professional service margin was increased for the three months ended October 31, 2024 due to an increase in prioritized engineering services revenue, which generally have higher margins, compared to the same period last year.
Previous 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.
Current wording
Sales and Marketing. The increase in sales and marketing expense for the three months ended October 31, 2024 compared to the same period last year was primarily due to higher personnel-related costs of $3.8 million 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, higher advertising spend of $3.0 million, higher recruiting expenses of $0.5 million, higher marketing event costs of $0.5 million, higher travel and entertainment expense of $0.5 million, higher professional services costs of $0.4 million and higher data center costs of $0.3 million, partially offset by lower marketing costs of $3.8 million.
Previous wording
Research and Development. The increase in research and development expense for the three months ended July 31, 2024 compared to the same period last year was primarily due to higher professional services costs of $4.6 million, partially offset by lower personnel-related costs of $1.9 million, and lower overhead costs of $0.3 million.
Current wording
Research and Development. The increase in research and development expense for the three months ended October 31, 2024 compared to the same period last year was primarily due to higher professional services costs of $6.8 million, higher facilities costs of $0.3 million, partially offset by lower personnel-related costs of $0.7 million and lower data center costs of $1.0 million.
Previous wording
General and Administrative. The decrease in general and administrative expense for the three months ended July 31, 2024 compared to the same period last year was primarily due to decreased professional services costs of $1.1 million, decreased corporate insurance costs of $0.4 million, partially offset by increased facilities costs of $0.7 million, and increased personnel-related costs of $0.5 millionas 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.
Current wording
The increase in general and administrative expense for the six months ended October 31, 2024 compared to the same period last year was primarily due to higher personnel-related costs of $1.2 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 and higher facilities costs of $1.1 million, partially offset by lower corporate insurance costs of $0.9 million.
Previous wording
The change in provision for income taxes for the three months ended July 31, 2024 compared with the same period last year was primarily related to foreign and state tax expense.
Current wording
The change in provision for income taxes for the three and six months ended October 31, 2024 compared with the same period last year was primarily related to foreign and state tax expense.
Previous wording
In addition to our financial results determined in accordance with generally accepted accounting principles in the United States, or GAAP, we believe free cash flow, a non-GAAP financial measure, is useful in evaluating liquidity and provides information to management and investors about our ability to fund future operating needs and strategic initiatives. We calculate free cash flow as net cash provided by operating activities less purchases of property and equipment and capitalized software development costs. Free cash flow has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash used in operating activities. This non-GAAP financial measure may be different than similarly titled measures used by other companies. Additionally, the utility of free cash flow is further limited as it does not represent the total increase or decrease in our cash balances for a given period. The following table below provides a reconciliation of free cash flow to the GAAP measure of net cash provided by operating activities for the periods presented.
Current wording
In addition to our financial results determined in accordance with generally accepted accounting principles in the United States, or GAAP, we believe free cash flow, a non-GAAP financial measure, is useful in evaluating liquidity and provides information to management and investors about our ability to fund future operating needs and strategic initiatives. We calculate free cash flow as net cash used in operating activities less purchases of property and equipment and capitalized software development costs. Free cash flow has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash used in operating activities. This non-GAAP financial measure may be different than similarly titled measures used by other companies. Additionally, the utility of free cash flow is further limited as it does not represent the total increase or decrease in our cash balances for a given period. The following table below provides a reconciliation of free cash flow to the GAAP measure of net cash used in operating activities for the periods presented.
Previous wording
Since inception, we have financed operations primarily through sales generated from our customers and sales of equity securities. As of July 31, 2024 and April 30, 2024, we had $133.8 million and $167.1 million of cash and cash equivalents and $628.7 million and $583.2 million of marketable securities, respectively, which are available for use in current operations. Our marketable securities generally consist of high-grade U.S. treasury securities, certificates of deposit, U.S. government agency securities, commercial paper and corporate debt securities. We have generated operating losses from our operations as reflected in our accumulated deficit of $1.2 billion as of July 31, 2024. We expect to continue to incur operating losses and generate negative cash flows from operations in the next few quarters due to the investments we intend to make in our business, and as a result we may require additional capital to execute on our strategic initiatives to grow the business.
Current wording
Since inception, we have financed operations primarily through sales generated from our customers and sales of equity securities. As of October 31, 2024 and April 30, 2024, we had $121.3 million and $167.1 million of cash and cash equivalents and $609.1 million and $583.2 million of marketable securities, respectively, which are available for use in current operations. Our marketable securities generally consist of high-grade U.S. treasury securities, certificates of deposit, U.S. government agency securities, commercial paper and corporate debt securities. We have generated operating losses from our operations as reflected in our accumulated deficit of $1.2 billion as of October 31, 2024. We expect to continue to incur operating losses and generate negative cash flows from operations in the next few quarters due to the investments we intend to make in our business, and as a result we may require additional capital to execute on our strategic initiatives to grow the business.
Previous wording
We believe that existing cash and cash equivalents and marketable securities alone will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. We also believe we will meet expected future cash requirements and obligations through a combination of cash flows from operating activities and available cash balances. Our principal uses of cash in recent periods have been funding our operations and investing in capital expenditures. Our future capital requirements will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, expenses associated with our international expansion, the introduction of C3 AI Software enhancements, and the continuing market adoption of our C3 AI Software. In the future, we may enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. If we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, results of operations, and financial condition.
Current wording
We believe that existing cash, cash equivalents and marketable securities alone will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. We also believe we will meet expected future cash requirements and obligations through a combination of cash flows from operating activities and available cash balances. Our principal uses of cash in recent periods have been funding our operations and investing in capital expenditures. Our future capital requirements will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, expenses associated with our international expansion, the introduction of C3 AI Software enhancements, and the continuing market adoption of our C3 AI Software. In the future, we may enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. If we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, results of operations, and financial condition.
Previous wording
Operating Activities. Net cash provided by operating activities of $8.0 million for the three months ended July 31, 2024 was due to our net loss of $62.8 million adjusted for certain non-cash items, primarily consisting of stock-based compensation of $54.7 million, accretion of discounts on marketable securities of $3.9 million, depreciation and amortization of $3.1 million, and $16.8 million of cash inflows related to changes in operating assets and liabilities. The $16.8 million of cash inflows related to changes in operating assets and liabilities was primarily attributable to an increase in accounts payable of $20.0 million, an increase in other liabilities of $6.1 million, a decrease in prepaid expenses, other current assets of $1.6 million, and an increase to deferred revenue of $1.3 million. This was partially offset by cash outflows related to an increase in accounts receivable of $10.0 million, a decrease in accrued compensation of $1.8 million, and a decrease in lease liabilities of $0.5 million.
Current wording
Operating Activities. Net cash used by operating activities of $30.7 million for the six months ended October 31, 2024 was due to our net loss of $128.8 million adjusted for certain non-cash items, primarily consisting of stock-based compensation of $111.7 million, accretion of discounts on marketable securities of $7.6 million, depreciation and amortization of $6.1 million, and $12.7 million of cash outflows related to changes in operating assets and liabilities. The $12.7 million of cash outflows related to changes in operating assets and liabilities was primarily attributable to an increase in accounts receivable of $30.1 million, a decrease in accrued compensation of $4.8 million, a decrease to deferred revenue of $3.2 million, an increase in prepaid expenses, other current assets of $2.0 million and a decrease in lease liabilities of $1.2 million. This was partially offset by cash inflows related to an increase in other liabilities of $19.3 million and an increase in accounts payable of $9.3 million.
Previous wording
Net cash provided by operating activities of $3.9 million for the three months ended July 31, 2023 was due to $18.0 million cash inflows related to changes in operating assets and liabilities, offset by our net loss of $64.4 million adjusted for certain non-cash items, primarily consisting of stock-based compensation of $50.9 million, depreciation and amortization of $3.1 million, and non-cash operating lease cost of $0.3 million. The $18.0 million cash inflow related to changes in operating assets and liabilities was primarily attributable to a decrease in accounts receivable of $12.0 million inclusive of a decrease in related party balances of $12.4 million, an increase in lease liabilities of $8.2 million, a decrease in prepaid expenses, other current assets and other assets of $3.1 million, and an increase in other liabilities of $2.3 million. This was partially offset by cash inflows related to a decrease to deferred revenue of $6.9 million, and a decrease in accounts payable of $0.6 million.
Current wording
Net cash used in operating activities of $44.7 million for the six months ended October 31, 2023 was due to net loss of $134.1 million adjusted for certain non-cash items, primarily consisting of stock-based compensation of $104.0 million, depreciation and amortization of $6.2 million, and $12.5 million cash outflows related to changes in operating assets and liabilities. The $12.5 million cash outflows related to changes in operating assets and liabilities was primarily attributable to an increase in accounts receivable of $8.6 million, a decrease to deferred revenue of $7.3 million, a decrease in accounts payable of $2.9 million, a decrease in accrued compensation and employee benefits of $2.6 million. This was partially offset by cash inflows related to an increase in lease liabilities of $7.8 million and an increase in other liabilities of $1.7 million.
Previous wording
Investing Activities. Net cash used in investing activities of $41.6 million for the three months ended July 31, 2024 was attributable to purchases of marketable securities of $230.9 million and capital expenditures of $0.9 million mainly related to the leasehold improvements associated with the new leased space, offset by maturities and sales of marketable securities of $190.3 million.
Current wording
Investing Activities. Net cash used in investing activities of $18.9 million for the six months ended October 31, 2024 was attributable to purchases of marketable securities of $365.9 million and capital expenditures of $1.7 million mainly related to the leasehold improvements associated with the new leased space, offset by maturities and sales of marketable securities of $348.8 million.
Previous wording
Net cash used in investing activities of $84.8 million for the three months ended July 31, 2023 was primarily attributable to purchases of investments of $322.5 million and capital expenditures of $12.8 million mainly related to the leasehold improvements associated with the new leased space, partially offset by maturities and sales of investments of $250.6 million.
Current wording
Net cash used in investing activities of $96.7 million for the six months ended October 31, 2023 was primarily attributable to purchases of investments of $489.9 million and capital expenditures of $19.4 million mainly related to the leasehold improvements associated with the new leased space, partially offset by maturities and sales of investments of $412.6 million.
Previous wording
Financing Activities. Net cash provided by financing activities of $0.2 million during the three months ended July 31, 2024 was due to $3.1 million of proceeds from the exercise of stock options for Class A common stock, partially offset by $2.9 million of taxes paid related to net share settlement of equity awards.
Current wording
Financing Activities. Net cash provided by financing activities of $3.7 million during the six months ended October 31, 2024 was due to $5.0 million of proceeds from issuance of Class A common stock under the 2020 ESPP and $4.5 million of proceeds from the exercise of stock options for Class A common stock, partially offset by $5.8 million of taxes paid related to net share settlement of equity awards.
Previous wording
Net cash provided by financing activities of $2.5 million during the three months ended July 31, 2023 was due to $9.6 million of proceeds from the exercise of stock options for Class A common stock, offset by $7.1 million of taxes paid related to net share settlement of equity awards.
Current wording
Net cash provided by financing activities of $5.5 million during the six months ended October 31, 2023 was due to $10.2 million of proceeds from the exercise of stock options for Class A common stock and $5.1 million of proceeds from issuance of Class A common stock under the 2020 ESPP, offset by $9.7 million of taxes paid related to net share settlement of equity awards.
Rearranged current paragraphs (4)
Current report — wording carried from elsewhere
Subscription revenue accounted for 85% and 88% of our total revenue for the six months ended October 31, 2024 and 2023, respectively. Subscription revenue increased by $26.8 million, or 21%, for the six months ended October 31, 2024, compared to the same period last year. Approximately 19% and 18%, respectively, of the total subscription revenue was attributable to revenue from new customers, and the remaining 81% and 82%, respectively, was attributable to revenue from existing customers for the six months ended October 31, 2024 and 2023, respectively.
Current report — wording carried from elsewhere
The increase in total gross margins for the six months ended October 31, 2024 compared to the same period last year was driven by an increase in both subscription margin and professional services margin. The subscription margin for the six months ended October 31, 2024 increased due to lower personnel-related costs, compared to the same period last year. The professional service margin for the six months ended October 31, 2024 increased primarily due to an increase in prioritized engineering services revenue, which generally have higher margins, compared to the same period last year.
Current report — wording carried from elsewhere
The decrease in interest income for the six months ended October 31, 2024 compared to the same period last year due to higher prevailing interest rates on our marketable securities portfolio in the six months ended October 31, 2023, partially offset by an increase in volume of investments.
Current report — wording carried from elsewhere
The increase in other income (expense), net for the six months ended October 31, 2024 compared to the same period last year was primarily due to foreign currency losses on the remeasurement of Euro-denominated cash and accounts receivable balances, in the six months ended October 31, 2023.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
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 report — wording carried elsewhere
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.