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Excrept from filing document 2024-04-30

Indicate by check whether the registrant has filed a report on and attestation to its management s assessment of the effectiveness of its internal control over financial reporting under Section 404 b of the Sarbanes Oxley Act 15 U S C 7262 b by the registered public accounting firm that prepared or issued its audit report
The aggregate market value of voting stock held by non affiliates of the registrant on October 31 2023 the last business day of the registrant s fiscal second quarter based on the closing price of 24 40 for shares of the registrant s Class A common stock as reported by the New York Stock Exchange was approximately 1 7 billion
Portions of the registrant s definitive proxy statement relating to its 2024 annual meeting of shareholders the 2024 Proxy Statement are incorporated by reference into Part III of this Annual Report on Form 10 K where indicated The 2024 Proxy Statement will be filed with the U S Securities and Exchange Commission within 120 days after the end of the registrant s fiscal year ended April 30 2024
This Annual Report on Form 10 K contains forward looking statements about us and our industry that involve substantial risks and uncertainties All statements other than statements of historical facts contained in this Annual Report on Form 10 K including statements regarding our future results of operations or financial condition business strategy plans and objectives of management for future operations and the benefits and timing of the rollout of new technology are forward looking statements In some cases you can identify forward looking statements because they contain words such as anticipate believe contemplate continue could estimate expect intend may plan potential predict project should target will or would or the negative of these words or other similar terms or expressions These forward looking statements include but are not limited to statements concerning the following
our expectations regarding our revenue expenses and other operating results including statements relating to the portion of our remaining performance obligations that we expect to be recognized as revenue in future periods
You should not rely on forward looking statements as predictions of future events We have based the forward looking statements contained in this Annual Report on Form 10 K primarily on our current expectations and projections about future events and trends that we believe may affect our business financial condition and operating results The outcome of the events described in these forward looking statements is subject to risks uncertainties and other factors described in the section titled Risk Factors contained in Part I Item 1A of this Annual Report on Form 10 K and those elsewhere in this Annual Report on Form 10 K Moreover we operate in a very competitive and rapidly changing environment New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward looking statements contained in this Annual Report on Form 10 K The results events and circumstances reflected in the forward looking statements may not be achieved or occur and actual results events or circumstances could differ materially from those described in the forward looking statements
In addition statements that we believe and similar statements reflect our beliefs and opinions on the relevant subject These statements are based on information available to us as of the date of this Annual Report on Form 10 K While we believe that such information provides a reasonable basis for these statements that information may be limited or incomplete Our statements should not be read to indicate that we have conducted an exhaustive inquiry into or review of all relevant information These statements are inherently uncertain and investors are cautioned not to unduly rely on these statements
The forward looking statements made in this Annual Report on Form 10 K relate only to events as of the date on which the statements are made We undertake no obligation to update any forward looking statements made in this Annual Report on Form 10 K to reflect events or circumstances after the date of this Annual Report on Form 10 K or to reflect new information or the occurrence of unanticipated events except as required by law We may not actually achieve the plans intentions or expectations disclosed in our forward looking statements and you should not place undue reliance on our forward looking statements Our forward looking statements do not reflect the potential impact of any future acquisitions mergers dispositions joint ventures or investments
Investing in our Class A common stock involves numerous risks including the risks described in the section titled Risk Factors in Part I Item 1A of this Annual Report on Form 10 K Below is a summary of some of the risks and uncertainties as of the date of the filing of this Annual Report on Form 10 K any one of which could materially adversely affect our business financial condition operating results and prospects You should read this summary together with the more detailed description of each risk factor contained below
Historically a limited number of customers have accounted for a substantial portion of our revenue If existing customers do not renew their contracts with us or if our relationships with our largest customers are impaired or terminated our revenue could decline and our results of operations would be adversely impacted
We and the third parties with whom we work are subject to stringent and evolving U S and foreign laws regulations and rules contractual obligations industry standards policies self regulatory schemes standards and other obligations related to data privacy and security Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions litigation including class claims and mass arbitration demands fines and penalties disruptions of our business operations reputational harm loss of revenue or profits loss of customers or sales and other adverse business consequences
If our information technology systems or data or those of third parties with whom we work are or were compromised we could experience adverse consequences resulting from such compromise including but not limited to regulatory investigations or actions litigation fines and penalties disruptions of our business operations reputational harm loss of revenue or profits loss of customers or sales and other adverse consequences
Issues raised by the use of artificial intelligence or AI including machine learning or ML in our C3 AI Platform may result in reputational harm or liability or otherwise adversely affect our business financial condition and results of operations
Changes in accounting standards and subjective assumptions estimates and judgments by management related to complex accounting matters could adversely affect our financial results or financial condition
Provisions in our constituent documents and Delaware law may prevent or frustrate attempts by our stockholders to change our management or hinder efforts to acquire a controlling interest in us and the market price of our Class A common stock may be lower as a result
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired
C3 AI is the Enterprise AI application software company C3 AI delivers a family of fully integrated products including the C3 AI Platform an end to end platform for developing deploying and operating Enterprise AI Applications C3 AI Applications a portfolio of industry specific SaaS Enterprise AI applications that enable the digital transformation of organizations globally and C3 Generative AI a unified knowledge source that combines the power of foundational large language models LLMs retrieval models and the C3 AI Platform to enable enterprise users to rapidly locate retrieve reason and act on enterprise data and insights through an intuitive search and chat interface
The C3 AI Platform and C3 AI Applications built with our patented model driven architecture enable organizations to simplify and accelerate Enterprise AI application development deployment and administration Our C3 AI software platform also enables developers to rapidly build applications without having to write complex lengthy structured programming code to define control and integrate the many requisite data and microservices components to work together we significantly reduce the effort and complexity of the Enterprise AI software engineering problem
C3 Generative AI provides enterprise users with a transformative user experience using a natural language interface to rapidly locate retrieve and present relevant data from across the entire corpus of an enterprise s information systems C3 Generative AI enables rapid access to information analyses and predictive analytics associated with and derived from enterprise and external systems while respecting access controls C3 Generative AI is built natively into the C3 AI Platform and available with every C3 AI Application
C3 Generative AI is also available as a standalone capability deployable against customer datasets and software applications enabling customers to leverage large language models LLMs and pretrained generative transformers GPTs to transform enterprise search
We have built a solution that enables our customers to rapidly develop deploy and operate large scale Enterprise AI applications Customers can deploy C3 AI software on major public cloud infrastructures private cloud or hybrid environments or directly on their servers and processors We provide our customers and partners with an antidote to AI vendor lock in
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 of any type
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
We believe the C3 AI Platform offers the only end to end platform as a service that allows customers to rapidly design develop provision and operate Enterprise AI applications at scale Our customers can use the C3 AI Platform to build and operate their own custom Enterprise AI applications and to customize operate and manage C3 AI applications
The C3 AI Platform uses a unique model driven architecture to accelerate delivery and reduce the complexities of developing Enterprise AI applications The C3 AI model driven architecture provides an abstraction layer that allows developers to build Enterprise AI applications by using conceptual models of all the elements an application requires instead of writing lengthy code This provides significant benefits including
The C3 AI Platform enables us and our customers to develop Enterprise AI applications by using conceptual models of all the elements required by the application including data objects e g customer order contract computing resources e g database storage messaging data processing services e g stream processing batch processing AI and ML services e g model training model pipeline management instead of having to write complex lengthy code This approach vastly reduces technical complexity for developers and the amount of code they need to write The C3 AI Platform provides comprehensive capabilities to rapidly develop deploy and operate Enterprise AI applications at scale including
C3 AI Applications is an expanding portfolio of turnkey and ready to use suite of Enterprise AI applications that address a range of high value use cases With C3 AI Applications organizations can typically deploy enterprise scale production AI applications in one to six months Each of these applications is extensible and customizable to meet customer requirements
The C3 AI Reliability Suite drives enterprise asset performance reduces downtime and improves process efficiency C3 AI customers use the C3 AI Reliability Suite to identify and predict asset performance risks intervene before downtime occurs and maximize asset performance
The C3 AI Reliability Suite offers a flexible and scalable AI approach with better precision than alternatives C3 AI s value proposition within reliability emphasizes its 1 complementary approach to existing asset management and data historian systems 2 detailed asset hierarchy modeling including asset templates and failure mode libraries 3 flexible AI pipelines that leverage best in class ML frameworks with AI explainability and 4 comprehensive user workflows to action AI recommendations with bidirectional integrations to work management and operations systems
helps operations teams achieve targets for energy cost GHG emissions water consumption and waste reduction The application models energy efficiency and emissions at every level of industrial processes from the individual equipment up to the facility as well as SKU level product carbon footprints
The C3 AI Supply Chain Suite significantly improves supply chain resiliency and efficiency with proactive risk mitigation and advanced optimization C3 AI s value proposition in supply chain emphasizes its 1 strength in data unification for enterprise and external data to enable near real time global visibility of all goods orders and transportation 2 detailed part level tracking across the supply chain 3 advanced AI to preemptively detect and mitigate risks optimize processes and avoid disruptions and 4 fully complementary approach with enterprise resource planning or ERP systems e g SAP ERP and supply chain planning tools e g SAP IBP Logility
Customers rely on the C3 AI Supply Chain Suite to rapidly improve business outcomes while providing flexibility in how they manage their entire supply chain software ecosystem One large global manufacturing C3 AI customer uses C3 AI s production scheduling software to support facilities using mainframe systems continuing to use the same C3 AI Software while the underlying systems are upgraded to SAP ERP highlighting the versatility and future proofing of the model driven architecture
C3 AI Defense Intelligence Suite helps maximize mission capabilities C3 AI customers span the U S Department of Defense or the DoD including branches such as the U S Air Force the Missile Defense Agency and the DoD s Chief Digital and Artificial Intelligence Office C3 AI offers a core suite of products adaptable for each agency s needs
C3 AI differentiates on scalability of AI ML and user workflows to solve critical missions C3 AI s defense intelligence customers solve the following core needs with C3 AI 1 rapid multi source data ingestion e g structured image video text 2 efficient and scalable application of AI ML and deep learning techniques to provide novel insights and 3 user driven workflows that support investigative analyses collaboration and what if scenario management
C3 AI State and Local Government Suite brings the power of Enterprise AI to state and local governments and law enforcement agencies helping maximize tax revenues by providing highly precise property appraisals and enhancing public safety with AI powered intelligence analysis
provides a single view for all relevant systems e g jail records license plate readers record management historical investigations a natural language search interface to query for keywords across those sources and an investigative visual graph network to explore connections lowering the cost and time of criminal investigation
The C3 AI Sustainability Suite helps decrease greenhouse gas or GHG emissions meet stakeholder and regulatory specific environmental social and governance or ESG expectations and reduce energy costs offering an alternative to existing reporting solutions and dramatically improving upon OEM provided software e g Siemens Schneider by using advanced AI and ML to reduce energy costs and GHG emissions
Sustainability and energy management professionals struggle with three core challenges 1 time consuming manual and error prone process to cobble together siloed data for ESG reporting 2 an ever evolving array of international reporting standards e g CDP GRI SASB and 3 forecasting ESG performance and managing goals and individual projects that are often outside of the ESG team s capabilities C3 AI Sustainability Suite solves these challenges and provides workflows and AI recommendations that enable teams and business units to collaborate on data unification across source systems auto report generation aligned with major frameworks and ESG forecasting and performance management
helps operations teams achieve targets for energy cost GHG emissions water consumption and waste reduction The application models energy efficiency and emissions at every level of industrial processes from the individual equipment up to the facility as well as SKU level product carbon footprints
C3 AI CRM adds to existing customer relationship management or CRM implementations with AI and delivers revenue driving insights C3 AI CRM does not replace existing CRM systems but significantly improves their utility C3 AI CRM does not compete with core CRM systems e g Salesforce rather it provides complementary AI driven insights across revenue operations and intelligence and sales engagement The application solves complex problems across bookings forecasting and opportunity scoring using differentiated capabilities to 1 integrate a comprehensive set of external data feeds market data news firmographic information etc 2 provide industry specific data models 3 apply best in class algorithms on each opportunity and stage and 4 supports generative AI for enterprise search
The C3 AI Financial Services Suite helps minimize compliance risks improve balance attrition increase customer satisfaction reduce customer churn identify fraud and drive employee productivity with workflow enabled AI applications With flexible deployment options across public private cloud or on premise its secure architecture and open ML and AI framework the C3 AI Financial Services Suite is uniquely positioned to drive significant business value for customers
drives productivity and customer satisfaction within the credit application and approval process providing credit officers with contextualized insights that reduce processing timelines and increase approval precision
Generative AI models have attracted significant attention in the last year due to capability improvements published by OpenAI Google Anthropic Meta Mistral and others These transformer based models are proving valuable at parsing understanding and generating natural language images videos and other forms of content C3 AI is in a unique position to apply and augment these technologies to solve enterprise problems at scale
The C3 AI Platform unifies omni modal data text images telemetry structured tables etc and offers all of the platform services necessary and sufficient for enterprise class generative AI applications including the services and pipelines to run train and host and manage transformer AI models or invoke externally managed models and associated retriever models and other agents tools and pipelines
C3 Generative AI is a unified knowledge source that enables enterprise users to rapidly locate retrieve and act on enterprise data and insights through an intuitive search and chat interface By combining state of the art foundational large language models LLMs deep learning retrieval models and the C3 AI Platform C3 Generative AI for Enterprise provides deep domain support for information retrieval and reasoning across disparate datasets to improve decision making
C3 Generative AI is built to support demanding enterprise requirements By separating the LLM from enterprise data and leveraging retriever models together with enterprise class AI agents and tools C3 Generative AI provides deterministic responses with full traceability to the exact source supports granular enterprise access control requirements minimizes the risk of hallucination reduces the risk of LLM caused information leakage and supports multiple LLM foundation models
Customers also can use C3 Generative AI standalone applied to their existing enterprise data sources lakes data warehouses applications and relevant external datasets C3 Generative AI can be extended using the capabilities of the C3 AI Platform to meet complex enterprise requirements allowing for the use of the natural language to perform tasks like invoking external APIs running smaller AI ML models and initiating complex workflows
Streamlined omni modal data integration through a visual administrative interface allowing queries across multiple sources such as Snowflake Oracle Databricks and others and documents in Amazon S3 Google Cloud and others
Historically our market entry strategy has been to establish high value customer engagements with large global early adopters or lighthouse customers in Europe Asia and the United States across a range of industries These lighthouse customers served as proof points for other potential customers in their particular industries We have established intimate strategic relationships with our customers including a number of large multinational corporations and government entities We commonly enter into enterprise wide agreements with entities that include multiple operating units or divisions The core of this strategy has been to rapidly deliver high value outcomes at large scale across multiple industries including banking manufacturing defense oil and gas and utilities We then use these use cases and outcomes to initiate discussions at numerous leading companies in each sector
In the first quarter of fiscal year 2023 we announced our transition to a consumption based pricing model to adapt to more challenging macro economic conditions and better meet the needs of customers This has become common for enterprise software companies and is aligned with the models of some of our biggest partners such as Google Cloud Microsoft Azure Amazon Web Services or AWS and Baker Hughes With the consumption based pricing model 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
We are enabling the digital transformation of many of the world s leading organizations and in the process helping them to attain short time to value and exceptionally high economic returns At some companies based on feedback and other information provided from our customers we estimate our solutions have helped return billions of dollars in economic benefit
The key to our market success and our primary competitive differentiator is our ability to leverage the C3 AI Platform and C3 AI Applications to bring high value Enterprise AI applications into production use rapidly We have deployed Enterprise AI applications into production use in as little as four weeks
Our typical sales cycle begins with one or more product and technical presentations about C3 AI leading to a mapping of our capabilities to customer use cases After mapping our capabilities to customer use cases we typically sign a paid pilot for the C3 AI Platform a C3 AI Application and C3 AI Center of Excellence COE including support services that lasts up to six months During that period we work with the customer to deploy a production level C3 AI Application After completing a successful pilot our customers will commonly continue to license the C3 AI Application and the C3 AI Platform for a consumption based fee or enter into a time certain multi period commitment that may include consumption charges Over time our customers typically expand usage by adding users expanding their use of the initial application to another use cases purchasing additional C3 AI Applications for a subscription fee and by developing their own AI applications on the C3 AI Platform which increases consumption based fees as usage scales Additionally C3 AI can continue to support our customers as needed with our software and COE support services
C3 AI s Enterprise AI expertise and technology combined with our partners deep domain expertise enhances our solutions to joint customers In fiscal year 2024 we made significant progress establishing and extending productive partnerships Our partner ecosystem is increasingly effective at opening new doors with new customers and expanding product offerings with existing customers In fiscal year 2024 we closed 115 agreements with and through our partner network which includes Google Cloud AWS Microsoft Azure Baker Hughes Booz Allen and others
initially partnered in 2021 and we expanded the partnership agreement in September 2022 The three year agreement expands global joint selling activities and provides tighter integrations between C3 AI Applications and Google Cloud services Under the terms of the partnership the two companies are scaling their joint go to market strategy and expanding their joint customer pilot programs with Fortune 2000 companies Through this partnership the team has identified a significant number of opportunities in the commercial and public sectors All C3 AI Applications have been optimized to run in the Google Cloud Platform environment and are available in the Google Cloud Marketplace
In March 2024 C3 Generative AI Standard Edition our no code self service generative AI application became available on Google Cloud Marketplace supporting Google s latest large language model LLM Gemini With a simple self service no code onboarding flow that takes minutes to complete C3 Generative AI Standard Edition allows users to easily access insights from documents and unstructured files across their enterprise
first partnered in 2016 and during the third quarter of fiscal year 2023 we expanded and renewed our go to market partnership In the third quarter of fiscal year 2023 AWS funded C3 AI to enhance C3 AI Law Enforcement optimized for AWS integrating Amazon OpenSearch and AWS ML services to enhance the speed and quality of analysis for state and local agencies using the application on AWS
In November 2023 C3 AI expanded its Strategic Collaboration Agreement with AWS to deliver artificial intelligence solutions designed to solve customers critical business challenges across a variety of industries C3 AI also offers its C3 Generative AI AWS Marketplace Edition its no code self service generative AI application on AWS Marketplace
first partnered in 2018 to co develop products and services for enterprise customers running on the Azure Infrastructure The companies have collaborated to conduct co marketing and co selling strategies that rapidly scale distribution globally for their joint customers In the third quarter of fiscal year 2023 the companies collaborated to close a global U S Energy company and a European technology company serving the construction and mining sectors We cooperated to deliver a highly successful pilot engagement to a large U S Defense Agency All C3 AI Applications are available in the Azure Marketplace
established a strategic partnership in fiscal year 2023 focused on providing strategic solutions into the Government Defense and Intelligence sectors C3 AI and Booz Allen are jointly going to market with the C3 AI Platform and suite of pre built C3 AI Applications Together the companies have trained employees on the C3 AI Platform and have closed multiple deals with the DoD s Chief Digital and Artificial Intelligence Office and other organizations
a leading oilfield industrial services equipment and digital services company entered into a strategic collaboration in June 2019 to operate as the exclusive channel partner and reseller of C3 AI Software in the oil and gas industry and a non exclusive reseller in other industries As part of the original collaboration agreement Baker Hughes made annual revenue commitments of 320 million over three years The agreement was amended in June 2020 to extend the term of the agreement by two years and increase the revenue commitments to 450 million The agreement was amended in October 2021 to extend the term of the agreement by one year and increase the total revenue commitments to 495 million In January 2023 the companies substantially expanded their strategic partnership The terms of this expansion resulted in an incremental C3 AI booking of 32 5 million and the frequency of payments due from Baker Hughes was accelerated over the remaining term of the agreement C3 AI agreed to provide additional products and services to Baker Hughes The expanded agreement also provides Baker Hughes with a number of options to extend the term of the collaboration agreement beyond the initial five years
As a result of our partnership with Baker Hughes joint selling and the credibility it has brought us in the market C3 AI has closed several deals in the oil and gas and Chemical industry including LyondellBasell Shell ExxonMobil Petronas ENI Aramco Qatar Gas ADNOC PTTGC Yokogawa Braskem and others
first partnered in 2019 through the now acquired Neal Analytics and during the second quarter of fiscal year 2023 we significantly expanded our services and go to market partnership The companies have collaborated to support customer service engagements co marketing campaigns and co selling activities Fractal has committed to building a C3 AI practice deployment of C3 trained engineers and data scientists The companies have already collaborated on several successful customer engagements including implementing Advanced Metering Infrastructure AMI at a Fortune 500 Utilities provider
first partnered in 2021 and we expanded the partnership during the third quarter of fiscal year 2024 The companies have collaborated to accelerate the delivery of AI applications for the US Intelligence Community The new agreement expands the number of dedicated Paradyme staff to accelerate joint selling and delivery efforts
Our sales organization is organized both geographically and in vertical market sales units that cooperate to sell to and service customers We have a highly leveraged go to market model comprised of a global field sales force combined with significant alliance partnerships Each of our strategic partners including AWS Baker Hughes Google Cloud and Microsoft has a large installed customer base with strong established relationships and a large global sales force that vastly extends our market coverage We form specific sales targets and goals with each partner enabling us to quickly and efficiently engage in customer accounts
Early on we focused on the oil and gas federal aerospace and defense energy and utilities manufacturing and financial services sectors as those industries were early adopters in Enterprise AI We have since expanded into state and local governments agriculture food processing and consumer packaged goods professional services telecommunications and hospitals and healthcare and are seeing increased industry diversity in our sales pipeline and pilot customer engagements Our goal is to rapidly move down market in the coming years to serve the small and medium business segments of each industry
Our subscription revenue is primarily comprised of software licenses software as a service offerings stand ready COE support services trials and pilots of our C3 AI Applications or Generative AI and consumption based pricing Sales of our software licenses grant our customers the right to use our software either on their own cloud instance or their internal hardware infrastructure over the contractual term We offer a premium stand ready service through our COE Sales of our software as a service offerings include a right to use our software over the contractual term Customers pay a usage based runtime fee for our C3 AI Software for specified levels of capacity 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
Within subscription revenue we include revenue from our consumption based pricing model This model typically begins with a pilot phase which includes unlimited developer access to C3 AI Platform one C3 AI Application or C3 Generative AI and 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 professional services primarily include implementation services training and prioritized engineering services We maintain a professional services organization that offers resources methodologies and experience to help customers develop and deploy enterprise scale AI applications Our services are complemented by those of our partners Our professional services strategy is to quickly train our customers to develop customize and deploy applications independently of us rapidly making them self sufficient
C3 AI Implementation Services help ensure successful customer outcomes throughout the application development and deployment phases including setup and configuration ML model development and tuning and integration of multiple complex source systems
In instances where a large or continuing professional services presence may be desired or necessary we generally rely upon our partner ecosystem to provide those services This enables us to maintain high gross margins and allows us the flexibility to rapidly deploy trained professional services personnel at large scale any place on the planet
Our multichannel marketing function is focused on market education thought leadership account based marketing and demand generation We engage the market through digital print and social media virtual and physical events including C3 Transform our annual international user executive and AI thought leadership conference and other livestreamed events featuring C3 AI customers C3 AI partners and C3 AI experts in AI ML and data science Our Chief Executive Officer Tom Siebel a recognized technology thought leader and author of the 2019
Our strongest asset is unquestionably the human capital that we have been able to attract retain and motivate We have won the Glassdoor Best Place to Work award were named a Battery Ventures Glassdoor Highest Rated Cloud Companies to Work For and are consistently ranked among the best places to work We attract exceptionally talented highly educated experienced motivated employees
Through our C3 AI Management Development Series we train our managers to motivate and lead their teams by setting clear objectives with an outcomes based approach Our C3 AI Leadership Development Program equips aspiring managers with skills for future leadership roles We offer cash incentives to employees who complete professional training and will even pay for employees to earn a master s degree in computer science
Our talent acquisition team engages various constituency groups to recruit qualified under represented minorities women and military veterans to job opportunities We host tech talks and workshops at top universities across the nation with the Women in Computer Science Associations the Society of Women in Engineering the Society of Latinx Engineers and the Society of Black Engineers We joined with BreakLine to help support hiring military veterans Our goal is to find and recruit the best talent in the world
We are dedicated to achieving our mission to accelerate digital transformation of organizations globally by enabling the deployment of Enterprise AI at scale Our people are domain experts in their respective fields We are individuals with exceptional education and professional backgrounds We are uncompromising in the quality of our work product We build relationships with our customers grounded upon the highest levels of business ethics and professionalism with a laser focus on customer success We execute with precision
We believe we are broadly recognized as a leader in Enterprise AI with many other industry recognitions including Fortune 50 AI Innovators 2023 CNBC Disruptor 50 2020 2019 2018 BloombergNEF Pioneer 2020 Forbes Cloud 100 2020 2019 2018 2017 The Financial Times The Americas Fastest Growing Companies 2024 2023 2022 2021 Deloitte Technology Fast 500 2019 and EY Entrepreneur of the Year 2018 2017 and have been named to the Constellation ShortList
for Cloud Based Data Science Machine Learning Platforms 2024 Constellation ShortList for Artificial Intelligence Machine Learning Cloud Platforms 2023 2022 2020 a leader by Forrester Wave AI ML Platforms Q3 2022 and Forrester Wave Industrial IoT Software Platforms 2019 2018 and IDC MarketScape Solutions for Industrial Platforms and Applications in Energy 2021
Georgia Pacific was named the overall winner in the IDC s Future Enterprise Best in Future of Operations North America Awards 2023 for its enterprise AI program to improve reliability for its manufacturing operations Using C3 AI Reliability the paper product producer and manufacturer can predict a failure hours days or even weeks before it happens avoiding unplanned downtime and significant impacts to revenue and customer order delivery
Roche was named the winner in the category of Operational Risk Management in the Verdantix 2023 EHS Innovation Excellence Awards Americas for harnessing AI and machine learning to resolve complex problems resulting in improved safety asset reliability production and cost management
Annual SuperNova Awards 2023 in the category of ESG Sustainability for its work using AI to develop a more efficient strategic ESG stakeholder materiality assessment process Using C3 AI ESG the company was able to design an intelligent ESG assessment process and used the resulting AI analyses to advise the development of a sustainability strategy geared towards catalyzing opportunity and buffering risk by focusing on the areas that matter These insights help the team transition time spent from manually monitoring reams of data sources to driving strategic initiatives that improve ESG performance
The San Mateo County Sheriff s Office was named a winner in the IDC Government Insights sixth annual Smart Cities North America Awards 2023 in the category of data driven policing for implementing C3 AI Law Enforcement for analytics powered public safety
Our core technology is a cohesive family of integrated software services developed over a decade engineered with a proprietary model driven architecture that provides all the software services and microservices necessary and sufficient to rapidly develop and deploy Enterprise AI applications
AI applications developed with the C3 AI Platform can leverage any open source software solutions and all of the cloud services of AWS Microsoft Azure Google Cloud and can operate on any of these cloud platforms on premises or in a hybrid cloud
Compared to the structured programming approach that most organizations typically attempt our model driven architecture with declarative programming accelerates development by a factor of 26 while reducing the amount of code that must be written by up to 99
The big data and application demands of enterprise scale AI applications require numerous underlying interdependent elements These include enterprise data extraprise data sensor data data persistence services data streaming services messaging services analytics services ML services security services data visualization application development services application monitoring services and scores to hundreds more With a traditional structured programming approach developers spend significant time and effort to write extensive code to define manage connect and control each element This often results in overwhelming complexity and highly brittle applications that can break any time an underlying element is changed or updated we believe this is a primary reason why the vast majority of AI efforts have not been deployed into production at enterprise scale
By contrast our model driven architecture provides an abstraction layer that allows our partners and our customers as well as our internal C3 AI developers to build or customize Enterprise AI applications by using conceptual models of all the elements an application requires C3 AI provides a library of tens of thousands of prebuilt conceptual models that can be easily modified and extended and developers can efficiently create their own models as well These prebuilt extensible models encompass a vast range of business objects e g customer order contract physical systems and subsystems e g engine boiler chiller compressor computing resources and services e g database stream processing virtually anything an application requires can be represented as a model in our model driven architecture To ensure ongoing operability of our thousands of prebuilt and extensible models on different underlying infrastructure e g AWS Google Cloud Microsoft Azure our automated testing continuously executes approximately 60 000 tests and security scans with each change or update we make to our software or infrastructure
Leveraging this model driven architecture application developers and data scientists can focus on delivering immediate value without the need to manage the complex interdependencies of the underlying elements These conceptual models can be reused by many applications thereby accelerating development of new applications
We believe our model driven architecture and declarative programming approach provides significant competitive advantage both by enabling our customers and partners to successfully develop and deploy Enterprise AI applications faster and by providing the foundation for C3 AI to rapidly extend our portfolio of cross industry and industry specific applications
We enjoy a rich patent portfolio that is a substantial competitive advantage both offensive and defensive in the Enterprise AI market most notably U S patents No 10 817 530 No 10 824 634 and No 11 954 112 which were granted for systems and methods for data processing and enterprise AI applications
Our patent portfolio covers the key capabilities of our model driven architecture that are the foundation of our highly differentiated technology This includes methods systems and devices for data aggregation and unification times series data processing data abstraction ML implementation generative AI and much more
As of April 30 2024 our technology is protected by a broad patent portfolio with 23 issued patents in the United States 15 issued counterpart patents in a number of international jurisdictions over 45 patent applications pending in the United States and 85 patent applications pending internationally Our issued patents expire beginning in 2033 through 2039 We continually review our development efforts to assess the existence and patentability of new intellectual property
Intellectual property is important to the success of our business We rely on a combination of patent copyright trademark and trade secret laws in the United States and other jurisdictions as well as license agreements confidentiality procedures non disclosure agreements with third parties and other contractual protections to protect our intellectual property rights including our proprietary technology software know how and brand However we believe that factors such as the technological and creative skills of our personnel creation of new services features and functionality and frequent enhancements to our platform are more essential to establishing and maintaining our technology leadership position See the section titled Risk Factors Risks Related to Our Intellectual Property in Part I Item 1A in this Annual Report on Form 10 K for a discussion of the risks associated with our intellectual property
Over the last four decades the information technology industry has grown from about 120 billion globally in 1980 to almost 8 0 trillion today During this time the IT industry has transitioned from mainframe computing to handheld computing The software industry has transitioned from custom applications based on mainframe standards to applications developed on a relational database foundation to enterprise application software to SaaS and mobile apps and now to the AI enabled enterprise
The challenges that must be addressed to enable today s Enterprise AI applications are nontrivial as are the array of capabilities and services necessary for building and operating these applications at scale To develop an effective Enterprise AI application it is necessary to ingest and aggregate data from a variety of enterprise information systems sensors markets and products to provide a complete view of the enterprise In addition the data need to be processed at the rate they arrive in a highly secure and resilient system that addresses persistence event processing ML and visualization This requires a massive horizontally scalable elastic distributed processing capability offered only by modern cloud platforms and supercomputer systems The resultant data persistence requirements are staggering
A prerequisite to AI at industrial scale is the availability of a unified federated image of all the data contained in the multitude of 1 internal data including enterprise information systems e g ERP CRM SCADA HR MRP and sensor IoT networks and 2 external data including weather terrain satellite imagery social media trade data biometrics pricing and market data
The data aggregated and processed includes every type of structured and unstructured data imaginable including personally identifiable information images text video telemetry voice and network topologies As there is no one size fits all database optimized for all these data types there is a need for a multiple database technologies
A myriad of sophisticated platform services are necessary for any Enterprise AI or IoT application Examples include access control data encryption in motion encryption at rest ETL queuing pipeline management autoscaling multitenancy authentication authorization cybersecurity time series services normalization data privacy GDPR privacy compliance NERC CIP compliance and SOC2 compliance
The volumes and velocity of data acquisition in such systems are blinding and the types of data and analytics requirements are highly divergent requiring a range of analytics processing services These include continuous analytics processing MapReduce batch processing stream processing and recursive processing
The whole point of these systems is to enable data scientists to develop and deploy ML models There is a range of tools necessary to enable that including Jupyter Notebooks R Studio Azure ML Amazon Sagemaker and Google Vertex AI Increasingly important is an extensible curation of ML libraries such as PyTorch TensorFlow Keras Hugging Face transformers and XGBoost An effective AI and IoT platform needs to support them all
An organization s IT development and data science teams each have adopted and become comfortable with a set of application development frameworks and user interface development tools An AI and IoT platform must support all of these tools including Visual Studio Jupyter Lab JetBrains IDEs React Angular and VueJS or it will be rejected as unusable by the IT development teams
The current pace of software and algorithm innovation is accelerating An AI and IoT platform architecture must provide the capability to replace any components with next generation improvements in the era of generative AI that means the constant stream of newly released and ever more powerful LLMs Moreover the platform must enable the incorporation of any new open source or proprietary software innovations without adversely affecting the functionality or performance of an organization s existing applications This is a level zero requirement
The C3 AI Platform built with model driven architecture has been refined tested and proven in some of the most demanding industries and production environments from electric utilities and manufacturing to oil and gas and defense comprising petabyte scale datasets from thousands of vastly disparate source systems massive volumes of high frequency time series data from millions of devices and hundreds of thousands of ML models
Today the market is awash in AI solutions that provide component parts to design develop provision and operate Enterprise AI applications including Cassandra Cloudera DataStax AWS IoT and Hadoop AWS Microsoft Azure and Google Cloud each offer an elastic cloud computing platform and an increasingly innovative library of microservices that can be used for data aggregation ETL queuing data streaming MapReduce continuous analytics processing ML services and data visualization An array of open source software offerings cater to data management machine learning services and analytics While these products are useful we believe that none offers the scope of utility necessary and sufficient to rapidly design develop and deploy Enterprise AI applications
Software innovation cycles follow a typical pattern Early in the cycle companies often take a do it yourself approach and try building the new technology themselves Just as happened with the introduction of ERP and CRM software in prior innovation cycles the initial reaction of many IT organizations is to try to internally develop a general purpose Enterprise AI and IoT platform using open source software with a combination of microservices from cloud providers like AWS and Google Cloud
The process starts by taking some subset of myriad proprietary and open source solutions and organizing them into a platform architecture The next step is to assemble hundreds to thousands of programmers frequently distributed around the world using structured programming and application programming interfaces or APIs to attempt to stitch these various programs data sources sensors ML models development tools and user interface paradigms together into a unified functional seamless whole that will enable the organization to excel at designing developing provisioning and deploying numerous enterprise scale AI and IoT applications
Using structured programming the number of software API connections that one needs to establish harden test and verify for a complex system can in our estimation approach the order of 1013 The developers of the system need to individually and collectively grasp that level of complexity to get it to work We believe the number of programmers capable of dealing with that level of complexity is quite small
Aside from the platform developers the application developers and data scientists also need to understand the complexity of the architecture and all the underlying data and process dependencies in order to develop any application
Spaghetti code applications of this nature are highly dependent upon each and every component working properly If one developer introduces a bug into any one of the open source components all applications developed with that platform may cease to function
As new libraries faster databases and new ML techniques become available those new utilities need to be available within the platform Consequently every application that was built on the platform will likely need to be reprogrammed in order to function correctly This may take months to years
An integrated federated common object data model is absolutely necessary for this application domain Using this type of structured programming API driven architecture may require hundreds of person years to develop an integrated data model for any large corporation This is the primary reason why tens to hundreds of millions of dollars are spent and several years later no applications are deployed The Fortune 500 is littered with such disaster stories
century in response to the growing complexity of enterprise application development requirements Although structured programming remains the state of the art for many applications today it breaks down with the complexity and scale required for modern Enterprise AI and IoT applications resulting in a Gordian knot Model driven architecture provides the knife to cut the Gordian knot of structured programming for highly complex problems The C3 AI Platform is designed and built with a model driven architecture
Central to a model driven architecture is the concept of a model that serves as an abstraction layer to simplify the programming problem Using models the programmer or application developer does not have to be concerned with all the data types data interconnections and processes that act on the data associated with any given entity e g customer tractor doctor or fuel type He or she simply needs to address the model for any given entity e g customer and all the underlying data data interrelationships pointers APIs associations connections and processes associated with or used to manipulate those data are abstracted in the model itself
Using the C3 AI Platform and its model driven architecture virtually anything can be represented as a model even for example applications including databases natural language processing engines and image recognition systems Models also support a concept called inheritance An AI application built with the C3 AI Platform might include a model called relational database that in turn serves as a placeholder that might incorporate any relational database system like Oracle Postgres Aurora Spanner or SQL Server A key value store model might contain Cassandra HBase Cosmos DB or DynamoDB
With its model driven architecture the C3 AI Platform provides an abstraction layer and semantics to represent the application This frees the programmer from having to worry about data mapping API syntax and the mechanics of myriad computational processes such as ETL queuing pipeline management encryption etc
The optimal design for an object model to address Enterprise AI and IoT applications uses abstract models as placeholders to which a programmer can link an appropriate application The relational database model might link to Postgres A report writer model might link to MicroStrategy A data visualization model might link to Tableau And so on A powerful feature of a model driven architecture is that as new open source or proprietary solutions become available the object model library can simply be extended to incorporate that new feature
Another important capability of the C3 AI Platform enabled by its model driven architecture is that the applications developed on the platform are future proofed due to the modular nature of the model driven architecture new upgraded or enhanced services can be easily integrated with the C3 AI Platform This enables organizations to immediately and easily take advantage of new and improved product offerings as they become available
Enterprises today often have a multi cloud strategy While corporate leaders are eagerly embracing the cloud they are also very concerned about cloud vendor lock in They want to be able to continually negotiate They want to deploy different applications in clouds from different vendors and they want to be free to move applications from one cloud vendor to another
Multi cloud deployment is therefore an additional requirement of a modern model driven software platform that is fully supported by the C3 AI Platform Applications developed with the C3 AI Platform can run without modification on any cloud and on bare metal behind the firewall in a hybrid cloud environment
A requirement for the new AI technology stack that the C3 AI Platform delivers is polyglot cloud deployment capability the ability to mix various services from multiple cloud providers and to easily swap and replace those services The cloud vendors provide the market a great service by enabling instant access to virtually unlimited horizontally scalable computing capacity and effectively infinite storage capacity at exceptionally low cost As the cloud vendors aggressively compete with one another on price the cost of cloud computing and storage is consistently decreasing
The model driven approach to developing Enterprise AI applications using the C3 AI Platform has been tested and proven in dozens of large scale real world deployments at some of the world s largest organizations
C3 AI provides a powerful platform enabling these and other leading organizations to develop and operate Enterprise AI applications at scale with a fraction of the effort and resources required by other approaches Applications built with the C3 AI Platform are flexible easily upgraded and can be ported across different cloud platforms with little or no modification providing a solution that future proofs customers investment in Enterprise AI and IoT application development
strategic and technology partners who may also offer our competitors technology or otherwise partner with them including our strategic partners who may offer a substantially similar solution based on a competitor s technology or internally developed technology that is competitive with ours
Our primary competition is largely do it yourself custom developed company specific AI platforms and applications developed by internal IT organizations Such efforts usually involve the integration of internally developed tools open source solutions and point solutions offered by independent software vendors and or components offered in the AWS Microsoft Azure or Google Cloud platforms Frequently these efforts will be managed as professional service projects by organizations like Accenture or Lockheed Martin These tend to be very costly and time consuming software engineering projects often fail and if at all successful usually require many years to realize economic return Most of our customers have tried and failed at one or more such bespoke development efforts sometimes at great expense before turning to C3 AI for their AI solution
We are unaware of any end to end Enterprise AI development platforms that are directly competitive with the C3 AI Platform The commercial product offerings that were formerly positioned as functionally equivalent to C3 AI were GE Predix and IBM Watson both multibillion dollar software engineering efforts backed by massive promotional campaigns we no longer encounter them in competitive situations
We are investing in the expansion of our direct enterprise sales and service organization both geographically and across vertical markets to expand the use of C3 AI solutions within existing customers and establish new customer relationships
The consumption based pricing model helps us better meet the needs of our customers by making it easier and less costly to adopt our products and services With the consumption based pricing model customers start with pilots which are subscription for unlimited developers access to the C3 AI Platform one C3 AI Application or C3 Generative AI and COE support services of up to six months After completing a successful pilot our customers may continue to license the C3 AI Application and the C3 AI Platform for a consumption based fee or enter into a time certain multi period commitment that may include consumption charges
After we help our customers solve their initial use cases they frequently identify incremental opportunities within their operations and expand their use of our products The increased engagement is measured by a combination of increased vCPU vGPU usage increased C3 AI Software subscriptions and subscriptions to the C3 AI Platform for in house AI application development
We are focusing on certain markets and verticals that provide us substantial growth opportunities and demand for our products such as the federal defense and aerospace industry and the state and local industry
Our release of the C3 Generative AI solutions in March 2023 is receiving considerable interest and is a key part of our growth strategy We closed 13 agreements for C3 Generative AI in the fourth quarter of fiscal year 2024 with large enterprises and are working through a substantial pipeline of C3 Generative AI opportunities The C3 AI generative application is available on both AWS Marketplace and the Google Cloud Marketplace
We continue to invest heavily in research and development to maintain technology leadership Our product roadmap includes a wide range of new functions and products to be released in the coming years that we expect to contribute to revenue growth with both new and existing customers
Established in February 2020 the C3 ai Digital Transformation Institute or C3 ai DTI is a research consortium dedicated to accelerating the benefits of AI for business government and society The goal of C3 ai DTI is to develop the field of Digital Transformation Science by leveraging laboratory and research facilities at UC Berkeley UIUC and consortium institutions C3 ai DTI forms dynamic teams of the world s best researchers to interact with faculty and students to advance AI techniques for industrial commercial and public sector applications
Specifically C3 ai DTI supports the development of ML algorithms data security and cybersecurity techniques to address and advance solutions related to predictive analytics resilient operation under faults and cyberattack and assured system security C3 ai DTI research is engaged in analyzing new business operation models developing methods for organizational change management developing advanced methods of protecting privacy and advancing dialog related to the ethical implications of AI Central to C3 ai DTI s research is the development and validation of algorithms and designs that can dramatically affect societal systems
In addition to contributing to the public good C3 ai DTI exposes the capabilities of our AI Suite and AI Applications to potentially thousands of researchers undergraduates and graduate students at these world renowned institutions This helps to further build the community of C3 AI users and to establish C3 AI as the standard for developing and deploying large scale Enterprise AI applications to solve the world s hardest problems
Our business activities are subject to various federal state local and foreign laws rules and regulations Compliance with these laws rules and regulations has not had and is not expected to have a material effect on our capital expenditures results of operations and competitive position as compared to prior periods Nevertheless compliance with existing or future governmental regulations including but not limited to those pertaining to global trade consumer and data protection and taxes could have a material impact on our business in subsequent periods For more information on the potential impacts of government regulations affecting our business see the section titled Risk Factors contained in Part I Item 1A of this Annual Report on Form 10 K
Our website address is located at www c3 ai and our investor relations website is located at ir c3 ai We file electronically with the SEC our annual reports on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K and amendments to those reports filed or furnished pursuant to Section 13 a or 15 d of the Exchange Act We make available on our investor relations website free of charge copies of these reports and other information as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC These filings with the SEC are also available on the SEC s website located at www sec gov
We announce material information to the public through a variety of means including filings with the SEC press releases public conference calls our website c3 ai the investor relations section of our website ir c3 ai X formerly Twitter C3_AI and LinkedIn C3 AI Enterprise AI accounts We use these channels to communicate with investors and the public about our company our products and services and other matters Therefore we encourage investors the media and others interested in our company to review the information we make public in these locations as such information could be deemed to be material information Further corporate governance information including our corporate governance guidelines code of business conduct and ethics and committee charters is also available on our investor relations website
The content of or accessible through our websites or our social media channels are not incorporated by reference into this Annual Report on Form 10 K or in any other report or document we file with the SEC and any references to our websites or social media channels are inactive textual references only
You should consider carefully the risks and uncertainties described below together with all of the other information in this Annual Report on Form 10 K including the section titled Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes Our business results of operations financial condition and prospects could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material If any of the risks actually occur our business results of operations financial condition and prospects could be materially and adversely affected Unless otherwise indicated references to our business being harmed in these risk factors will include harm to our business C3 AI Software which includes our C3 AI Platform C3 AI Applications and C3 Generative AI reputation brand financial condition results of operations and prospects In such event the market price of our Class A common stock could decline and you could lose all or part of your investment
We incurred net losses in each period since our founding in 2009 We generated net losses of approximately 279 7 million 268 8 million and 192 1 million for the fiscal years ended April 30 2024 2023 and 2022 respectively As a result we had an accumulated deficit of 1 089 9 million as of April 30 2024 We expect to continue to incur net losses for the foreseeable future These losses and accumulated deficit reflect the substantial investments we made to acquire new customers commercialize our C3 AI Software and continue to develop our C3 AI Software While we have experienced revenue growth in recent periods we do not know whether or when we will generate sufficient revenue to sustain or increase our growth or achieve or maintain profitability in the future We also expect our costs and expenses to increase in future periods which could negatively affect our future results of operations if our revenue does not increase In particular we intend to continue to expend significant funds to further develop our C3 AI Software and business including
investments in our research and development team and in the development of new features and enhancements of our C3 AI Software including the hiring of additional development staff and fees paid to third parties for related enhancements
investments in sales marketing and services including expanding our sales force and our customer service team increasing our customer base increasing market awareness of our C3 AI Software and development of new technologies
We will also face increased compliance costs associated with growth the expansion of our customer base and being a public company Our efforts to grow our business may be costlier than we expect our revenue growth may be slower than we expect and we may not be able to increase our revenue enough to offset our increased operating expenses We may incur significant losses in the future for a number of reasons such as the other risks described herein unforeseen expenses difficulties complications or delays and other unknown events If we are unable to achieve and sustain profitability the value of our business and Class A common stock may significantly decrease
Further in future periods our revenue growth may be adversely impacted due to a number of factors including a reduction in demand for our C3 AI Software reduction in consumption of our C3 AI Software increased competition contraction of our overall market our inability to accurately forecast demand for our C3 AI Software or our failure for any reason to capitalize on growth opportunities We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries such as the risks and uncertainties described herein If our assumptions regarding these risks and uncertainties which we use to plan our business are incorrect or change or if we do not address these risks successfully our business will be harmed
Historically a limited number of customers have accounted for a substantial portion of our revenue If existing customers do not renew their contracts with us or if our relationships with our largest customers are impaired or terminated our revenue could decline and our results of operations would be adversely impacted
Certain of our customers including customers that at the time represented a significant portion of our business have in the past reduced their spend with us or decided to not renew their subscriptions with us which has reduced our anticipated future payments or revenue from these customers It is not possible for us to predict the future level of demand from our larger customers for our C3 AI Software In addition our average total subscription contract value is decreasing and we expect it to continue to decrease as we expand our customer base beyond a small number of large customers to a larger number of smaller customers
Our customers generally have no obligation to renew upgrade or expand their subscriptions with us after the terms of their existing subscriptions expire In addition our customers may opt to decrease their usage of our C3 AI Software As a result we cannot provide assurance that our customers will renew upgrade or expand their subscriptions with us if they renew at all If one or more of our customers elect not to renew their subscriptions with us or if our customers renew their subscriptions with us for shorter time periods or if our customers decrease their usage of our C3 AI Software or if our customers otherwise seek to renegotiate terms of their existing agreements on terms less favorable to us our business and results of operations would be adversely affected This adverse impact would be even more pronounced for customers that represent a material portion of our revenue or business operations
To increase our revenue we must continue to attract new customers Our success will depend to a substantial extent on the widespread adoption of our C3 AI Software Although demand for data management ML analytics and AI platforms and applications has grown in recent years the market for these platforms and applications continues to evolve Numerous factors may impede our ability to add new customers including but not limited to our failure to compete effectively against alternative products or services to attract and effectively train new sales and marketing personnel to develop or expand relationships with partners and resellers to successfully innovate and deploy new applications and other solutions to provide a quality customer experience and customer support or to ensure the effectiveness of our marketing programs If we are not able to attract new customers it will have an adverse effect on our business financial condition and results of operations
In addition our future success depends on our ability to sell additional subscriptions for our C3 AI Software to our existing customers and our customers renewing their subscriptions when the contract term expires Our customers generally have no contractual obligation to renew upgrade or expand their subscriptions after the terms of their existing subscriptions expire Similarly after completing a pilot or trial customers do not have an obligation to continue to license our products and we may not be able to convert pilot or trial customers into customers purchasing ongoing subscriptions or continue with a monthly consumption based fee In addition our customers may opt to decrease their usage of our C3 AI Software Given our limited experience with customer renewals of our AI products and services we may not be able to accurately predict customer renewal rates Our customers renewal and expansion commitments may decline or fluctuate as a result of a number of factors including but not limited to their satisfaction with our C3 AI Software and our customer support the frequency and severity of software and implementation errors or other reliability issues the pricing of our subscriptions or competing solutions changes in their IT budget the effects of global economic conditions and our customers financial circumstances including their ability to maintain or expand their spending levels In order for us to maintain or improve our results of operations it is important that our customers renew or expand their subscriptions with us If our customers do not purchase additional subscriptions increase their usage of our software or renew their subscriptions with us our business financial condition and results of operations may be harmed
We have limited historical experience with supporting or selling to smaller non enterprise customers We intend to grow our customer base and further contribute to our overall growth by introducing product offerings with a lower entry price point such as our no code offering C3 AI Ex Machina However by broadening our customer base to include smaller or mid size customers we will be faced with risks that may not be present or that are present to a lesser extent with respect to sales to large organizations Because of our limited experience in supporting or selling to smaller non enterprise customers we may be unsuccessful in our efforts to get future smaller customers to renew or expand their subscriptions to our offerings If such customers do not renew their agreements or renew on less favorable terms or for less usage our revenue may grow more slowly than expected or decline and our business financial condition and results of operations may be harmed
Achieving renewal or expansion of usage and subscriptions may require us to engage increasingly in sophisticated and costly sales and support efforts that may not result in additional sales In addition the rate at which our customers expand the deployment of our C3 AI Software depends on a number of factors If our efforts to expand our relationships with our customers are not successful our business financial condition and results of operations may be harmed
Because we derive substantially all of our revenue from subscriptions to our C3 AI Software and Center of Excellence support services failure of Enterprise AI solutions in general and our C3 AI Software in particular to satisfy customer demands or to achieve increased market acceptance would adversely affect our business results of operations financial condition and growth prospects
We derive and expect to continue for the foreseeable future to derive substantially all of our revenue from subscriptions to our C3 AI Software and Center of Excellence support services As such the market acceptance of Enterprise AI solutions in general and our C3 AI Software in particular are critical to our continued success Market acceptance of an Enterprise AI solution depends in part on market awareness of the benefits that Enterprise AI can provide over legacy products emerging point products and manual processes In addition in order for cloud based Enterprise AI solutions to be widely accepted organizations must overcome any concerns with placing sensitive information on a cloud based platform Demand for our C3 AI Software in particular is affected by a number of other factors some of which are beyond our control These factors include continued market acceptance of our C3 AI Software the pace at which existing customers realize benefits from the use of our C3 AI Software and decide to expand deployment of our C3 AI Software across their business the timing of development and release of new products by our competitors technological change reliability and security the pace at which enterprises undergo digital transformation and developments in data privacy regulations We expect that the needs of our customers will continue to rapidly change and increase in complexity We will need to improve the functionality and performance of our C3 AI Software continually to meet those rapidly changing complex demands If we are unable to continue to meet customer demands or to achieve more widespread market acceptance of Enterprise AI solutions in general or our C3 AI Software in particular our business operations financial results and growth prospects will be materially and adversely affected
Our current C3 AI Software as well as applications features and functionality that we may introduce in the future may not be widely accepted by our customers may receive negative attention or may require us to compensate or reimburse third parties any of which may lower our margins and harm our business
Our ability to engage retain and increase our base of customers and to increase our revenue will depend on our ability to successfully create new applications features and functionality both independently and together with third parties We may introduce significant changes to our existing C3 AI Software or develop and introduce new and unproven applications including technologies with which we have little or no prior development or operating experience These new applications and updates may fail to engage retain and increase our base of customers or may suffer from lag in adoption New applications may initially suffer from performance and quality issues that may negatively impact our ability to market and sell such applications to new and existing customers The short and long term impact of any major change to our C3 AI Software or the introduction of new applications is particularly difficult to predict If new or enhanced applications fail to engage retain and increase our base of customers we may fail to generate sufficient revenue operating margin or other value to justify our investments in such applications any of which may harm our business
In addition we are required to compensate or reimburse third parties in connection with certain sales of our current C3 AI Software as part of our partner relationships New applications features and functionality that we introduce in the future or new partner relationships may increase the amount of compensation or reimbursement we pay to third parties Any future requirement or increase in the rate that we compensate or reimburse third parties would lower our profit margins and harm our business
The market for our products is intensely competitive and characterized by rapid changes in technology customer requirements and industry standards and frequent new platform and application introductions and improvements We anticipate continued competitive challenges from current competitors who address different aspects of our offerings We also expect competitive challenges from new entrants into the industry If we are unable to anticipate or effectively react to these competitive challenges our competitive position could weaken and we could experience a decline in our growth rate and revenue that could adversely affect our business and results of operations
strategic and technology partners who may also offer our competitors technology or otherwise partner with them including our strategic partners who may offer a substantially similar solution based on a competitor s technology or internally developed technology that is competitive with ours
Some of our larger competitors have substantially broader and more diverse platform and application offerings and may be able to leverage their relationships with distribution partners and customers based on other products or incorporate functionality into existing products to gain business in a manner that discourages potential customers from subscribing to our C3 AI Software including by selling at zero or negative margins bundling with other offerings or offering closed technology platforms Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier regardless of platform or application performance or features As a result even if the features of our C3 AI Software are superior potential customers may not purchase our offerings These larger competitors often have broader product lines and market focus or greater resources and may therefore not be as susceptible to economic downturns or other significant reductions in capital spending by customers If we are unable to sufficiently differentiate our solutions from the integrated or bundled products of our competitors such as by offering enhanced functionality performance or value we may see a decrease in demand for our offerings which could adversely affect our business operating results and financial condition
Moreover new innovative start up companies and larger companies that are making significant investments in research and development may introduce products that have greater performance or functionality are easier to implement or use or incorporate technological advances that we have not yet developed or implemented or may invent similar or superior technologies that compete with ours Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources
Some of our competitors have made or could make acquisitions of businesses that allow them to offer more competitive and comprehensive solutions As a result of such acquisitions our current or potential competitors may be able to accelerate the adoption of new technologies that better address customer needs devote greater resources to bring these platforms and applications to market initiate or withstand substantial price competition or develop and expand their product and service offerings more quickly than we can These competitive pressures in our market or our failure to compete effectively may result in fewer orders reduced revenue and gross margins and loss of market share In addition it is possible that industry consolidation may impact customers perceptions of the viability of smaller or even mid size software firms and consequently customers willingness to purchase from such firms
We may not compete successfully against our current or potential competitors If we are unable to compete successfully or if competing successfully requires us to take costly actions in response to the actions of our competitors our business financial condition and results of operations could be adversely affected In addition companies competing with us may have an entirely different pricing or distribution model Increased competition could result in fewer customer orders price reductions reduced operating margins and loss of market share Further we may be required to make substantial additional investments in research development marketing and sales in order to respond to such competitive threats and we cannot assure you that we will be able to compete successfully in the future
Our results of operations may fluctuate in part because of the complexity of customer problems that our C3 AI Software address the resource intensive nature of our sales efforts the length and variability of the sales cycle for our C3 AI Software and the difficulty in making short term adjustments to our operating expenses The timing of our sales is difficult to predict The length of our sales cycle can vary substantially from customer to customer and can extend over a number of years for some customers Our sales efforts involve educating our customers about the use technical capabilities and benefits of our C3 AI Software Customers often undertake a prolonged evaluation process which frequently involves not only our C3 AI Software but also those of other companies In addition the size of potential customers may lead to longer sales cycles For instance we invest resources into sales to large organizations and large organizations typically undertake a significant evaluation and negotiation process due to their leverage size organizational structure and approval requirements all of which can lengthen our sales cycle We may also face unexpected deployment challenges with large organizations or more complicated deployment of our C3 AI Software Large organizations may demand additional features support services and pricing concessions or require additional security management or control features Some organizations may also require an on premise solution rather than a cloud solution which potentially requires additional implementation time and potentially a longer sales cycle We may spend substantial time effort and money on sales efforts to large organizations without any assurance that our efforts will produce any sales or that these customers will deploy our C3 AI Software widely enough across their organization to justify our substantial upfront investment As a result it is difficult to predict exactly when or even if we will make a sale to a potential customer or if we can increase sales to our existing customers
Individual sales have historically and may in the future represent a large proportion of our overall sales during any given period which impacts our ability to plan and manage cash flows and margins These large individual sales have in some cases occurred in quarters or years subsequent to those we anticipated or have not occurred at all If our sales cycle lengthens or our substantial upfront investments do not result in sufficient revenue to justify our investments our operating results could be adversely affected In addition within each quarter or year it is difficult to project when a deal will close Therefore it is difficult to determine whether we are achieving our quarterly or annual expectations until near the end of the applicable quarter or year Most of our expenses are relatively fixed or require time to adjust Therefore if expectations for our business are not accurate we may not be able to adjust our cost structure on a timely basis and our margins and cash flows may differ from expectations
Other subscription based software companies often report on metrics such as net dollar based revenue retention rate annual recurring revenue or other revenue metrics and investors and analysts sometimes look to these metrics as indicators of business activity in a period for businesses such as ours However due to our dependence on a small number of high value customer contracts these metrics are not accurate indicators of future revenue for any given period of time because the gain or loss of even a single high value customer contract could cause significant volatility in these metrics If investors and analysts view our business through these metrics the trading price of our Class A common stock may be adversely affected
As the markets for our subscriptions grow as new competitors introduce new products or services that compete with ours or as we enter into new international markets we may be unable to attract new customers at the same price or based on the same pricing model as we have historically used Regardless of pricing model used large customers may demand higher price discounts than in the past Our competitors may also introduce new products that compete with ours or reduce their prices or we may be unable to attract new customers or retain existing customers based on our historical subscription and pricing models As a result we may be required to reduce our prices offer shorter contract durations or offer alternative pricing models any of which could adversely affect our business
We have limited experience with respect to determining the optimal prices for subscriptions for our C3 AI Software In the past we have been able to increase our prices for our C3 AI Software but we may choose not to introduce or be unsuccessful in implementing future price increases or changes in our pricing models In the second quarter of fiscal year 2023 we announced a change to our go to market strategy This change includes a way for new customers to utilize our products at a smaller initial contract size and pay for services based on their monthly consumption of vCPU hours rather than payment pursuant to a purely subscription based payment option Unlike customers utilizing our subscription based option in which revenue is recognized ratably over the term of the subscription for customers utilizing our new consumption based payment option we will recognize revenue on consumption Because such customers will have flexibility in the timing of their consumption we do not have the same visibility into the timing of revenue recognition for such customers that we have with our subscription based customers There is a risk that customers using the consumption based option will consume our platform more slowly than we expect and our actual results may differ from our forecasts This risk may increase as more customers move to the consumption based model Further investors and securities analysts may not understand how our consumption based option differs from our subscription based option or the intersection of our consumption based option and our subscription based option If our results of operations fall below the expectations of investors and securities analysts who follow our stock the price of our Class A common stock could decline substantially and we could face costly lawsuits including securities class actions
Given our limited experience with our current pricing models we may not be able to accurately predict customer renewal or retention rates As a result we may be required or choose to reduce our prices or change our pricing model which could harm our business results of operations and financial condition
Our revenue growth depends in part on the success of our strategic relationships with third parties including channel partners and if we are unable to establish and maintain successful relationships with them our business operating results and financial condition could be adversely affected
We seek to grow our partner ecosystem as a way to grow our business We anticipate that we will continue to establish and maintain relationships with third parties such as channel partners resellers OEMs system integrators independent software and hardware vendors and platform and cloud service providers For example in June 2019 we entered into a strategic collaboration with Baker Hughes whereby Baker Hughes operates as the exclusive channel partner and reseller of our C3 AI Software in the oil and gas industry and a non exclusive reseller in other industries This arrangement was most recently revised in January 2023 and continues until April 30 2025 with options to renew We also have strategic relationships with AWS FIS Google Cloud Microsoft and Raytheon
We plan to continue to establish and maintain similar strategic relationships in certain industry verticals and otherwise and we expect our channel partners to become an increasingly important aspect of our business However these strategic relationships could limit our ability in the future to compete in certain industry verticals and depending on the success of our third party partners and the industries that those partners operate in generally may negatively impact our business because of the nature of strategic alliances exclusivity provisions or otherwise We work closely with select vendors to design solutions to specifically address the needs of certain industry verticals or use cases within those verticals As our agreements with strategic partners terminate or expire we may be unable to renew or replace these agreements on comparable terms or at all
Our future growth in revenue and ability to achieve and sustain profitability depends in part on our ability to identify establish and retain successful strategic partner relationships in the United States and internationally which will take significant time and resources and involve significant risk To the extent we do identify such partners we will need to negotiate the terms of a commercial agreement with them under which the partner would distribute our C3 AI Software We cannot be certain that we will be able to negotiate commercially attractive terms with any strategic partner if at all In addition all channel partners must be trained to distribute our C3 AI Software In order to develop and expand our distribution channel we must develop and improve our processes for channel partner introduction and training If we do not succeed in identifying suitable strategic partners or maintain our relationships with such partners our business operating results and financial condition may be adversely affected
Moreover we cannot guarantee that the partners with whom we have strategic relationships will continue to devote the resources necessary to expand our reach and increase our distribution In addition customer satisfaction with services and other support from our strategic partners may be less than anticipated negatively impacting anticipated revenue growth and results of operations We cannot be certain that these partners will prioritize or provide adequate resources to selling our C3 AI Software Further some of our strategic partners offer competing platforms and applications or also work with our competitors As a result of these factors many of the companies with whom we have strategic alliances may choose to pursue alternative technologies and develop alternative platforms and applications in addition to or in lieu of our C3 AI Software either on their own or in collaboration with others including our competitors We cannot assure you that our strategic partners will continue to cooperate with us In addition actions taken or omitted to be taken by such parties may adversely affect us Moreover we rely on our channel partners to operate in accordance with the terms of their contractual agreements with us For example our agreements with our channel partners limit the terms and conditions pursuant to which they are authorized to resell or distribute our C3 AI Software and offer technical support and related services If we are unsuccessful in establishing or maintaining our relationships with third parties or if our strategic partners do not comply with their contractual obligations to us our business operating results and financial condition may be adversely affected Even if we are successful in establishing and maintaining these relationships with third parties we cannot assure you that these relationships will result in increased customer usage of our C3 AI Software or increased revenue to us
In addition some of our sales to government entities have been made and in the future may be made indirectly through our channel partners Government entities may have statutory contractual or other legal rights to terminate contracts with our channel partners for convenience or due to a default and in the future if the portion of government contracts that are subject to renegotiation or termination at the election of the government entity are material any such termination or renegotiation may adversely impact our future operating results In the event of such termination it may be difficult for us to arrange for another channel partner to sell our C3 AI Software to these government entities in a timely manner and we could lose sales opportunities during the transition Government entities routinely investigate and audit government contractors administrative processes and any unfavorable audit could result in the government entity refusing to renew its subscription to our C3 AI Software a reduction of revenue or fines or civil or criminal liability if the audit uncovers improper or illegal activities
It is difficult to predict customer adoption rates and demand for our C3 AI Software the entry of competitive platforms or the future growth rate and size of the cloud based software and software as a service or SaaS business software markets A substantial majority of our revenue has come from sales of our subscription based software products which we expect to continue for the foreseeable future Although demand for data management ML and analytics platforms and applications has grown in recent years the market for these platforms and applications continues to evolve We cannot be sure that this market will continue to grow or even if it does grow that businesses will adopt our C3 AI Software Our future success will depend in large part on our ability to further penetrate the existing market for Enterprise AI software as well as the continued growth and expansion of what we believe to be an emerging market for Enterprise AI platforms and applications that are faster easier to adopt and easier to use Our ability to further penetrate the Enterprise AI market depends on a number of factors including the cost performance and perceived value associated with our C3 AI Software as well as customers willingness to adopt a different approach to data analysis We have spent and intend to keep spending considerable resources to educate potential customers about digital transformation AI and ML in general and our C3 AI Software in particular However we cannot be sure that these expenditures will help our C3 AI Software achieve any additional market acceptance Furthermore potential customers may have made significant investments in legacy analytics software systems and may be unwilling to invest in new platforms and applications If the market fails to grow or grows more slowly than we currently expect or businesses fail to adopt our C3 AI Software our business operating results and financial condition could be adversely affected
The market for our C3 AI Software is characterized by rapid technological change and frequent new platform and application introductions and enhancements changing customer demands and evolving industry standards The introduction of platforms and applications embodying new technologies can quickly make existing platforms and applications obsolete and unmarketable Data management ML and analytics platforms and applications are inherently complex and it can take a long time and require significant research and development expenditures to develop and test new or enhanced platforms and applications The success of any enhancements or improvements to our existing C3 AI Software or any new applications depends on several factors including timely completion competitive pricing adequate quality testing integration with existing technologies and overall market acceptance
Our ability to grow our customer base and generate revenue from customers will depend heavily on our ability to enhance and improve our C3 AI Software to develop additional functionality and use cases introduce new features and applications and interoperate across an increasing range of devices operating systems and third party applications Our customers may require features and capabilities that our current C3 AI Software does not have or may face use cases that our current C3 AI Software does not address We invest significantly in research and development and our goal is to focus our spending on measures that improve quality and ease of adoption and create organic customer demand for our C3 AI Software When we develop a new enhancement or improvement to our C3 AI Software we typically incur expenses and expend resources upfront to develop market and promote the new enhancement and improvement Therefore when we develop and introduce new enhancements and improvements to our C3 AI Software they must achieve high levels of market acceptance in order to justify the amount of our investment in developing and bringing them to market There is no assurance that our enhancements to our C3 AI Software or our new application experiences functionality use cases features or capabilities will be compelling to our customers or gain market acceptance If our research and development investments do not accurately anticipate customer demand or if we fail to develop our C3 AI Software in a manner that satisfies customer preferences in a secure timely and cost effective manner we may fail to retain our existing customers or increase demand for our C3 AI Software
Moreover even if we introduce new capabilities in our C3 AI Software we may experience a decline in revenue from sales of our existing C3 AI Software that is not offset by revenue from the new C3 AI Software capabilities and applications For example customers may delay ordering subscriptions of new C3 AI Software capabilities or applications to permit them to make a more thorough evaluation of the C3 AI Software or until industry and marketplace reviews become widely available Some customers may hesitate to migrate to new C3 AI Software due to concerns regarding the complexity of migration and suite or application infancy issues on performance In addition we may lose existing customers who choose a competitor s AI platforms and applications rather than migrate to our new C3 AI Software capabilities and applications This could result in a temporary or permanent revenue shortfall and adversely affect our business
Any failure of our C3 AI Software to operate effectively with future infrastructure platforms and technologies could reduce the demand for our C3 AI Software If we are unable to respond to these changes in a timely and cost effective manner our C3 AI Software may become less marketable less competitive or obsolete and our business may be adversely affected
The introduction of new AI platforms and applications by competitors or the development of entirely new technologies to replace existing offerings could make our C3 AI Software obsolete or adversely affect our business results of operations and financial condition We may experience difficulties with software development design or marketing that could delay or prevent our development introduction or implementation of new C3 AI Software experiences features or capabilities We have in the past experienced delays in our internally planned release dates of new features and capabilities and there can be no assurance that new C3 AI Software features or capabilities will be released according to schedule Any delays could result in adverse publicity loss of revenue or market acceptance or claims by customers brought against us all of which could harm our business Moreover new productivity features for our C3 AI Software may require substantial investment and we have no assurance that such investments will be successful If customers do not widely adopt our new C3 AI Software features and capabilities we may not be able to realize a return on our investment If we are unable to develop license or acquire new features and capabilities to our C3 AI Software on a timely and cost effective basis or if such enhancements do not achieve market acceptance our business could be harmed
Our success depends in a large part upon the continued service of key members of our senior management team In particular our founder and CEO Thomas M Siebel is critical to our overall management sales strategy culture strategic direction engineering and operations In addition Mr Siebel is a recognized leader in information technology and is critical to the continued development of our C3 AI Software All of our executive officers are at will employees and we do not maintain any key person life insurance policies The loss of any member of our senior management team could make it more difficult to execute our business strategy and therefore harm our business
Our ability to expand our customer base and achieve broader market acceptance of our C3 AI Software depends to a significant extent on our ability to continue to expand our marketing and sales operations and the ultimate effectiveness of those operations We plan to continue expanding our sales force and strategic partners both domestically and internationally
Identifying and recruiting qualified sales representatives and training them is time consuming and resource intensive and they may not be fully trained and productive for a significant amount of time Our C3 AI Software is complicated and as such our sales force and operations require significant time and investment for proper recruitment onboarding and training in order for our sales operations to be productive In addition as we enter into new markets expand the capabilities of our C3 AI Software and offer new C3 AI Software we may need to identify and recruit additional sales and marketing efforts specific to such strategic expansion Our efforts to do so may be increasingly resource intensive time consuming and ultimately unsuccessful We also dedicate significant resources to sales and marketing programs including internet and other online advertising As more customers take advantage of our consumption based pricing options once a new customer begins using our C3 AI Software our sales team will need to continue to focus on expanding consumption with that customer All of these efforts require us to invest significant financial and other resources In addition the cost to acquire customers is high due to these marketing and sales efforts Our business will be harmed if our efforts do not generate a correspondingly significant increase in revenue We will not achieve anticipated revenue growth from expanding our sales force if we are unable to hire develop and retain talented sales personnel if our new sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if our sales and marketing programs are not effective
In addition our business would be adversely affected if our marketing and sales efforts are not successful and generate increases in revenue that are smaller than anticipated If our marketing and sales efforts are not effective our sales and revenue may grow more slowly than expected or materially decline and our business may be significantly harmed
We believe that developing maintaining and enhancing awareness and integrity of our brand and reputation in a cost effective manner are important to achieving widespread acceptance of our C3 AI Software and are important elements in attracting new customers and maintaining existing customers We believe that the importance of our brand and reputation will increase as competition in our market further intensifies Successful promotion of our brand depends on the effectiveness of our marketing efforts our ability to provide a reliable and useful C3 AI Software at competitive prices the perceived value of our C3 AI Software our ability to maintain our customers trust our ability to continue to develop additional functionality and use cases and our ability to differentiate our C3 AI Software and capabilities from competitive offerings Brand promotion activities may not yield increased revenue and even if they do the increased revenue may not offset the expenses we incur in building and maintaining our brand and reputation We also rely on our customer base in a variety of ways including to give us feedback on our C3 AI Software If we fail to promote and maintain our brand successfully or to maintain loyalty among our customers or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand we may fail to attract new customers and partners or retain our existing customers and partners and our business and financial condition may be adversely affected Any negative publicity relating to our employees partners or others associated with these parties may also tarnish our own reputation simply by association and may reduce the value of our brand Damage to our brand and reputation may result in reduced demand for our C3 AI Software and increased risk of losing market share to our competitors Any efforts to restore the value of our brand and rebuild our reputation may be costly and may not be successful
Since our founding in 2009 we have experienced rapid growth The growth and expansion of our business places a continuous and significant strain on our management operational and financial resources Further growth of our operations to support our customer base our expanding third party relationships our information technology systems and our internal controls and procedures may not be adequate to support our operations Managing our growth will also require significant expenditures and allocation of valuable management resources including the challenges of integrating developing and motivating a rapidly growing employee base in various countries around the world Certain members of our management have not previously worked together for an extended period of time and some do not have experience managing a public company which may affect how they manage our growth
In addition our rapid growth may make it difficult to evaluate our future prospects Our ability to forecast our future results of operations is subject to a number of uncertainties including our ability to effectively plan for and model future growth We have encountered in the past and may encounter in the future risks and uncertainties frequently experienced by growing companies in rapidly changing industries If we fail to achieve the necessary level of efficiency in our organization as it grows or if we are not able to accurately forecast future growth our business would be harmed
If we are unable to ensure that our C3 AI Software interoperates with a variety of software applications that are developed by others including our partners we may become less competitive and our business may be harmed
Our C3 AI Software must integrate with a variety of hardware and software platforms and we need to continuously modify and enhance our C3 AI Software to adapt to changes in hardware and software technologies In particular we have developed our C3 AI Software to be able to easily integrate with key third party applications including the applications of software providers that compete with us as well as our partners We are typically subject to standard terms and conditions of such providers which govern the distribution operation and fees of such software systems and which are subject to change by such providers from time to time Our business will be harmed if any provider of such software systems
Third party services and products are constantly evolving and we may not be able to modify our C3 AI Software to assure their compatibility with that of other third parties as they continue to develop or emerge in the future or we may not be able to make such modifications in a timely and cost effective manner In addition some of our competitors may be able to disrupt the operations or compatibility of our C3 AI Software with their products or services or exert strong business influence on our ability to and terms on which we operate our C3 AI Software Should any of our competitors modify their products or standards in a manner that degrades the functionality of our C3 AI Software or gives preferential treatment to our competitors or competitive products whether to enhance their competitive position or for any other reason the interoperability of our C3 AI Software with these products could decrease and our business results of operations and financial condition would be harmed If we are not permitted or able to integrate with these and other third party applications in the future our business results of operations and financial condition would be harmed
The technology underlying our C3 AI Software is inherently complex and may contain material defects or errors particularly when new applications are first introduced when new features or capabilities are released or when integrated with new or updated third party hardware or software There can be no assurance that our existing C3 AI Software and new applications will not contain defects or errors Any real or perceived errors failures vulnerabilities or bugs in our C3 AI Software could result in negative publicity or lead to data security access retention or other performance issues all of which could harm our business Correcting such defects or errors may be costly and time consuming and could harm our business Moreover the harm to our reputation and legal liability related to such defects or errors may be substantial and would harm our business
To execute our business strategy we must attract and retain highly qualified personnel Competition for executives data scientists engineers software developers sales personnel and other key employees in our industry is intense In particular we compete with many other companies for employees with high levels of expertise in designing developing and managing platforms and applications for data management ML and analytics technologies as well as for skilled data scientists sales and operations professionals In addition we are extremely selective in our hiring process which requires significant investment of time and resources from internal stakeholders and management At times we have experienced and we may continue to experience difficulty in hiring personnel who meet the demands of our selection process and with appropriate qualifications experience or expertise and we may not be able to fill positions as quickly as desired We completed our initial public offering in December 2020 and potential candidates may not perceive our compensation package including our equity awards as favorably as employees hired prior to our initial public offering In addition our recruiting personnel methodology and approach may need to be altered to address a changing candidate pool and profile We may not be able to identify or implement such changes in a timely manner
Many of the companies with which we compete for experienced personnel have greater resources than we have and some of these companies may offer more attractive compensation packages If the perceived value of our equity awards declines or if the mix of equity and cash compensation that we offer is unattractive it may adversely affect our ability to recruit and retain highly skilled employees Job candidates may also be threatened with legal action under agreements with their existing employers if we attempt to hire them which could impact hiring and result in a diversion of our time and resources Additionally laws and regulations such as restrictive immigration laws or export control laws may limit our ability to recruit internationally We must also continue to retain and motivate existing employees through our compensation practices company culture and career development opportunities
We believe that a critical component to our success and our ability to retain our best people is our culture As we continue to grow and develop a public company infrastructure we may find it difficult to maintain our company culture
In addition many of our employees may be able to receive significant proceeds from sales of our equity in the public markets which may reduce their motivation to continue to work for us Moreover the proceeds from our recent initial public offering could create disparities in wealth among our employees which may harm our culture and relations among employees and our business
Our annual and quarterly results of operations and key metrics may vary significantly in the future as they have in the past particularly in light of our dependence on a limited number of high value customer contracts and period to period comparisons of our results of operations and key metrics may not be meaningful Accordingly the results of any one year or quarter should not be relied upon as an indication of future performance Our results of operations and key metrics may fluctuate as a result of a variety of factors many of which are outside of our control and as a result may not fully reflect the underlying performance of our business Fluctuation in our annual or quarterly results may negatively impact the value of our securities Factors that may cause fluctuations in our annual or quarterly results of operations and key metrics include without limitation the risk factors listed elsewhere in this section and the factors listed below
our ability to develop and retain talented sales personnel who are able to achieve desired productivity levels in a reasonable period of time and provide sales leadership in areas in which we are expanding our sales and marketing efforts
Our performance metrics data regarding customer engagement and certain other operational data in this report are subject to assumptions and limitations and may not provide an accurate indication of our future or expected results
Our performance metrics including data regarding customer engagement and other operational data may involve judgment and therefore may not reflect our actual performance and investors should consider these metrics in light of the assumptions used in calculating such metrics and limitations as a result thereof Our methodologies for tracking these metrics may change over time which could result in unexpected changes to our metrics including the metrics we report In addition investors should not place undue reliance on these metrics as an indicator of our future or expected results Moreover these metrics may differ from similarly titled metrics presented by other companies and may not be comparable to such other metrics We regularly review and may adjust our processes for calculating our metrics to improve their accuracy If our metrics are not accurate representations of our business if we discover material inaccuracies in our metrics or if the metrics we rely on to track our performance do not provide an accurate measurement of our business our reputation may be harmed we may be subject to legal or regulatory actions and our operating and financial results could be adversely affected
We generally recognize revenue from subscriptions to our C3 AI Software over the terms of such subscriptions Consequently increases or decreases in new sales may not be immediately reflected in our results of operations and may be difficult to discern
We generally recognize revenue from subscriptions to our C3 AI Software over the terms of these subscriptions As a result a portion of the revenue we report in each year and each quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during prior periods Consequently a decline in new or renewed subscriptions in any single year or quarter may only have a small impact on the revenue that we recognize for that period However such a decline will negatively affect our revenue in future periods Accordingly the effect of significant downturns in sales and potential changes in our pricing policies or rate of customer expansion or retention may not be fully reflected in our results of operations until future periods In addition a significant portion of our costs are expensed as incurred As a result growth in the number of new customers could continue to result in our recognition of higher costs and lower revenue in the earlier periods of our subscriptions Finally our subscription based revenue model also makes it difficult for us to rapidly increase our revenue through additional subscription sales in any period as revenue from new customers or from existing customers that increase their use of our C3 AI Software must be recognized over the applicable subscription term These risks are further exacerbated by our dependence on high value customer contracts
Once our C3 AI Software is deployed our customers depend on our maintenance and support teams to resolve technical and operational issues and provide critical updates relating to our C3 AI Software Our ability to provide effective customer maintenance and support is largely dependent on our ability to attract train and retain qualified personnel with experience in supporting customers with software such as ours and maintaining the same The number of our customers has grown significantly and that has and will continue to put additional pressure on our customer maintenance and support teams We may be unable to respond quickly enough to accommodate short term increases in customer demand for technical support We also may be unable to modify the scope and delivery of our maintenance services and technical support to compete with changes in the technical services provided by our competitors Increased customer demand for maintenance and support services without corresponding revenue could increase costs and negatively affect our operating results In addition if we experience increased customer demand for support and maintenance we may face increased costs that may harm our results of operations Further as we continue to grow our operations and support our global customer base we need to be able to continue to provide efficient support and effective maintenance that meets our customers needs globally If we are unable to provide efficient customer maintenance and support globally or if we need to hire additional maintenance and support personnel our business may be harmed Our ability to attract new customers is highly dependent on our business reputation and on positive recommendations from our existing customers Any failure to maintain high quality maintenance and support services a failure of channel parties to maintain high quality maintenance and support services or a market perception that we do not maintain high quality maintenance and support services for our customers would harm our business
Global economic and business activities continue to face widespread macroeconomic uncertainties including labor shortages and supply chain disruptions inflation interest rate fluctuations bank failures and monetary supply shifts as well as recession risks which may continue for an extended period and which could result in our customer prospects and our existing customers experiencing slowdowns in their businesses which in turn may result in reduced demand for our C3 AI Software lengthening of sales cycles loss of customers and difficulties in collections Our vendors and suppliers may experience or may continue to experience disruptions in their supply chains which may result in service interruptions or additional operating expenses and may increase the price at which our vendors and suppliers are willing to sell their products to us
To the extent macroeconomic uncertainties continue to adversely affect our business financial condition and results of operations many of the other risks described in this Risk Factors section could be exacerbated including but not limited to those related to our ability to increase sales to existing and new customers develop and deploy new offerings and applications and maintain effective marketing and sales capabilities
We and the third parties with whom we work are subject to stringent and evolving U S and foreign laws regulations and rules contractual obligations industry standards policies self regulatory schemes standards and other obligations related to data privacy and security Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions litigation including class claims and mass arbitration demands fines and penalties disruptions of our business operations reputational harm loss of revenue or profits loss of customers or sales and other adverse business consequences
We collect receive store process generate use transfer disclose make accessible protect secure dispose of transmit and share collectively Process personal data and other sensitive information including proprietary and confidential business data trade secrets intellectual property sensitive third party data protected health information and financial data Our data processing activities subject us to numerous data privacy and security obligations such as various laws regulations guidance industry standards external and internal privacy and security policies contractual requirements and other obligations that govern the processing of personal data by us and on our behalf
In the United States federal state and local governments have enacted numerous data privacy and security laws including data breach notification laws personal data privacy laws consumer protection laws e g Section 5 of the Federal Trade Commission Act and other similar laws e g wiretapping laws For example the federal Health Insurance Portability and Accountability Act of 1996 or HIPAA as amended by the Health Information Technology for Economic and Clinical Health Act or HITECH imposes specific requirements relating to the privacy security and transmission of individually identifiable health information In the past few years numerous U S states including California Virginia Colorado Connecticut and Utah have enacted comprehensive privacy laws that impose certain obligations on covered businesses including providing specific disclosures in privacy notices and affording residents with certain rights concerning their personal data As applicable such rights may include the right to access correct or delete certain personal data and to opt out of certain data processing activities such as targeted advertising profiling and automated decision making The exercise of these rights may impact our business and ability to provide our products and services Certain states also impose strict requirements for processing certain personal data including sensitive information such as conducting data privacy impact assessments These state laws allow for statutory fines for noncompliance For example the California Consumer Privacy Act of 2018 CCPA applies to personal data of consumers business representatives and employees who are California residents and imposes obligations on covered businesses including but not limited to providing specific disclosures in privacy notices and honoring requests of such individuals to exercise certain privacy rights related to their personal data The CCPA provides for statutory fines for noncompliance up to 7 500 per intentional violation and allows private litigants affected by certain data breaches to recover significant statutory damages Similar laws are being considered in several other states and at the federal level and local levels and we expect more states to pass similar laws in the future reflecting a trend toward more stringent privacy legislation in the United States These new laws could further complicate compliance efforts and increase legal risk and compliance costs for us the third parties with whom we work and our customers
Outside the United States an increasing number of laws regulations and industry standards apply to data privacy and security In Canada the Personal Information Protection and Electronic Documents Act or PIPEDA and various related provincial laws as well as Canada s Anti Spam Legislation or CASL may apply to our operations We also target customers in Asia and have operations in Japan and Singapore and may be subject to new and emerging data privacy regimes in Asia including Singapore s Personal Data Protection Act In the European Economic Area or EEA we are subject to the European General Data Protection Regulation or GDPR and in the United Kingdom or UK we are subject to the UK data protection regime or UK GDPR EU GDPR and UK GDPR collectively GDPR Companies that must comply with the GDPR face increased compliance obligations and risk including more robust regulatory enforcement of data protection requirements with violations potentially resulting in an order prohibiting the processing of personal data and or fines of up to the greater of 20 million or 4 of the annual global
revenues of the noncompliant company in the European Union and up to the greater of GBP 17 5 million or 4 of the annual global revenues in the UK or private litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests
In the ordinary course of business we may transfer personal data from Europe and other jurisdictions to the United States or other countries European and other data protection laws including the GDPR also restrict the ability of companies to transfer personal data to the United States and other countries Although there are currently various mechanisms that may be used to transfer personal data from the EEA and the UK to the United States in compliance with law such as the EEA s standard contractual clauses the UK s International Data Transfer Agreement Addendum and the Transatlantic Privacy Framework which allows for transfers to relevant U S based organizations who self certify compliance and participate in the Framework these mechanisms are subject to legal challenges and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States It is unclear how data transfers from countries such as the EEA and UK to the United States will be regulated in the long term which measures must be put in place for onward transfers and whether or not the Transatlantic Data Privacy Framework will provide a long term solution to managing flows of personal data from the EEA and the UK to the United States
As such we or our vendors may be unable to implement measures sufficient to lawfully transfer personal data in a manner necessary to provide our services in certain regions without incurring significant cost or at all If we cannot implement a valid compliance mechanism for cross border data transfers we may face significant adverse consequences including the interruption or degradation of our operations increased exposure to regulatory actions substantial fines and penalties and injunctions against processing or transferring personal data from Europe or other foreign jurisdictions The inability to import personal data to the United States could significantly and negatively impact our business operations including by limiting our ability to collaborate with parties that are subject to such cross border data transfer or localization laws or requiring us to increase our personal data processing capabilities and infrastructure in foreign jurisdictions at significant expense Additionally companies that transfer personal data outside of the EEA and UK to other jurisdictions particularly the United States are subject to increased scrutiny from regulators individual litigants and activist groups Some European regulators have significantly restricted some companies data processing activities including ordering certain companies to suspend or permanently cease the transfer of certain personal data out of Europe for allegedly violating the GDPR s cross border data transfer limitations which has materially impacted companies operations revenues For example in May 2023 the Irish Data Protection Commission determined that a major social media company s use of the standard contractual clauses to transfer personal data from Europe to the United States was insufficient and levied a 1 2 billion Euro fine against the company and prohibited the company from transferring personal data to the United States The United States is also increasingly scrutinizing certain data transfers and may also impose certain data localization requirements particularly if we transfer personal data to or process personal data of residents of high risk or sanctioned jurisdictions
Other data protection laws in the EEA and the UK such as those implementing the ePrivacy Directive restrict the use of cookies and similar technologies on which our website and product rely Regulators are increasingly focused on compliance with requirements in the online tracking ecosystem and current national laws implementing the ePrivacy Directive are likely to be replaced in the EU by a regulation known as the ePrivacy Regulation which will significantly increase fines for non compliance Other countries outside of Europe increasingly emulate European data protection laws As a result operating our business or offering our services in Europe or other countries with similar data protection laws would subject us to substantial compliance costs and potential liability and may require changes to the ways we collect and use personal data We may also become subject to new laws that regulate non personal data For example the European Union s Data Act imposes certain data and cloud service interoperability and switching obligations to enable users to switch between cloud service providers without undue delay or cost as well as certain requirements concerning cross border international transfers of and governmental access to non personal data outside the EEA Depending on how this Act and any similar laws are implemented and interpreted we may have to adapt our business practices contractual arrangements and C3 AI Software to comply with such obligations
In addition to data privacy and security laws we are also subject to the terms of external and internal privacy and security policies codes representations certifications industry standards adopted by industry groups publications and frameworks contractual obligations to third parties and other statements related to privacy information security and data processing If these policies materials or statements are found to be deficient lacking in transparency deceptive unfair or misrepresentative of our practices we may be subject to investigation enforcement actions by regulators or other adverse consequences We are subject to contractual obligations to indemnify and hold harmless third parties from the costs or consequences of non compliance with data protection laws or other obligations We are also bound by contractual obligations related to data privacy and security and our efforts to comply with such obligations may not be successful For example certain privacy laws such as the GDPR and the CCPA require our customers to impose specific contractual restrictions on their service providers
Our use of artificial intelligence or AI and machine learning or ML technologies collectively AI ML technologies may also subject us to certain privacy obligations There is increasing U S and foreign activity in the regulation of AI and other similar uses of technology In Europe there is a proposed regulation related to AI that if adopted could impose onerous obligations related to the use of AI related systems We expect other jurisdictions will adopt similar laws In the United States several states and localities have enacted measures related to the use of AI and ML in products and services We may have to change our business practices to comply with such obligations For example our employees and personnel use generative AI technologies to perform their work Our use of this technology could result in additional compliance costs regulatory investigations and actions and lawsuits If we are unable to use generative AI it could make our business less efficient and result in competitive disadvantages We also use AI and ML technologies in our products and services Our use of this technology could result in additional compliance costs regulatory investigations and actions and consumer lawsuits Depending on how these AI laws and regulations are interpreted we may have to make changes to our business practices and products including our C3 AI Software to comply with such obligations These obligations may make it harder for us to conduct our business using AI ML lead to regulatory fines or penalties require us retrain our AI ML or prevent or limit our use of AI ML Additionally certain privacy laws extend rights to consumers such as the right to delete certain personal data and regulate automated decision making which may be incompatible with our use of AI ML Further under privacy laws and other obligations we may be required to obtain certain consents to process personal data and our inability or failure to do so could result in adverse consequences For example the FTC has required other companies to turn over or disgorge valuable insights or trainings generated through the use of AI ML where they allege the company has violated privacy and consumer protection laws If we cannot use AI ML or that use is restricted our business may be less efficient or we may be at a competitive disadvantage
We may also be subject to new laws governing the privacy of consumer health data including reproductive sexual orientation and gender identity privacy rights For example Washington s My Health My Data Act MHMD broadly defines consumer health data places restrictions on processing consumer health data including imposing stringent requirements for consents provides consumers certain rights with respect to their health data and creates a private right of action to allow individuals to sue for violations of the law Other states are considering and may adopt similar laws
Obligations related to data privacy and security and consumers data privacy expectations are quickly changing in an increasingly stringent fashion creating some uncertainty as to the effective future legal framework Additionally these obligations may be subject to differing applications and interpretations which may be inconsistent or conflict among jurisdictions Preparing for and complying with these obligations requires significant resources which may necessitate changes to our information technologies systems and practices including our C3 AI Software possibly limiting our ability to develop new applications and features and to those of any third parties with whom we work Although we endeavor to comply with all applicable data privacy and security obligations we may at times fail or be perceived to have failed to do so Moreover despite our efforts our personnel or that of the third parties with whom we work may fail to comply with such obligations which could negatively impact our business operations and compliance posture For example any failure by a third party processor to comply with applicable law regulations or contractual obligations could result in adverse effects including inability to or interruption in our ability to operate our business and proceedings against us by governmental entities or others If we fail or are perceived to have failed to address or comply with data privacy and security obligations we could face significant consequences These consequences may include but are not limited to government enforcement actions e g investigations fines penalties audits inspections and similar litigation including class action claims and mass arbitration demands additional reporting requirements and or oversight bans or restrictions on processing personal data orders to destroy or not use personal data and imprisonment of company officials In particular plaintiffs have become increasingly more active in bringing privacy related claims against companies including class claims and mass arbitration demands Some of these claims allow for the recovery of statutory damages on a per violation basis and if viable carry the potential for monumental statutory damages depending on the volume of data and the number of violations Any of these events could have a material adverse effect on our reputation business or financial condition including but not limited to loss of customers interruptions or stoppages in our business operations interruptions or stoppages of data collection needed to train our algorithms inability to process personal data or to operate in certain jurisdictions limited ability to develop or commercialize our product expenditure of time and resources to defend any claim or inquiry adverse publicity revision or restructuring of our operations or reduced demand for our C3 AI Software Governments and regulators in certain jurisdictions including Europe are increasingly seeking to regulate cybersecurity and the use transfer and other processing of non personal information for example under the European Union s Data Act an area which has typically been the subject of very limited or no specific regulation This means that if and to the extent such regulations are relevant to our operations or those of our customers certain of the risks and considerations may apply equally to our processing of both personal and non personal information
If our information technology systems or data or those of third parties with whom we work are or were compromised we could experience adverse consequences resulting from such compromise including but not limited to regulatory investigations or actions litigation fines and penalties disruptions of our business operations reputational harm loss of revenue or profits loss of customers or sales and other adverse consequences
Our C3 AI Software processes our customers proprietary and sensitive data potentially including personal information confidential information protected health information financial data intellectual property and trade secrets Our C3 AI Software is built to be available on the infrastructure of third party public cloud providers such as AWS Microsoft Azure and Google Cloud We also use third parties to help us deliver services to our customers These third parties may process personal information protected health information or other confidential information of our employees partners or customers in a variety of contexts including without limitation third party providers of cloud based infrastructure encryption and authentication technology employee email and payroll content delivery to customers and other functions We collect such information from individuals located both in the United States and abroad and may process such information outside the country in which it was collected Our ability to monitor these third parties information security practices is limited and these third parties may not have adequate information security measures in place We may share or receive sensitive information with or from third parties
Cyber attacks denial of service attacks ransomware attacks business email compromises computer malware viruses social engineering including phishing online and offline fraud and other malicious internet based activity are prevalent in our industry and our customers industries and such attacks continue to increase Some actors now engage and are expected to continue to engage in cyber attacks including without limitation nation state actors for geopolitical reasons and in conjunction with military conflicts and defense activities During times of war and other major conflicts we and the third parties with whom we work may be vulnerable to a heightened risk of these attacks including retaliatory and other cyber attacks that could materially disrupt our systems and operations supply chain and ability to produce sell and distribute our goods and services We also utilize third party providers to host transmit or otherwise process electronic data in connection with our business activities We or our vendors and business partners may experience social engineering attacks including through deep fakes which may be increasingly more difficult to identify as fake and phishing attacks malicious code such as viruses and worms malware including as a result of advanced persistent threat intrusions denial of service attacks credential stuffing credential harvesting unavailable systems unauthorized access or disclosure due to employee or other theft or misuse denial of service attacks sophisticated attacks by nation state and nation state supported actors ransomware attacks supply chain attacks software bugs server malfunctions software or hardware failures loss of data or other information technology assets adware telecommunications failures attacks enhanced or facilitated by AI and other similar threats Ransomware attacks including by organized criminal threat actors nation states nation state supported actors and hacktivists are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations ability to provide our products or services loss of data and income reputational harm and diversion of funds Extortion payments may alleviate the negative impact of a ransomware attack but we may be unwilling or unable to make such payments due to for example applicable laws or regulations prohibiting such payments Similarly supply chain attacks have increased in frequency and severity and we cannot guarantee that third parties and infrastructure in our supply chain or our third party partners supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems including our product or the third party information technology systems that support us and our services Remote work has also become more common and has increased risks to our information technology systems and data as more of our employees utilize network connections computers and devices outside our premises or network including working at home while in transit and in public locations
Future or past business transactions such as acquisitions or integrations could expose us to additional cybersecurity risks and vulnerabilities as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities systems and technologies Furthermore we may discover security issues that were not found during due diligence of such acquired or integrated entities and it may be difficult to integrate companies into our information technology environment and security program
Any of the previously identified or similar threats could cause a security incident or other interruption that could result in unauthorized unlawful or accidental acquisition modification destruction loss alteration encryption disclosure of or access to our sensitive information or our technology systems or those of the third parties with whom we work A security incident or other interruption could disrupt our ability and that of third parties with whom we work to provide our platform Any actual or potential security breach of our C3 AI Software our operational systems our physical facilities or the systems or facilities of our partners or the perception that one has occurred could result in adverse consequences such as litigation indemnity obligations regulatory enforcement actions investigations fines penalties mitigation and remediation costs disputes reputational harm diversion of management s attention and other liabilities and damage to our business Even though we do not control the security measures of third parties we may be perceived or asserted to be responsible for any breach of such measures or suffer reputational harm even where we do not have recourse to the third party that caused the breach In addition any failure by our partners to comply with applicable law or regulations could result in proceedings against us by governmental entities or others with further financial operational and reputational damage While we may be entitled to damages if the third parties with whom we work fail to satisfy their privacy or security related obligations to us any award may be insufficient to cover our damages or we may be unable to recover such award In addition to experiencing a security incident third parties may gather collect or infer sensitive information about us from public sources data brokers or other means that reveals competitively sensitive details about our organization and could be used to undermine our competitive advantage or market position
The costs to respond to a security breach and or to mitigate any security vulnerabilities that may be identified could be significant our efforts to address these problems may not be successful and these problems could result in unexpected interruptions delays cessation of service negative publicity and other harm to our business and our competitive position We could be required to fundamentally change our business activities and practices in response to a security breach or related regulatory actions or litigation which could have an adverse effect on our business In addition laws regulations government guidance and industry standards and practices in the United States and elsewhere are rapidly evolving to combat these threats We may face increased compliance burdens regarding such requirements from regulators and customers regarding our products and services and also incur additional costs for oversight and monitoring of security risks relating to our own supply chain For example we have contractual and legal obligations to notify relevant stakeholders including affected individuals customers regulators and investors of security breaches Most jurisdictions have enacted laws requiring companies to notify individuals regulatory authorities and others of security breaches involving certain types of data and implement other requirements such as providing credit monitoring Such disclosures and compliance with such requirements are costly and the disclosures or the failure to comply with such requirements could lead to adverse consequences In addition our agreements with certain customers and partners may require us to notify them in the event of a security breach involving customer or partner data on our systems or those of subcontractors processing customer or partner data on our behalf Such mandatory disclosures are costly could lead to negative publicity may cause our customers to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources to respond to or alleviate problems caused by the actual or perceived security breach and may cause us to breach customer contracts Our agreements with certain customers may require us to use industry standard reasonable or other specified measures to safeguard sensitive personal information or confidential information and any actual or perceived breach of such measures may increase the likelihood and frequency of customer audits under our agreements which is likely to increase the costs of doing business An actual or perceived security breach could lead to claims by our customers or other relevant stakeholders that we have failed to comply with such legal or contractual obligations As a result we could be subject to legal action or our customers could end their relationships with us There can be no assurance that any limitations of liability in our contracts which we have in certain agreements would be enforceable or adequate or would otherwise protect us from liabilities damages or claims related to our data privacy and security obligations
While we and a number of our vendors and business partners have implemented security measures and designed to protect against security incidents there can be no assurance that these measures will be effective We take steps to detect and remediate vulnerabilities in our information security systems such as our hardware and or software including that of third parties with whom we work and ensure the security privacy integrity confidentiality availability and authenticity of our information technology networks and systems processing and information but we may not be able to anticipate or to implement effective preventive and remedial measures against all data security and privacy threats or detect mitigate and remediate all vulnerabilities on a timely basis We cannot guarantee that the recovery systems security protocols network protection mechanisms and other security measures that we have integrated into our systems networks and physical facilities which are designed to protect against detect and minimize security breaches and vulnerabilities or those of our vendors and business partners will be adequate to prevent or detect service interruption system failure data loss or theft or other material adverse consequences No security solution strategy or measures can address all possible security threats or block all methods of penetrating a network or otherwise perpetrating a security incident The risk of unauthorized circumvention of our security measures or those of the third parties with whom we work has been heightened by advances in computer and software capabilities and the increasing sophistication of hackers who employ complex techniques including without limitation the theft or misuse of personal and financial information counterfeiting phishing or social engineering incidents ransomware extortion publicly announcing security breaches account takeover attacks denial or degradation of service attacks malware fraudulent payment and identity theft The techniques used to sabotage disrupt or to obtain unauthorized access to our C3 AI Software systems networks or physical facilities in which data is stored or through which data is transmitted change frequently and we may be unable to implement adequate preventative measures or stop security breaches while they are occurring Unremediated high risk or critical vulnerabilities pose material risks to our business Further we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities
If we or a third party with whom we work experience a security incident or are perceived to have experienced a security incident we may experience adverse consequences such as government enforcement actions for example investigations fines penalties audits and inspections additional reporting requirements and or oversight restrictions on processing sensitive information including personal data litigation including class claims indemnification obligations negative publicity reputational harm monetary fund diversions diversion of management attention interruptions in our operations including availability of data financial loss and other similar harms Litigation resulting from security breaches may adversely affect our business Unauthorized access to our C3 AI Software systems networks or physical facilities could result in litigation with our customers or other relevant stakeholders These proceedings could force us to spend money in defense or settlement divert management s time and attention increase our costs of doing business or adversely affect our reputation We could be required to fundamentally change our business activities and practices or modify our C3 AI Software capabilities in response to such litigation which could have an adverse effect on our business If a security breach were to occur and the confidentiality integrity or availability of our data or the data of our partners or our customers was disrupted we could incur significant liability or our C3 AI Software systems or networks may be perceived as less desirable which could negatively affect our business and damage our reputation
We may not have adequate insurance coverage for security incidents or breaches including fines judgments settlements penalties costs attorney fees and other impacts that arise out of incidents or breaches Depending on the facts and circumstances of such an incident the damages penalties and costs could be significant and may not be covered by insurance or could exceed our applicable insurance coverage limits If the impacts of a security incident or breach or the successful assertion of one or more large claims against us that exceeds our available insurance coverage or results in changes to our insurance policies including premium increases or the imposition of large deductible or co insurance requirements it could have an adverse effect on our business In addition we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to all or part of any future claim or loss Our risks are likely to increase as we continue to expand our C3 AI Software grow our customer base and store transmit and otherwise process increasingly large amounts of proprietary and sensitive data
In addition to experiencing a security incident we may experience negative consequences from our use of AI ML within our company and in our products and services Sensitive information of the Company or our customers could be leaked disclosed or revealed as a result of or in connection with our employees personnel s or vendors use of generative AI technologies Any sensitive information including confidential competitive proprietary or personal data that we input into a third party generative AI ML platform could be leaked or disclosed to others including if sensitive information is used to train the third parties AI ML model Additionally where an AI ML model ingests personal data and makes connections using such data those technologies may reveal other personal or sensitive information generated by the model Moreover AI ML models may create flawed incomplete or inaccurate outputs some of which may appear correct This may happen if the inputs that the model relied on were inaccurate incomplete or flawed including if a bad actor poisons the AI ML with bad inputs or logic or if the logic of the AI ML is flawed a so called hallucination We may use AI ML outputs to make certain decisions Due to these potential inaccuracies or flaws the model could be biased and could lead us to make decisions that could bias certain individuals or classes of individuals and adversely impact their rights employment and ability to obtain certain pricing products services or benefits including exposure to reputational and competitive harm customer loss and legal liability
Our business depends on our C3 AI Software to be available without disruption We have experienced and may in the future experience disruptions outages defects and other performance and quality problems with our C3 AI Software We have also experienced and may in the future experience disruptions outages defects and other performance and quality problems with the public cloud and internet infrastructure on which our C3 AI Software relies These problems can be caused by a variety of factors including introductions of new functionality vulnerabilities and defects in proprietary and open source software human error or misconduct capacity constraints design limitations as well as from internal and external security breaches malware and viruses ransomware cyber events denial or degradation of service attacks or other security related incidents
Further if our contractual and other business relationships with our public cloud providers are terminated suspended or suffer a material change to which we are unable to adapt such as the elimination of services or features on which we depend we could be unable to provide our C3 AI Software and could experience significant delays and incur additional expense in transitioning customers to a different public cloud provider
Any disruptions outages defects and other security performance and quality problems with our C3 AI Software or with the public cloud and internet infrastructure on which it relies or any material change in our contractual and other business relationships with our public cloud providers could result in reduced use of our C3 AI Software increased expenses including significant unplanned capital investments and or service credit obligations and harm to our brand and reputation any of which could have a material adverse effect on our business financial condition reputation and results of operations
We currently serve our customers from third party data center hosting facilities located in the United States Asia and Europe Our operations depend in part on our third party facility providers ability to protect these facilities against damage or interruption from natural disasters power or telecommunications failures criminal acts and similar events In the event that our data center arrangements are terminated or if there are any lapses of service or damage to a center we could experience lengthy interruptions in our C3 AI Software as well as delays and additional expenses in making new arrangements
We designed our system infrastructure and procure and own or lease the computer hardware used for our C3 AI Software Design and mechanical errors spikes in usage volume and failure to follow system protocols and procedures could cause our systems to fail resulting in interruptions in our C3 AI Software Any interruptions or delays in our service whether as a result of third party error our own error natural disasters or security breaches whether accidental or willful could harm our relationships with our customers and cause our revenue to decrease and or our expenses to increase Also in the event of damage or interruption our insurance policies may not adequately compensate us for any losses that we may incur These factors in turn could further reduce our revenue subject us to liability and cause us to issue credits or cause customers to fail to renew their subscriptions any of which could materially adversely affect our business
We sell to customers globally and have international operations primarily in Europe As we continue to expand our international operations we will become more exposed to the effects of fluctuations in currency exchange rates Although the majority of our cash generated from revenue is denominated in U S dollars a small amount is denominated in foreign currencies and our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations For the fiscal years ended April 30 2024 and 2023 6 and 8 of our revenue respectively were denominated in currencies other than U S dollars For the fiscal years ended April 30 2024 and 2023 7 and 5 of our expenses respectively were denominated in currencies other than U S dollars Because we conduct business in currencies other than U S dollars but report our results of operations in U S dollars we also face remeasurement exposure to fluctuations in currency exchange rates which could hinder our ability to predict our future results and earnings and could materially impact our results of operations Therefore increases in the value of the U S dollar and decreases in the value of foreign currencies could result in the dollar equivalent of our revenue being lower We do not currently maintain a program to hedge exposures to non U S dollar currencies
We sell to U S federal state local and foreign governmental agency customers as well as to customers in highly regulated industries such as financial services telecommunications and healthcare Sales to such entities are subject to a number of challenges and risks Selling to such entities can be highly competitive expensive and time consuming often requiring significant upfront time and expense without any assurance that these efforts will generate a sale Government demand and payment for our products and services may be impacted by public sector budgetary cycles and funding reductions or delays such as an extended federal government shutdown which may adversely affect public sector demand for our products and services Government contracting requirements may change and restrict our ability to sell into the government sector Government demand and payment for our C3 AI Software is affected by public sector budgetary cycles and funding authorizations with funding reductions or delays adversely affecting public sector demand for our C3 AI Software
Further governmental and highly regulated entities may demand contract terms that differ from our standard arrangements and may be less favorable than terms agreed with other customers In our experience government entities often require shorter term subscriptions than our private sector customers due to budget cycles making one year subscriptions not uncommon Government entities and highly regulated organizations typically have longer implementation cycles sometimes require acceptance provisions that can lead to a delay in revenue recognition can have more complex IT and data environments and may expect greater payment flexibility from vendors
Contracts with governmental entities may also include preferential pricing terms such as most favored customer pricing In the event that we are successful in being awarded a government contract the award may be subject to appeals disputes or litigation including but not limited to bid protests by unsuccessful bidders
As a government contractor or subcontractor we must comply with laws regulations and contractual provisions relating to the formation administration and performance of government contracts and inclusion on government contract vehicles which affect how we and our partners do business with government agencies As a result of actual or perceived noncompliance with government contracting laws regulations or contractual provisions we may be subject to non ordinary course audits and internal investigations which may prove costly to our business divert management time or limit our ability to continue selling our products and services to our government customers These laws and regulations may impose other added costs on our business and failure to comply with these or other applicable regulations and requirements including non compliance in the past could lead to claims for damages from our partners downward contract price adjustments or refund obligations civil or criminal penalties and termination of contracts and suspension or debarment from government contracting for a period of time with government agencies Any such damages penalties disruption or limitation in our ability to do business with a government would adversely impact and could have a material adverse effect on our business results of operations financial condition public perception and growth prospects
Governmental and highly regulated entities may have statutory contractual or other legal rights to terminate contracts with us or our partners for convenience or for other reasons Any such termination may adversely affect our ability to contract with other government customers as well as our reputation business financial condition and results of operations
All these factors can add further risk to business conducted with these customers If sales expected from a government entity or highly regulated organization for a particular period are not realized in that period or at all our business financial condition results of operations and growth prospects could be materially and adversely affected
Our business could be adversely affected if our employees cannot obtain and maintain required security clearances we cannot obtain and maintain a required facility security clearance or we do not comply with legal and regulatory obligations regarding the safeguarding of classified information
One of our U S government contracts requires our employees to maintain security clearances and also requires us to comply with the U S Department of Defense or DoD security rules and regulations The DoD has strict security clearance requirements for personnel who perform work in support of classified programs In general access to classified information technology facilities or programs are subject to additional contract oversight and potential liability In the event of a security incident involving classified information technology facilities or programs or personnel holding clearances we may be subject to legal financial operational and reputational harm Obtaining and maintaining security clearances for employees involves a lengthy process and it is difficult to identify recruit and retain employees who already hold security clearances If our employees are unable to obtain security clearances in a timely manner or at all or if our employees who hold security clearances are unable to maintain their clearances or terminate employment with us then a customer requiring classified work could terminate an existing contract or decide not to renew the contract upon its expiration To the extent we are not able to obtain or maintain a facility security clearance we may not be able to bid on or win new classified contracts and our existing contract and any future contracts we may subsequently obtain requiring a facility security clearance could be terminated
If we are unable to achieve and sustain a level of liquidity sufficient to support our operations and fulfill our obligations our business operating results and financial position could be adversely affected
We actively monitor and manage our cash cash equivalents and marketable securities so that sufficient liquidity is available to fund our operations and other corporate purposes In the future increased levels of liquidity may be required to adequately support our operations and initiatives and to mitigate the effects of business challenges or unforeseen circumstances If we are unable to achieve and sustain such increased levels of liquidity we may suffer adverse consequences including reduced investment in our C3 AI Software difficulties in executing our business plan and fulfilling our obligations and other operational challenges Any of these developments could adversely affect our business operating results and financial position
Historically we have funded our operations and capital expenditures primarily through equity issuances and cash generated from our operations Although we currently anticipate that our existing cash cash equivalents and marketable securities and cash flow from operations will be sufficient to meet our cash needs for the foreseeable future we may require additional financing We evaluate financing opportunities from time to time and our ability to obtain financing will depend among other things on our development efforts business plans operating performance and condition of the capital markets at the time we seek financing Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders We may sell Class A common stock convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time If we sell any such securities in subsequent transactions investors may be materially diluted New investors in such subsequent transactions could gain rights preferences and privileges senior to those of holders of our Class A common stock Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters which may make it more difficult for us to obtain additional capital and to pursue business opportunities We cannot assure you that additional financing will be available to us on favorable terms when required or at all If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it our ability to continue to support our business growth development efforts and to respond to business challenges could be significantly impaired and our business operating results and financial condition may be adversely affected
We have in the past made and may in the future make acquisitions of other companies products and technologies We have limited experience in acquisitions We may not be able to find suitable acquisition candidates and we may not be able to complete acquisitions on favorable terms if at all Any acquisitions we complete may not ultimately strengthen our competitive position or achieve our goals and may be viewed negatively by customers developers or investors In addition we may not be able to integrate acquired businesses successfully or effectively manage the combined company following an acquisition If we fail to successfully integrate our acquisitions or the people or technologies associated with those acquisitions into our company the results of operations of the combined company could be adversely affected Any integration process will require significant time and resources require significant attention from management and disrupt the ordinary functioning of our business and we may not be able to manage the process successfully which could harm our business In addition we may not successfully evaluate or utilize the acquired technology and accurately forecast the financial impact of an acquisition transaction including accounting charges
We may have to pay cash incur debt or issue equity securities to pay for any such acquisition each of which could affect our financial condition or the value of our capital stock The sale of equity to finance any such acquisitions could result in dilution to our stockholders If we incur debt it would result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to flexibly operate our business
AI is enabled by or integrated into some of the C3 AI Platform including C3 Generative AI and is a significant and growing element of our business As with many developing technologies AI presents risks and challenges that could affect its further development adoption and use and therefore our business AI algorithms may be flawed Datasets in AI training development or operations may be insufficient of poor quality or reflect unwanted forms of bias Inappropriate or controversial data practices by or practices reflecting inherent biases of data scientists engineers and end users of our systems could impair the acceptance of AI solutions Third party AI capabilities that can be integrated with our platforms could also produce false or hallucinatory inferences about customer data or enterprises or other information or subject matter If the recommendations forecasts or analyses that AI applications assist in producing are deficient or inaccurate we could be subjected to competitive harm potential legal liability and brand or reputational harm Some AI scenarios present ethical issues and the enablement or integration of AI into our platforms may subject us to new or heightened legal regulatory ethical or other challenges
In addition the regulatory framework for AI and ML technology is evolving and remains uncertain It is possible that new laws and regulations will be adopted in the United States and other jurisdictions or existing laws and regulations may be interpreted in new ways that would affect the operation of our C3 AI Platform and the way in which we use AI and ML In Europe there is a proposed regulation related to AI that if adopted could impose onerous obligations related to the use of AI related systems Potential government regulation in the space of AI ethics may also increase the burden and cost of research and development in this area The cost to comply with such laws or regulations could be significant and would increase our operating expenses which could adversely affect our business financial condition and results of operations
Changes in accounting standards and subjective assumptions estimates and judgments by management related to complex accounting matters could adversely affect our financial results or financial condition
GAAP and related accounting pronouncements implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business such as revenue recognition impairment of intangible assets lease obligations vendor allowances tax matters and litigation are complex and involve many subjective assumptions estimates and judgments Changes in accounting standards or their interpretation or changes in underlying assumptions estimates or judgments could significantly change our reported or expected financial performance or financial condition The implementation of new accounting standards could also require certain systems internal process and other changes that could increase our operating costs
Increased scrutiny regarding environmental employment social and governance matters could adversely impact our reputation our ability to retain employees and the willingness of customers and others to do business with us
There is increasing focus from investors regulators and other corporate stakeholders on corporate policies addressing environmental employment social and governance matters Stakeholder expectations regarding appropriate corporate conduct on these matters are continually evolving as are expectations regarding appropriate methods and types of related corporate disclosure Investors regulators or other corporate stakeholders may not be satisfied with our existing environmental employment social and governance practices or those of our customers strategic partners or vendors These stakeholders may also be dissatisfied with the pace at which any revisions to our practices or the practices of our customers strategic partners or vendors are adopted and implemented Further investors and other stakeholders may object to the societal costs or ethical or other implications or the perceived costs or implications associated with the use of our products made by one or more of our customers If any of these events were to occur our reputation our ability to retain employees and the willingness of customers and others to do business with us may be materially and adversely impacted We may also incur additional costs and require additional resources which could be material to monitor report and comply with related corporate disclosure obligations in the future whether those obligations are imposed by law regulation or market expectation
Furthermore if our competitors corporate social responsibility performance is perceived to be better than ours potential or current investors may elect to invest with our competitors instead In addition in the event that we communicate certain initiatives and goals regarding ESG matters we could fail or be perceived to fail in our achievement of such initiatives or goals or we could be criticized for the scope of such initiatives or goals If we fail to satisfy the expectations of investors employees and other stakeholders or our initiatives are not executed as planned our business financial condition results of operations and prospects could be materially and adversely affected
We have Customer Entities in more than 15 countries and 14 of our revenue for the fiscal year ended April 30 2024 was generated from customers outside of North America As of April 30 2024 we had ten international sales locations and we plan to add local sales support in further select international markets over time We expect to continue to expand our international operations which may include opening offices in new jurisdictions and providing our C3 AI Software in additional languages Any new markets or countries into which we attempt to sell subscriptions to our C3 AI Software may not be receptive For example we may not be able to expand further in some markets if we are not able to satisfy certain government and industry specific requirements In addition our ability to manage our business and conduct our operations internationally in the future may require considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages cultures customs legal and regulatory systems alternative dispute systems and commercial markets Future international expansion will require investment of significant funds and other resources Operating internationally subjects us to new risks and may increase risks that we currently face including risks associated with
compliance with applicable international laws and regulations including laws and regulations with respect to privacy data protection and consumer protection and the risk of penalties to us and individual members of management or employees if our practices are deemed to be out of compliance
operating in jurisdictions that do not protect intellectual property rights to the same extent as does the United States and the practical enforcement of such intellectual property rights outside of the United States
foreign government interference with our intellectual property that resides outside of the United States such as the risk of changes in foreign laws that could restrict our ability to use our intellectual property
compliance by us and our business partners with anti corruption laws import and export control laws tariffs trade barriers economic sanctions anti money laundering laws and other regulatory limitations on our ability to provide our C3 AI Software in certain international markets
foreign exchange controls that might require significant lead time in setting up operations in certain geographic territories and might prevent us from repatriating cash earned outside the United States
pandemics or epidemics that could result in decreased economic activity in certain markets decreased use of our C3 AI Software or in our decreased ability to import export or sell our C3 AI Software to existing or new customers in international markets
double taxation of our international earnings and potentially adverse tax consequences due to changes in the income and other tax laws of the United States or the international jurisdictions in which we operate and
Political actions including trade protection and national security policies of U S and foreign government bodies such as tariffs import or export regulations including deemed export restrictions trade and economic sanctions quotas or other trade barriers and restrictions could affect our ability to provide our C3 AI Software to our Customers and generally fulfill our contractual obligations and have an adverse effect on our future business opportunities For example in response to Russian military actions related to Ukraine the United States and certain allies have imposed economic sanctions and export control measures and may impose additional sanctions or export control measures which have and could in the future result in among other things severe or complete restrictions on exports and other commerce and business dealings involving Russia Belarus certain regions of Ukraine and or particular entities and individuals Such actions could limit or block the license of our C3 AI Software to persons or entities affiliated with Russia or countries acting in concert with Russia and restrict access by C3 AI personnel located in Russia to our systems negatively impacting future opportunities
Further due to political uncertainty and military actions involving Russia Ukraine and surrounding regions we and the third parties with whom we work may be vulnerable to a heightened risk of security breaches computer malware social engineering attacks supply chain attacks software bugs server malfunctions software or hardware failures loss of data or other information technology assets and other cyber attacks including attacks that could materially disrupt our systems and operations supply chain and ability to produce sell and distribute our C3 AI Software These attacks are expected to occur in the future
Some of our business partners also have international operations and are subject to the risks described above Even if we are able to successfully manage the risks of international operations our business may be adversely affected if our business partners are not able to successfully manage these risks
Compliance with laws and regulations applicable to our global operations substantially increases our cost of doing business in international jurisdictions We may be unable to keep current with changes in laws and regulations as they occur Although we have implemented policies and procedures designed to support compliance with these laws and regulations there can be no assurance that we will always maintain compliance or that all of our employees contractors partners and agents will comply Any violations could result in enforcement actions fines civil and criminal penalties damages injunctions or reputational harm If we are unable to comply with these laws and regulations or manage the complexity of our global operations successfully we may need to relocate or cease operations in certain foreign jurisdictions
Certain of our C3 AI Software is subject to various restrictions under U S export control and trade and economic sanctions laws and regulations including the U S Department of Commerce s Export Administration Regulations or EAR and various economic and trade sanctions regulations administered by the U S Department of the Treasury s Office of Foreign Assets Control or OFAC U S export control and economic sanctions laws and regulations include restrictions or prohibitions on the sale or supply of certain AI platform and applications services and technologies to U S embargoed or sanctioned countries governments persons and entities Further U S export laws and regulations include broad licensing requirements including requiring authorization for the export of certain items In addition various countries regulate the import of certain items including through import permitting and licensing requirements and have enacted or could enact laws that could limit our ability to distribute our C3 AI Software or could limit our customers ability to implement our C3 AI Software in those countries
Changes in our C3 AI Software and if required obtaining the necessary export license or other authorization for a particular sale or changes in export sanctions and import laws may result in the delay or loss of sales opportunities delay the introduction and sale of subscriptions to our C3 AI Software in international markets prevent our customers with international operations from using our C3 AI Software or in some cases prevent the access or use of our C3 AI Software to and from certain countries governments persons or entities altogether Further any change in export or import regulations economic sanctions or related laws shift in the enforcement or scope of existing regulations or change in the countries governments persons or technologies targeted by such regulations could result in decreased use of our C3 AI Software or in our decreased ability to export or sell our C3 AI Software to existing or potential customers with international operations Any decreased use of our C3 AI Software or limitation on our ability to export or sell our C3 AI Software would likely harm our business
In addition if our channel partners fail to obtain appropriate import export or re export licenses or permits we may also be adversely affected through reputational harm as well as other negative consequences including government investigations and penalties
Even though we take precautions to ensure that we and our channel partners comply with all relevant regulations any failure by us or our channel partners to comply with U S export control and economic sanctions laws and regulations or other laws could have negative consequences including reputational harm government investigations and substantial civil and criminal penalties e g fines incarceration for responsible employees and managers and the possible loss of export or import privileges
We are subject to the U S Foreign Corrupt Practices Act or FCPA and similar anti corruption anti bribery and similar laws and non compliance with such laws can subject us to criminal or civil liability and harm our business financial condition and results of operations
We are subject to the FCPA U S domestic bribery laws the UK Bribery Act and other anti corruption and similar laws in the countries in which we conduct activities Anti corruption and anti bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies their employees and their third party business partners or intermediaries representatives and agents from authorizing offering or providing directly or indirectly improper payments or other benefits to government officials or others in the private sector in order to influence official action direct business to any person gain any improper advantage or obtain or retain business As we increase our international sales and business our risks under these laws may increase
As we increase our international sales and business and sales to the public sector we may engage with third party business partners and intermediaries to market our C3 AI Software and to obtain necessary permits licenses and other regulatory approvals In addition we or our third party business partners or intermediaries may have direct or indirect interactions with officials and employees of government agencies or state owned or affiliated entities We can be held liable for the corrupt or other illegal activities of our third party business partners or intermediaries our employees representatives contractors and agents even if we do not explicitly authorize such activities
These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions While we have policies and procedures to address compliance with such laws our third party business partners or intermediaries employees representatives contractors and agents may take actions in violation of our policies and applicable law for which we may be ultimately held responsible
Detecting investigating and resolving actual or alleged violations of anti corruption laws can require a significant diversion of time resources and attention from senior management as well as significant defense costs and other professional fees In addition noncompliance with anti corruption or anti bribery laws could subject us to whistleblower complaints investigations sanctions settlements prosecution enforcement actions fines damages other civil or criminal penalties or injunctions against us our officers or our employees disgorgement of profits suspension or debarment from contracting with the U S government or other persons reputational harm adverse media coverage and other collateral consequences If any subpoenas or investigations are launched or governmental or other sanctions are imposed or if we do not prevail in any possible civil or criminal proceeding our reputation business stock price financial condition prospects and results of operations could be harmed
We currently collect and remit applicable sales tax in jurisdictions where we through our employees have a presence and where we have determined based on legal precedents in the jurisdiction that sales of our C3 AI Software are classified as taxable We do not currently collect and remit other state and local excise utility user and ad valorem taxes fees or surcharges that may apply to our customers We believe that we are not otherwise subject to or required to collect any additional taxes fees or surcharges imposed by state and local jurisdictions because we do not have a sufficient physical presence or nexus in the relevant taxing jurisdiction or such taxes fees or surcharges do not apply to sales of our C3 AI Software in the relevant taxing jurisdiction However there is uncertainty as to what constitutes sufficient physical presence or nexus for a state or local jurisdiction to levy taxes fees and surcharges for sales made over the internet and there is also uncertainty as to whether our characterization of our C3 AI Software as not taxable in certain jurisdictions will be accepted by state and local taxing authorities Additionally we have not historically collected value added tax or VAT or goods and services tax or GST on sales of our C3 AI Software generally because we make almost all of our sales through our office in the United States and we believe based on information provided to us by our customers that most of our sales are made to business customers
Taxing authorities may challenge our position that we do not have sufficient nexus in a taxing jurisdiction or that our C3 AI Software is exempt from use telecommunications VAT GST and other taxes which could result in increased tax liabilities for us or our customers which could harm our business
The application of indirect taxes such as sales and use tax VAT GST business tax and gross receipt tax to businesses that transact online such as ours is a complex and evolving area Following the recent U S Supreme Court decision in
states are now free to levy taxes on sales of goods and services based on an economic nexus regardless of whether the seller has a physical presence in the state As a result it may be necessary to reevaluate whether our activities give rise to sales use and other indirect taxes as a result of any nexus in those states in which we are not currently registered to collect and remit taxes Additionally we may need to assess our potential tax collection and remittance liabilities based on existing economic nexus laws dollar and transaction thresholds We continue to analyze our exposure for such taxes and liabilities The application of existing new or future laws whether in the United States or internationally could harm our business There have been and will continue to be substantial ongoing costs associated with complying with the various indirect tax requirements in the numerous markets in which we conduct or will conduct business
While to date we have not incurred significant income taxes in operating our business we are subject to income taxes in the United States and various jurisdictions outside of the United States Our effective tax rate could fluctuate due to changes in the proportion of our earnings and losses in countries with differing statutory tax rates Our tax expense could also be impacted by changes in non deductible expenses changes in excess tax benefits of stock based or other compensation changes in the valuation of or our ability to use deferred tax assets and liabilities the applicability of withholding taxes and effects from acquisitions
The provision for taxes on our financial statements could also be impacted by changes in accounting principles changes in U S federal state or international tax laws applicable to corporate multinationals such as the recent legislation enacted in the United States other fundamental changes in law currently being considered by many countries and changes in taxing jurisdictions administrative interpretations decisions policies and positions
We are subject to review and audit by U S federal state local and foreign tax authorities Such tax authorities may disagree with tax positions we take and if any such tax authority were to successfully challenge any such position our business could be harmed We may also be subject to additional tax liabilities due to changes in non income based taxes resulting from changes in federal state local or international tax laws changes in taxing jurisdictions administrative interpretations decisions policies and positions results of tax examinations settlements or judicial decisions changes in accounting principles changes to our business operations including acquisitions as well as the evaluation of new information that results in a change to a tax position taken in a prior period
As of April 30 2024 we had net operating loss carryforwards or NOLs for U S federal and state purposes of 599 3 million and 249 3 million respectively which may be available to offset taxable income in the future and portions of which expire in various years beginning in 2029 A lack of future taxable income would adversely affect our ability to utilize these NOLs before they expire Under the Tax Cuts and Jobs Act of 2017 or the Tax Act as modified by the Coronavirus Aid Relief and Economic Security Act or CARES Act federal NOLs incurred in tax years beginning after December 31 2017 may be carried forward indefinitely but the deductibility of such federal NOLs in tax years beginning after December 31 2020 is limited to 80 of taxable income It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act In addition under Section 382 of the Internal Revenue Code of 1986 as amended or the Code a corporation that undergoes an ownership change as defined under Sections 382 and 383 of the Code and applicable Treasury Regulations is subject to limitations on its ability to utilize its pre change NOLs and certain other tax attributes to offset post change taxable income or taxes We may experience a future ownership change under Section 382 of the Code that could affect our ability to utilize our NOLs to offset our income Furthermore our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to limitations In addition at the state level there may be periods during which the use of NOLs is suspended or otherwise limited which could accelerate or permanently increase state taxes owed For example on June 29 2020 the Governor of California signed into law the 2020 Budget Act which temporarily suspended the utilization of NOLs and limits the utilization of research credits to 5 0 million annually for 2020 2021 and 2022 For these reasons we may not be able to utilize a material portion of the NOLs reflected on our balance sheet even if we attain profitability which could potentially result in increased future tax liability to us and could adversely affect our operating results and financial condition
We primarily rely and expect to continue to rely on a combination of patent patent licenses trade secret domain name protection trademark and copyright laws as well as confidentiality and license agreements with our employees consultants and third parties to protect our intellectual property and proprietary rights From time to time we are subject to litigation based on allegations of infringement misappropriation or other violations of intellectual property or other rights As we face increasing competition and gain an increasingly high profile the possibility of intellectual property rights claims commercial claims and other assertions against us grows We have in the past been and may from time to time in the future become a party to litigation and disputes related to our intellectual property our business practices and our C3 AI Software While we intend to defend any lawsuit vigorously litigation can be costly and time consuming divert the attention of our management and key personnel from our business operations and dissuade potential customers from subscribing to our C3 AI Software which would harm our business Furthermore with respect to lawsuits there can be no assurances that favorable outcomes will be obtained We may need to settle litigation and disputes on terms that are unfavorable to us or we may be subject to an unfavorable judgment that may not be reversible upon appeal The terms of any settlement or judgment may require us to cease some or all of our operations or pay substantial amounts to the other party In addition our agreements with customers or partners typically include certain provisions for indemnifying them against liabilities if our C3 AI Software infringes a third party s intellectual property rights including in the third party open source software components included in our C3 AI Software which indemnification obligations could require us to make payments to our customers During the course of any litigation or dispute we may make announcements regarding the results of hearings and motions and other interim developments If securities analysts and investors regard these announcements as negative the market price of our Class A common stock may decline With respect to any intellectual property rights claim we may have to seek a license to continue practices found to be in violation of third party rights which may not be available on reasonable terms and may significantly increase our operating expenses A license to continue such practices may not be available to us at all and we may be required to develop alternative non infringing technology or practices or discontinue the practices The development of alternative non infringing technology or practices could require significant effort and expense Our business could be harmed as a result
Our agreements with customers and other third parties generally include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement or other liabilities relating to or arising from our software services or other contractual obligations Large indemnity payments could harm our business results of operations and financial condition Although we normally contractually limit our liability with respect to such indemnity obligations generally those limitations may not be fully enforceable in all situations and we may still incur substantial liability under those agreements Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing customers and new customers and harm our business and results of operations
As of April 30 2024 our technology is protected by a broad patent portfolio with 23 issued patents in the United States 15 issued counterpart patents in a number of international jurisdictions over 45 patent applications pending in the United States and 85 patent applications pending internationally Our issued patents expire beginning in 2033 through 2040 We continually review our development efforts to assess the existence and patentability of new intellectual property The pending patent applications are presently undergoing examination or expected to undergo examination in the near future These patents and patent applications seek to protect our proprietary inventions relevant to our business in addition to other proprietary technologies which are maintained as trade secrets We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost effective We make business decisions about when to seek patent protection for a particular technology and when to rely upon copyright or trade secret protection and the approach we select may ultimately prove to be inadequate Even in cases where we seek patent protection there is no assurance that the resulting patents will effectively protect every significant feature of our C3 AI Software In addition we believe that the protection of our trademark rights is an important factor in AI platform and application recognition protecting our brand and maintaining goodwill If we do not adequately protect our rights in our trademarks from infringement and unauthorized use any goodwill that we have developed in those trademarks could be lost or impaired which could harm our brand and our business Third parties may knowingly or unknowingly infringe our proprietary rights third parties may challenge our proprietary rights pending and future patent trademark and copyright applications may not be approved and we may not be able to defend against or prevent infringement without incurring substantial expense We have also devoted substantial resources to the development of our proprietary technologies and related processes In order to protect our proprietary technologies and processes we rely in part on trade secret laws and confidentiality agreements with our employees consultants and third parties These agreements may not effectively prevent unauthorized disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information In addition others may independently discover our trade secrets in which case we would not be able to assert trade secret rights or develop similar technologies and processes Further laws in certain jurisdictions may afford little or no trade secret protection and any changes in or unexpected interpretations of the intellectual property laws in any country in which we operate may compromise our ability to enforce our intellectual property rights Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights If the protection of our proprietary rights is inadequate to prevent use or appropriation by third parties the value of our C3 AI Software brand and other intangible assets may be diminished and competitors may be able to replicate our C3 AI Software more effectively Any of these events would harm our business
A portion of the technologies we use incorporates third party open source software and we may incorporate third party open source software in our solutions in the future Open source software is generally licensed by its authors or other third parties under open source licenses From time to time companies that use third party open source software have faced claims challenging the use of such open source software and requesting compliance with the open source software license terms Accordingly we may be subject to suits by parties claiming ownership of what we believe to be open source software or claiming non compliance with the applicable open source licensing terms Some open source software licenses require end users who use distribute or make available across a network software and services that include open source software to offer aspects of the technology that incorporates the open source software for no cost We may also be required to make publicly available source code which in some circumstances could include valuable proprietary code for modifications or derivative works we create based upon incorporating or using the open source software and or to license such modifications or derivative works under the terms of the particular open source license Additionally if a third party software provider has incorporated open source software into software that we license from such provider we could be required to disclose any of our source code that incorporates or is a modification of our licensed software While we employ practices designed to monitor our compliance with the licenses of third party open source software and protect our valuable proprietary source code we may inadvertently use third party open source software in a manner that exposes us to claims of non compliance with the terms of their licenses including claims of intellectual property rights infringement or for breach of contract Furthermore there exists today an increasing number of types of open source software licenses almost none of which have been tested in courts of law to provide guidance of their proper legal interpretations If we were to receive a claim of non compliance with the terms of any of these open source licenses we could be required to incur significant legal expenses defending against those allegations and could be subject to significant damages enjoined from offering or selling our solutions that contained the open source software and required to comply with the foregoing conditions and we may be required to publicly release certain portions of our proprietary source code We could also be required to expend substantial time and resources to re engineer some of our software Any of the foregoing could disrupt and harm our business
In addition the use of third party open source software typically exposes us to greater risks than the use of third party commercial software because open source licensors generally do not provide warranties or controls on the functionality or origin of the software Use of open source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to determine how to compromise our C3 AI Software Any of the foregoing could harm our business and could help our competitors develop platforms and applications that are similar to or better than ours
Because of the characteristics of open source software there may be fewer technology barriers to entry by new competitors and it may be relatively easy for new and existing competitors with greater resources than we have to compete with us
One of the characteristics of open source software is that the governing license terms generally allow liberal modifications of the code and distribution thereof to a wide group of companies and or individuals As a result others could easily develop new platforms and applications based upon those open source programs that compete with existing open source software that we support and incorporate into our C3 AI Software Such competition with use of the open source projects that we utilize can materialize without the same degree of overhead and lead time required by us particularly if the customers do not value the differentiation of our proprietary components It is possible for new and existing competitors with greater resources than ours to develop their own open source software or hybrid proprietary and open source software offerings potentially reducing the demand for and putting price pressure on our C3 AI Software In addition some competitors make open source software available for free download and use or may position competing open source software as a loss leader We cannot guarantee that we will be able to compete successfully against current and future competitors or that competitive pressure and or the availability of open source software will not result in price reductions reduced operating margins and loss of market share any one of which could seriously harm our business
If open source software programmers many of whom we do not employ or our own internal programmers do not continue to develop and enhance open source technologies we may be unable to develop new technologies adequately enhance our existing technologies or meet customer requirements for innovation quality and price
We rely to a significant degree on a number of open source software programmers or committers and contributors to develop and enhance components of our C3 AI Software Additionally members of the corresponding Apache Software Foundation Project Management Committees or PMCs many of whom are not employed by us are primarily responsible for the oversight and evolution of the codebases of important components of the open source data management ecosystem If the open source data management committees and contributors fail to adequately further develop and enhance open source technologies or if the PMCs fail to oversee and guide the evolution of open source data management technologies in the manner that we believe is appropriate to maximize the market potential of our solutions then we would have to rely on other parties or we would need to expend additional resources to develop and enhance our C3 AI Software We also must devote adequate resources to our own internal programmers to support their continued development and enhancement of open source technologies and if we do not do so we may have to turn to third parties or experience delays in developing or enhancing open source technologies We cannot predict whether further developments and enhancements to these technologies would be available from reliable alternative sources In either event we may incur additional development expenses and experience delays in technology release and upgrade Delays in developing completing or delivering new or enhanced components to our C3 AI Software could cause our offerings to be less competitive impair customer acceptance of our solutions and result in delayed or reduced revenue for our solutions
Our software development and licensing model could be negatively impacted if the Apache License Version 2 0 is not enforceable or is modified so as to become incompatible with other open source licenses
Components of our C3 AI Software have been provided under the Apache License 2 0 This license states that any work of authorship licensed under it and any derivative work thereof may be reproduced and distributed provided that certain conditions are met It is possible that a court would hold this license to be unenforceable or that someone could assert a claim for proprietary rights in a program developed and distributed under it Any ruling by a court that this license is not enforceable or that we may not reproduce or distribute those open source software components as part of our C3 AI Software may negatively impact our distribution or development of all or a portion of our solutions In addition at some time in the future it is possible that the license terms under which important components of the open source projects in our C3 AI Software are distributed may be modified which could among other consequences negatively impact our continuing development or distribution of the software code subject to the new or modified license
Further full utilization of our C3 AI Software may depend on software applications hardware and services from various third parties and these items may not be compatible with our C3 AI Software and its development or may not be available to us or our customers on commercially reasonable terms or at all which could harm our business
The trading price of our Class A common stock has been and will likely continue to be volatile and could be subject to fluctuations in response to various factors some of which are beyond our control These fluctuations could cause you to lose all or part of your investment in our Class A common stock Factors that could cause fluctuations in the trading price of our Class A common stock include the risk factors set forth in this section as well as the following
failure of securities analysts to maintain coverage of us changes in financial estimates by securities analysts who follow our company or our failure to meet these estimates or the expectations of investors particularly in light of the significant portion of our revenue derived from a limited number of customers
changes in our financial operating or other metrics regardless of whether we consider those metrics as reflective of the current state or long term prospects of our business and how those results compare to securities analyst expectations including whether those results fail to meet exceed or significantly exceed securities analyst expectations particularly in light of the significant portion of our revenue derived from a limited number of customers
technical factors in the public trading market for our stock that may produce price movements that may or may not comport with macro industry or company specific fundamentals including without limitation the sentiment of retail investors including as may be expressed on financial trading and other social media sites the amount and status of short interest in our securities access to margin debt trading in options and other derivatives on our common stock and other technical trading factors
Accordingly we cannot assure you of the liquidity of an active trading market your ability to sell your shares of our Class A common stock when desired or the prices that you may obtain for your shares of our Class A common stock An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares of our Class A common stock and may impair our ability to acquire or make investments in complementary companies products or technologies by using shares of our common stock as consideration
In addition in the past following periods of volatility in the overall market and in the market price of a particular company s securities securities class action litigation has often been instituted against these companies For example in March 2022 we and certain of our current and former officers and directors were sued in a putative class action lawsuit alleging violations of the federal securities laws for allegedly making material misstatements or omissions about our partnership with Baker Hughes and other strategic alliances our market potential and the uptake of our products Securities litigation against us could result in substantial costs and a diversion of our management s attention and resources We may be the target of additional litigation of this type in the future as well
Short sellers may engage in manipulative activity intended to drive down the market price of our Class A common stock which could also result in related regulatory and governmental scrutiny among other effects
Short selling is the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow from a third party with the intention of later buying lower priced identical securities to return to the lender Accordingly it is in the interest of a short seller of our Class A common stock for the price to decline At any time short sellers may publish or arrange for the publication of opinions or characterizations that are intended to create negative market momentum Issuers like us whose securities have historically had limited trading history or volumes and or have been susceptible to relatively high volatility levels can be vulnerable to such short seller attacks Short selling reports can cause increased volatility in an issuer s stock price and result in regulatory and governmental inquiries On April 4 2023 a short seller report was published which contained certain allegations against us Any inquiry or formal investigation from a governmental organization or other regulatory body including any inquiry from the SEC or the U S Department of Justice could result in a material diversion of our management s time and could have a material adverse effect on our business and results of operations
Our Class B common stock has 50 votes per share and our Class A common stock has one vote per share As of April 30 2024 Mr Siebel and related entities beneficially owned approximately 87 8 of our Class B common stock and approximately 21 3 of our outstanding Class A common stock resulting in beneficial ownership of capital stock representing approximately 54 4 of the voting power of our outstanding capital stock Therefore Mr Siebel has control over our management and affairs and over all matters requiring stockholder approval including election of directors and significant corporate transactions such as a merger or other sale of us or our assets This concentrated control will limit your ability to influence corporate matters for the foreseeable future and as a result the market price of our Class A common stock could be adversely affected
Each share of Class B common stock will be automatically converted into one share of Class A common stock upon the earliest of 1 the date that is six months following the death or incapacity of Mr Siebel 2 the date that is six months following the date that Mr Siebel is no longer providing services to us as an officer employee director or consultant 3 December 11 2040 and 4 the date specified by the holders of a majority of the then outstanding shares of Class B common stock voting as a separate class Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock which will have the effect over time of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term If for example Mr Siebel retains a significant portion of his holdings of Class B common stock for an extended period of time he could in the future control a majority of the combined voting power of our Class A and Class B common stock As a board member Mr Siebel owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders As a stockholder even a controlling stockholder Mr Siebel is entitled to vote his shares in his own interests which may not always be in the interests of our stockholders generally
FTSE Russell and Standard Poor s do not allow most newly public companies utilizing dual or multi class capital structures to be included in their indices Affected indices include the Russell 2000 and the S P 500 S P MidCap 400 and S P SmallCap 600 which together make up the S P Composite 1500 Also in 2017 MSCI a leading stock index provider opened public consultations on their treatment of no vote and multi class structures and temporarily barred new multi class listings from certain of its indices however in October 2018 MSCI announced its decision to include equity securities with unequal voting structures in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria Under the announced policies our dual class capital structure would make us ineligible for inclusion in certain indices and as a result mutual funds exchange traded funds and other investment vehicles that attempt to passively track these indices will not be investing in our stock In addition other stock indices may take similar actions Given the sustained flow of investment funds into passive strategies that seek to track certain indices exclusion from certain stock indices would likely preclude investment by many of these funds and would make our Class A common stock less attractive to other investors As a result the trading price and volume of our Class A common stock could be adversely affected
Sales of a substantial number of shares of our Class A common stock and Class B common stock after automatically converting to Class A common stock in the public market particularly sales by our directors executive officers and principal stockholders or the perception that these sales might occur could depress the market price of our Class A common stock
As of April 30 2024 there were outstanding options to purchase an aggregate of approximately 31 371 094 shares of our Class A common stock and approximately 19 283 146 shares of our Class A common stock subject to restricted stock unit awards We have registered all of the shares of Class A common stock issuable upon exercise of outstanding options and upon exercise or settlement of any options or other equity incentives we may grant in the future for public resale under the Securities Act Accordingly these shares will become eligible for sale in the public market to the extent any such equity awards are exercised or settled for shares of Class A common stock subject to compliance with applicable securities laws In addition certain of our stockholders have registration rights that would require us to register shares owned by them for public sale in the United States
Sales of our shares could also impair our ability to raise capital through the sale of additional equity securities in the future and at a price we deem appropriate These sales could also cause the trading price of our Class A common stock to fall and make it more difficult for you to sell shares of our Class A common stock
Provisions in our constituent documents and Delaware law may prevent or frustrate attempts by our stockholders to change our management or hinder efforts to acquire a controlling interest in us and the market price of our Class A common stock may be lower as a result
There are provisions in our certificate of incorporation and bylaws that may make it difficult for a third party to acquire or attempt to acquire control of our company even if a change in control was considered favorable by our stockholders These include provisions
Moreover because we are incorporated in Delaware we are governed by the provisions of Section 203 of the Delaware General Corporation Law which prohibit a person who owns 15 or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15 of our outstanding voting stock unless the merger or combination is approved in a prescribed manner Any provision in our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and to the extent enforceable the federal district courts of the United States of America as the exclusive forums for substantially all disputes between us and our stockholders which could limit our stockholders ability to choose the judicial forum for disputes with us or our directors officers or employees
Our amended and restated certificate of incorporation provides that unless we consent in writing to the selection of an alternative forum the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law 1 any derivative action or proceeding brought on our behalf 2 any action asserting a claim of breach of a fiduciary duty owed by any of our directors officers or other employees to us or our stockholders 3 any action asserting a claim against us arising under any provision of the Delaware General Corporation Law or the certificate of incorporation or the amended and restated bylaws or 4 any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware or if the Court of Chancery does not have jurisdiction the federal district court for the District of Delaware in all cases subject to the court having jurisdiction over indispensable parties named as defendants This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act In addition to prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts among other considerations our amended and restated certificate of incorporation further provides that the U S federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act Furthermore Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act Accordingly both state and federal courts have jurisdiction to entertain such claims While the Delaware courts have determined that such choice of forum provisions are facially valid and several state trial courts have enforced such provisions and required that suits asserting Securities Act claims be filed in federal court there is no guarantee that courts of appeal will affirm the enforceability of such provisions and a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions In such instance we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions If a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action we may incur further significant additional costs associated with litigating Securities Act claims in state court or both state and federal court which could seriously harm our business financial condition results of operations and prospects
These exclusive forum provisions may limit a stockholder s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors officers or other employees which may discourage lawsuits against us and our directors officers and other employees If a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action we may incur further significant additional costs associated with resolving the dispute in other jurisdictions all of which could seriously harm our business
The trading market for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our business The analysts estimates are based upon their own opinions and are often different from our estimates or expectations If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business the price of our securities would likely decline If few securities analysts commence coverage of us or if one or more of these analysts cease coverage of us or fail to publish reports on us regularly demand for our securities could decrease which might cause the price and trading volume of our Class A common stock to decline
As a public company listed in the United States we have incurred and expect to continue to incur significant additional legal accounting and other expenses In addition changing laws regulations and standards relating to corporate governance and public disclosure including regulations implemented by the SEC and the New York Stock Exchange may increase legal and financial compliance costs and make some activities more time consuming These laws regulations and standards are subject to varying interpretations and as a result their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies We intend to invest resources to comply with evolving laws regulations and standards and this investment may result in increased general and administrative expenses and a diversion of management s time and attention from revenue generating activities to compliance activities If notwithstanding our efforts we fail to comply with new laws regulations and standards regulatory authorities may initiate legal proceedings against us and our business may be harmed
Failure to comply with these rules might also make it more difficult for us to obtain certain types of insurance including director and officer liability insurance and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage The impact of these events would also make it more difficult for us to attract and retain qualified persons to serve on our board of directors on committees of our board of directors or as members of senior management
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired
We are subject to the reporting requirements of the Securities Exchange Act of 1934 as amended or the Exchange Act the Sarbanes Oxley Act and the rules and regulations of the applicable listing standards of the New York Stock Exchange We expect that the requirements of these rules and regulations will continue to increase our legal accounting and financial compliance costs make some activities more difficult time consuming and costly and place significant strain on our personnel systems and resources
The Sarbanes Oxley Act requires among other things that we maintain effective disclosure controls and procedures and internal control over financial reporting We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded processed summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers We are also continuing to improve our internal control over financial reporting In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting we have expended and anticipate that we will continue to expend significant resources including accounting related costs and significant management oversight
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business In addition changes in accounting principles or interpretations could also challenge our internal controls and require that we establish new business processes systems and controls to accommodate such changes We have limited experience with implementing the systems and controls necessary to operate as a public company as well as adopting changes in accounting principles or interpretations mandated by the relevant regulatory bodies Additionally if these new systems controls or standards and the associated process changes do not give rise to the benefits that we expect or do not operate as intended it could adversely affect our financial reporting systems and processes our ability to produce timely and accurate financial reports or the effectiveness of internal control over financial reporting Moreover our business may be harmed if we experience problems with any new systems and controls that result in delays in their implementation or increased costs to correct any post implementation issues that may arise
Further weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our business or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports filed with the SEC Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information which would likely have a negative effect on the trading price of our Class A common stock In addition if we are unable to continue to meet these requirements we may not be able to remain listed on the New York Stock Exchange
We are required pursuant to Section 404 to furnish a report by management on among other things the effectiveness of our internal control over financial reporting This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting Our independent registered public accounting firm is also required to formally attest to the effectiveness of our internal control over financial reporting Our compliance with Section 404 requires that we incur substantial accounting expense and expend significant management efforts We currently have an external audit group and have hired additional accounting and financial staff We may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and update the systems and process documentation necessary to perform the evaluation needed to comply with Section 404 Any failure to maintain effective disclosure controls and internal control over financial reporting could have an adverse effect on our business financial condition and results of operations and could cause a decline in the market price of our Class A common stock
From time to time we are involved in legal proceedings and claims that arise in the ordinary course of business such as claims brought by our customers in connection with commercial or intellectual property disputes or employment claims made by our current or former employees Litigation might result in substantial costs and may divert management s attention and resources which might seriously harm our business financial condition and results of operations Insurance might not cover such claims might not provide sufficient payments to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to us including premium increases or the imposition of large deductible or co insurance requirements A claim brought against us that is uninsured or under insured could result in unanticipated costs potentially harming our business financial position and results of operations In addition we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim
Occurrence of any catastrophic event including earthquake fire flood tsunami or other weather event many of which are becoming more acute and frequent as a result of global climate change power loss telecommunications failure software or hardware malfunctions political unrest geopolitical instability cyberattack war or terrorist attack could result in lengthy interruptions in our service In particular our U S headquarters are located in the San Francisco Bay Area a region known for seismic activity and wildfires and our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster In addition acts of terrorism could cause disruptions to the internet or the economy as a whole Even with our disaster recovery arrangements our service could be interrupted If our systems were to fail or be negatively impacted as a result of a natural disaster or other event our ability to deliver our C3 AI Software to our customers would be impaired or we could lose critical data If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster and to execute successfully on those plans in the event of a disaster or emergency our business would be harmed
As part of our commitment to safeguarding our assets and maintaining the integrity of our operations C3 AI has established a comprehensive cybersecurity risk management program This program is designed to identify assess and mitigate cybersecurity risks that could potentially impact our business operations customers and stakeholders C3 AI employs a multi layered approach to identify and assess cybersecurity threats This includes
We utilize a risk assessment framework to categorize identified threats based on likelihood and potential impact on our business operations financial stability and reputation This framework includes third party vendor risk assessment to manage cybersecurity risks associated with our use of these providers The third party vendor risk assessment framework includes the following
Define security expectations within the vendor contract including data security obligations access controls incident reporting procedures security assessment calls if necessary and review of incident response plan business continuity and disaster recovery plan
Cybersecurity risk management is integrated with our overall enterprise risk management framework Identified cybersecurity risks are reported through established channels to relevant stakeholders including senior management and the Board of Directors Mitigation strategies are prioritized and incorporated into the overall risk management plan We continuously identify and evaluate potential cybersecurity threats While the nature of cyber threats makes it impossible to predict all future incidents some currently identified material cybersecurity risks include
Management is responsible for the overall implementation and effectiveness of the cybersecurity program This includes allocating resources establishing policies and ensuring employee adherence to security practices The VP of Information Security leads the cybersecurity team and reports directly to the VP of Cloud Infrastructure
The Audit Committee of the Board of Directors has specific oversight responsibilities related to cybersecurity including review of security controls and incident response plans Management provides updates to the Audit Committee on cybersecurity risks and the effectiveness of our cybersecurity program
Our commitment to security is evidenced by our certifications under ISO 27001 ISO 27017 SOC 2 Type II HIPAA NIST 800 171 and FedRamp Additionally we subject our standards based certifications to annual audits by third parties and have successfully undergone examinations such as the Health Insurance Portability and Accountability Act HIPAA validated by qualified third party assessors
Our current principal executive office is located in Redwood City California which consists of approximately 283 015 square feet of space under a lease that expires in March 2033 As of April 30 2024 we have acquired 262 276 square feet of space under this lease in several phases The lease commencement date of other phases of this lease will be determined when the landlord delivers the additional leased space to us
We lease 17 other offices around the world for our employees including in Tysons Virginia Houston Texas New York City New York Atlanta Georgia Chicago Illinois Huntsville Alabama Boston Massachusetts Minneapolis Minnesota London UK Sydney Australia Paris France Bengaluru India Singapore Amsterdam Netherlands Rome Italy Guadalajara Mexico and Munich Germany
We lease all of our facilities and do not own any real property We intend to procure additional space in the future as we continue to add employees and expand geographically We believe our facilities are adequate and suitable for our current needs and that should it be needed suitable additional or alternative space will be available to accommodate our operations
in our consolidated financial statements included elsewhere in this Annual Report on Form 10 K the Company is not presently a party to any other such litigation the outcome of which the Company believes if determined adversely to the Company would individually or taken together have a material adverse effect on the Company s business operating results cash flows or financial condition
Our Class A common stock is traded on The New York Stock Exchange or NYSE under the symbol AI The shares of Class A common stock and Class B common stock are identical except with respect to voting conversion and transfer rights Each share of Class A common stock is entitled to one vote Each share of Class B common stock is entitled to 50 votes Class A and Class B common stock have a par value of 0 001 per share and are referred to as common stock throughout this Annual Report on Form 10 K unless otherwise noted Holders of common stock are entitled to receive any dividends as may be declared from time to time by the board of directors
Shares of Class B common stock may be converted to Class A common stock at any time at the option of the stockholder Each share of Class B common stock will be automatically converted into one share of Class A common stock upon the earliest of the following i the date that is six months following the death or incapacity of Mr Siebel ii the date that is six months following the date that Mr Siebel is no longer providing services to the Company as an officer employee director or consultant iii December 11 2040 which is the twentieth anniversary of the completion of the initial public offering or IPO or iv the date specified by the holders of a majority of the then outstanding shares of Class B common stock voting as a separate class Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock Refer to
As of June 12 2024 there were 123 stockholders of record of our Class A common stock Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders we are unable to estimate the total number of stockholders represented by these record holders
We have never declared or paid any dividends on our common stock We currently intend to retain all available funds and any future earnings for the operation and expansion of our business Accordingly we do not anticipate declaring or paying dividends in the foreseeable future The payment of any future dividends will be at the discretion of our board of directors and will depend on our results of operations capital requirements financial condition prospects contractual arrangements any limitations on payment of dividends present in any debt agreements and other factors that our board of directors may deem relevant
This performance graph shall not be deemed soliciting material or to be filed with the Securities Exchange Commission SEC for purposes of Section 18 of the Securities Exchange Act of 1934 as amended Exchange Act or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act
The following graph compares the cumulative total return to stockholders on our Class A common stock since December 9 2020 the date our Class A common stock commenced trading on the NYSE relative to the cumulative total returns of the S P 500 Index and the S P 500 Information Technology Index over the same period An investment of 100 with reinvestment of all dividends is assumed to have been made in our Class A common stock and in each index at the market close on December 9 2020 and its relative performance is tracked through April 30 2024 The initial public offering price of our Class A common stock which had a closing stock price of 92 49 on December 9 2020 was 42 00 per share
1 Includes shares of unvested Class A common stock that were repurchased by us from former employees upon termination of employment in accordance with the terms of the employees stock option agreements We purchased the shares from the former employees at the respective original exercise prices
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10 K This discussion particularly information with respect to our future results of operations or financial condition business strategy and plans and objectives of management for future operations includes forward looking statements that involve risks and uncertainties as described under the heading Special Note Regarding Forward Looking Statements in this Annual Report on Form 10 K You should review the disclosure under the heading Risk Factors under Part I Item 1A in this Annual Report on Form 10 K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward looking statements Unless the context otherwise requires all references in this report to C3 ai C3 AI the Company we our us or similar terms refer to C3 ai Inc and its subsidiaries
A discussion regarding our financial condition and results of operations for the fiscal year ended April 30 2024 compared to the fiscal year ended April 30 2023 is presented below A discussion regarding our financial condition and results of operations for the fiscal year ended April 30 2023 compared to the fiscal year ended April 30 2022 can be found in Management s Discussion and Analysis of Financial Condition and Results of Operations in Part II Item 7 of our
We have built a family of software applications that enable our customers to rapidly develop deploy and operate large scale Enterprise AI applications Customers can deploy C3 AI solutions on major public cloud infrastructures private cloud or hybrid environments or directly on their servers and processors We provide three primary families of software solutions which we collectively refer to as our C3 AI software
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
combines 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
These solutions and our patented model driven architecture enable organizations to simplify and accelerate Enterprise AI application development deployment and administration We significantly reduce the effort and complexity of the AI software engineering problem
In January of 2009 we founded C3 Inc with the purpose of developing and marketing a software platform and family of software products that would enable companies to exploit the power of elastic cloud computing big data IoT and predictive analytics
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
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
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
We believe that Enterprise AI is a mega market event As this market has developed C3 AI has done a fine job of continually expanding its market offerings and continually expanding its market position to address the ever expanding opportunity
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
From 2010 2012 we closed several large agreements with a large global industrial company one of the world s largest chemical companies two large utilities and one of the world s largest high tech companies
In 2012 C3 engaged McKinsey Co to conduct a study and make recommendations for maximizing growth including optimal company positioning and an associated pricing and product strategy In the first two decades of the 21st century utility companies were in the process of spending 2 trillion globally to upgrade their grid infrastructures with IoT devices enabling the advent of the smart grid Utilities were early adopters of IoT
The McKinsey analysis recommended that there was a significant opportunity for C3 to expand its business by applying its energy management and energy efficiency solutions to utilities at grid scale in addition to selling to enterprises
Adopting the McKinsey recommendations C3 expanded its market position rebranded as C3 Energy and in addition to its prior solutions C3 Energy offered a family of predictive analytics solutions which were reliant on emerging AI techniques including machine learning supervised learning and unsupervised learning Built to address the utility value chains of power generation transmission distribution and consumption these solutions optimize the operation of large and complex power grid infrastructures The C3 Energy utility software products expanded to include C3 AMI Operations C3 Revenue Protection C3 Predictive Analytics C3 Revenue Production and C3 Reliability
It was during this period that the company formed its data science division to develop and apply AI techniques to our applications including machine learning predictive analytics supervised learning and unsupervised learning
During this period the company began to offer its products to the oil and gas industry including its AI Predictive Maintenance application for oil pumps offshore oil rigs LNG production facilities etc The company continued to offer its products for energy management and energy efficiency to utility companies based on per customer pricing and to enterprises based on expected value pricing
By 2016 we were seeing significant expansion in the cloud computing market and the proliferation of IoT sensors was expanding dramatically across many industries We were increasingly approached by manufacturing companies financial services companies oil and gas companies and the U S Department of Defense to deploy the same types of AI applications that we had successfully deployed in enterprises and utilities including AI Predictive Maintenance AI Fraud Detection AI Inventory Optimization and C3 Energy Management
At that time the common expression for these types of applications was IoT and we appropriately rebranded the company as C3 IoT to communicate to the market that we were again expanding our market offerings from primarily one vertical market energy to a broadening range of markets
In response to this increased demand the company tailored its core applications to meet the needs of those industries As such in addition to the C3 Platform we offered market specific versions of all our applications including AI Predictive Maintenance AI Inventory Optimization and AI Energy Management for the utility oil and gas defense and financial services industries In addition the company introduced the concept of 4 to 16 week product trials as part of the sales process
As the market for cloud computing big data IoT and predictive analytics continued to expand the market perception of IoT as expressed in the literature technical conferences the academy and in customer expectations changed While IoT had previously been considered at the confluence of sensor devices and AI applications it was clear that IoT was becoming a concept increasingly centered on the devices the IoT sensors themselves with the AI applications considered a separate category As this developed the C3 IoT brand became confusing to the market as many customers had the impression that the company was primarily in the business of manufacturing IoT sensors and devices
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
C3 AI was well ahead of its time in predicting the scale of the opportunity in enterprise AI applications We began when the market was nascent and as the market has developed and expanded we have expanded our branding and our market offerings to meet market expectations
We generate revenue primarily from the sale of subscriptions which accounted for 90 86 and 82 of our total revenue in the fiscal years ended April 30 2024 2023 and 2022 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
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
We also generate revenue from professional services which primarily include implementation services training and prioritized engineering services Professional services revenue represented 10 14 and 18 of our total revenue for the fiscal years ended April 30 2024 2023 and 2022 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
Our total revenue was 310 6 million for the fiscal year ended April 30 2024 representing a 16 increase compared to the prior fiscal year Our subscription revenue grew to 278 1 million for the fiscal year ended April 30 2024 representing a 21 increase compared to the prior fiscal year
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
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 RPO have generally decreased Customer Engagement has increased
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 Annual Report on Form 10 K RPO was 244 3 million and 381 4 million as of April 30 2024 and 2023 respectively
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 April 30 2024 is comprised of 39 0 million related to deferred revenue and 205 3 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
Our go to market strategy has been historically focused on large organizations recognized as leaders in their respective industries or public sectors that are attempting to solve complicated business problems by digitally transforming their operations These large organizations or lighthouse customers include companies and public agencies within the oil and gas power and utilities aerospace and defense industrial products life sciences and financial services industries among others This has resulted in C3 AI powering some of the largest and most complex Enterprise AI applications These lighthouse customers serve as proof points for other potential customers in their respective industries As a result we have a customer base of a relatively small number of large organizations that generate high average total subscription contract value but we expect that over time as more customers adopt our technology based on the proof points provided by these lighthouse customers the revenue represented by these lighthouse customers will decrease as a percentage of total revenue As our C3 AI Platform and much of our other C3 AI Software are industry agnostic we also expect to expand into other industries
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
Acquiring new customers and expanding our business with our existing customers is the purpose of our go to market effort and drives our growth Making new and existing customers successful is critical to our long term success After we help our customers solve their initial use cases they frequently identify incremental opportunities within their operations and expand their use of our products The increased engagement is measured by a combination of increased vCPU vGPU usage increased C3 AI Software subscriptions and subscriptions to the C3 AI Platform for in house AI application development
The size and sophistication of our customers businesses demonstrate the flexibility speed and scale of our products and maximize the potential value to our customers To be a credible partner to our customers who often are industry leaders we deploy an experienced and highly educated team of C3 AI personnel and partners We also complement and supplement our sales force with a number of go to market 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
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
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
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
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
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
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
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
Historically our go to market strategy has focused on enterprise wide multi period large value subscription contracts that entailed a long sales cycle considerable sales effort and protracted negotiations Our transition to a consumption based pricing model for new customers helps us to better meet the needs of customers and align us with the model that is becoming common for enterprise software companies
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
We believe that our future success and financial performance depend on a number of factors that present significant opportunities for our business but also pose risks and challenges including those discussed below and in the section of this Annual Report on Form 10 K in Part I Item 1A titled Risk Factors that we must successfully address to sustain our growth improve our results of operations and establish and maintain profitability
We are focused on continuing to grow our customer base retaining existing customers and expanding customers usage of our C3 AI Software by addressing new use cases across multiple departments and divisions adding users and developing and deploying additional applications All of these factors increase the adoption and relevance of our C3 AI Software to our customers business and as an outcome increases their runtime usage
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
We intend to attract new customers across multiple industries where we have limited meaningful presence today yet represent very large market opportunities such as telecommunications pharmaceuticals state and local government smart cities transportation and healthcare among others
Historically we have had a relatively small number of customers with large total subscription contract values As a result revenue growth can vary significantly based on the timing of customer acquisition changes in product mix and contract durations renewals or terminations We expect the number of customers to increase compared to prior fiscal years as organizations address the importance of digital transformation The average total subscription contract value as well as the revenue represented by our lighthouse customers as a percentage of total revenue is decreasing and we expect them to continue to decrease as we have restructured our sales organization and expanded our market partner ecosystem to effectively address small medium and large enterprise sales opportunities
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 II Item 7 of this Annual Report on Form 10 K
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
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
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 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
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 With a simple self service no code onboarding flow that takes minutes to complete C3 Generative AI Standard Edition allows users to easily access insights from documents and unstructured files across their enterprise
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
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
We expect to maintain high levels of investment in product innovation over the coming years as we continue to introduce new applications which address new industry use cases and new features and functionality for the C3 AI Software As our business scales over a longer term horizon we anticipate research and development spend as a percent of total revenue to decline
We believe we are in the early stages of a large and expanding market for AI enabled digital transformation As a result we intend to continue to invest in brand awareness market education strategic paid media and thought leadership particularly as it relates to generative AI We engage the market through digital radio outdoor airport and print advertising virtual and physical events including our C3 Transform annual user conference and C3 AI Live a series of livestreamed events featuring C3 AI customers C3 AI partners and C3 AI experts in AI Machine Learning or ML and data science
We anticipate continuing to make significant investments in marketing over the next few years Over the long term we expect marketing spend to decline as a percent of total revenue as we make ongoing progress establishing C3 AI s brand and reputation and as our business scales
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
In June 2019 we entered into a three year arrangement with Baker Hughes as both a leading customer and as a partner in the oil and gas industry This arrangement included a subscription to our C3 AI Platform and C3 AI Applications for their own operations which we refer to below as direct subscription fees the co exclusive right for Baker Hughes to resell our offerings worldwide in the oil and gas industry and the non exclusive right to resell our offerings in other industries Under the arrangement Baker Hughes made minimum non cancellable total revenue commitments to us of 50 0 million 100 0 million and 170 0 million for each of the fiscal years ending April 30 2020 2021 and 2022 respectively Baker Hughes revenue commitments were inclusive of their direct subscription fees of 39 5 million per year with the remainder to be generated from the resale of our solutions by the Baker Hughes sales organization During the fiscal year ended April 30 2020 we recognized as revenue the full value of the first year of the direct subscription agreement and the value of deals brought in by Baker Hughes through the reseller arrangement This arrangement was revised in June 2020 to extend the term by an additional two years for a total of five years with an expiration date in the fiscal year ending April 30 2024 and to modify the annual amount of Baker Hughes commitments to 53 3 million 75 0 million 125 0 million and 150 0 million over the fiscal years ending April 30 2021 2022 2023 and 2024 respectively
We and Baker Hughes revised this arrangement in October 2021 to extend the term by an additional year for a total of six years with an expiration date in the fiscal year ending April 30 2025 to modify the amount of Baker Hughes annual commitments to 85 0 million in the fiscal year ending April 30 2023 110 0 million in the fiscal year ending April 30 2024 and 125 0 million in the fiscal year ending April 30 2025 and to revise the structure of the arrangement to simplify the sales process for Baker Hughes Beginning in the fiscal year ended April 30 2023 and until the agreements were further revised in January 2023 as described below Baker Hughes annual commitments were reduced by any revenue we generated from certain customers between October 2021 and January 2023 We acknowledged that Baker Hughes had met its minimum annual revenue commitment for the fiscal year ended April 30 2022 and recognized 16 0 million of sales commission as deferred costs during the fiscal quarter ended October 31 2021 related to this arrangement which will be amortized over an expected period of five years
We and Baker Hughes further revised and further expanded this arrangement in January 2023 Pursuant to this revised arrangement the frequency of payments due from Baker Hughes is accelerated Baker Hughes obtained expanded reseller rights and we will provide additional products and services This resulted in an increase of 32 5 million in the transaction price by eliminating potential variable consideration attributable to any revenue we generated from certain customers The amount of consideration may increase if Baker Hughes exceeds certain thresholds We also provided Baker Hughes the option to extend the subscription term upon payment of a renewal fee
We purchase services from Baker Hughes from time to time to support our end customers in relation to our contracts with those customers These costs are recorded as cost of subscription revenue in the consolidated statement of operations
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 21 and 22 of our total revenue for the fiscal years ended April 30 2024 2023 and 2022 respectively from international customers
Our business and financial condition have been and may continue to be impacted by adverse macroeconomic conditions and uncertainties including labor shortages supply chain disruptions inflation higher interest rates and fluctuations or volatility in capital markets which are causing customers to optimize consumption rationalize budgets and prioritize cash flow management
We will continue to evaluate the nature and extent of the impact of general macroeconomic conditions on our business For further discussion see the section titled Risk Factors included in Part I Item 1A of this Annual Report on Form 10 K
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 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
Our professional services revenue primarily includes implementation services training and prioritized engineering services We offer a complete range of professional service support both onsite and remotely including 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 are typically a fixed fee engagement with defined deliverables and a duration of less than 12 months In certain cases customers seeking increased utility from their C3 AI Suite or C3 AI Application subscriptions can procure prioritized engineering services to develop and modify software features which are typically part of our product roadmap but on an accelerated basis
Cost of subscription revenue consists primarily of costs related to compensation including salaries bonuses benefits stock based compensation and other related expenses for the production environment support and COE staff hosting of our C3 AI Software including payments to outside cloud service providers and allocated overhead and depreciation for facilities
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
Gross profit is total revenue less total cost of revenue Gross margin is gross profit expressed as a percentage of total revenue Our gross margin has fluctuated historically and may continue to fluctuate from period to period based on a number of factors including the timing and mix of the product offerings we sell size or nature of customer size of contract industry and the geographies into which we sell in any given period Our subscription gross margin may experience variability over time as we continue to invest and continue to scale our business Our professional services gross margin may also experience variability from period to period due to the use of our own resources and third party system integration partners in connection with the performance of our fixed price agreements
Our operating expenses consist of sales and marketing research and development and general and administrative expenses We expect our operating expenses as a percentage of total revenue to increase as we continue to invest to grow our business Over the long term we expect those percentages to stabilize and then move lower as our business matures
Sales and marketing expenses consist of expenditures related to advertising media marketing promotional events brand awareness activities business development customer success and corporate partnerships Sales and marketing expenses also include employee related costs including salaries bonuses benefits stock based compensation and commissions for our employees engaged in sales and marketing activities and allocated overhead and depreciation for facilities
We expect our sales and marketing expenses will increase in absolute dollar amounts as we continue to invest in brand awareness and programmatic spend to generate demand We also expect to hire additional sales personnel to increase sales coverage of target industry vertical and geographic markets Consequently sales and marketing expense as a percent of total revenue will remain high in the near term As our business scales through customer expansion and market awareness we anticipate that sales and marketing expense as a percent of total revenue will decline over time
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 our 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
We expect research and development expense to increase in absolute dollars as we continue to invest in our existing and future product offerings We may experience variations from period to period with our total research and development expense as a percentage of revenue as we develop and deploy new applications targeting new use cases and new industries Over a longer horizon we anticipate that research and development expense as a percent of total revenue will decline
General and administrative expense consists primarily of employee related costs including salaries bonuses benefits stock based compensation and other related costs associated with administrative services such as executive management and administration legal human resources accounting and finance General and administrative expense also includes facilities costs such as depreciation and rent expense professional fees and other general corporate costs including allocated overhead and depreciation for facilities
We expect our general and administrative expense to increase in absolute dollars as we continue to grow our business We have incurred and expect to continue to incur additional expenses as a result of operating as a public company including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC as well as higher expenses for general and director and officer insurance investor relations and professional services We expect that general and administrative expense as a percent of total revenue will decline over the long term as we benefit from the economies of scale of our overall business
Interest income consists primarily of interest income earned on our cash cash equivalents and available for sale marketable securities It also includes amortization of premiums and accretion of discount related to our available for sale marketable securities Interest income varies each reporting period based on our average balance of cash cash equivalents and available for sale marketable securities during the period and market interest rates
Other expense income net consists primarily of foreign currency exchange gains and losses losses from impairment of marketable securities and realized gains and losses on sales of available for sale marketable securities Our foreign currency exchange gains and losses relate to transactions and asset and liability balances denominated in currencies other than the U S dollar We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates
Our income tax provision consists of an estimate of federal state and foreign income taxes based on enacted federal state and foreign tax rates as adjusted for allowable credits deductions uncertain tax positions changes in the valuation of our deferred tax assets and liabilities and changes in tax laws We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized
Subscription revenue accounted for 90 and 86 of our total revenue for the fiscal years ended April 30 2024 and 2023 respectively Subscription revenue increased by 47 7 million or 21 for the fiscal year ended April 30 2024 compared to the prior fiscal year Approximately 13 and 9 respectively of the total subscription revenue for the fiscal year ended April 30 2024 and 2023 respectively was attributable to revenue from new customers and the remaining 87 and 91 respectively was attributable to revenue from existing customers
Professional services revenue decreased by 3 9 million or 11 for the fiscal year ended April 30 2024 compared to the prior fiscal year predominantly due to decrease in revenue from prioritized engineering services
The increase in cost of subscription revenue for the fiscal year ended April 30 2024 compared to the prior fiscal year was primarily due to higher personnel related costs of 31 4 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 data center costs of 9 0 million higher third party outsourcing costs of 4 7 million increased depreciation costs of 1 6 million higher facilities costs of 1 4 million and higher overhead costs of 0 8 million
The decrease in cost of professional services revenue for the fiscal year ended April 30 2024 compared to the prior fiscal year was primarily due to lower personnel related costs of 2 9 million as a result of a decrease in the number of service projects lower facilities costs of 0 5 million and lower overhead costs of 0 4 million and lower third party outsourcing costs of 0 1 million
The subscription margin for the fiscal year ended April 30 2024 decreased due to higher personnel related costs 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 compared to the prior fiscal year
The professional services margin for the fiscal year ended April 30 2024 increased primarily due to lower personnel related costs due to a decrease in the number of service projects compared to the prior fiscal year
The increase in sales and marketing expense for the fiscal year ended April 30 2024 compared to the prior fiscal year was primarily due to higher advertising spend of 9 0 million higher marketing costs of 8 9 million higher personnel related costs of 5 8 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 marketing events costs of 5 1 million and higher data center costs of 0 9 million
The decrease in research and development expense for the fiscal year ended April 30 2024 compared to the prior fiscal year was primarily due to lower personnel related costs of 20 5 million partially offset by higher cloud computing costs of 10 5 million
The increase in general and administrative expense for the fiscal year ended April 30 2024 compared to the prior fiscal year was primarily due to higher personnel related costs of 3 7 million as a result of increased stock based compensation primarily related to additional equity awards granted to current and new employees higher professional services costs of 1 9 million partially offset by lower corporate insurance costs of 1 7 million
The increase in interest income for the fiscal year ended April 30 2024 compared to the prior fiscal year was primarily the result of higher prevailing interest rates on our marketable securities portfolio
The decrease in other expense income net for the fiscal year ended April 30 2024 compared to the prior fiscal year was due to foreign currency losses on the remeasurement of Euro denominated cash and accounts receivable balances
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
Since inception we have financed operations primarily through sales generated from our customers and sales of equity securities As of April 30 2024 and 2023 we had 167 1 million and 284 8 million of cash and cash equivalents and 583 2 million and 527 6 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 1 089 9 million as of April 30 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
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
Net cash used in operating activities of 62 4 million for the fiscal year ended April 30 2024 was due to our net loss of 279 7 million adjusted for certain non cash items primarily consisting of stock based compensation of 215 8 million accretion of discounts on marketable securities of 17 2 million depreciation and amortization of 12 7 million and non cash operating lease cost of 0 7 million The 5 2 million cash inflow related to changes in operating assets and liabilities was primarily attributable to an increase in lease liabilities of 17 3 million an increase in other liabilities of 8 2 million a decrease in accounts receivable of 4 5 million and a decrease in prepaid expenses other current assets and other assets of 3 2 million This was partially offset by a decrease in accounts payable of 12 9 million a decrease in deferred revenue of 8 9 million and a decrease in accrued compensation and employee benefits of 6 2 million
Net cash used in operating activities of 115 7 million for the fiscal year ended April 30 2023 was due to our net loss of 268 8 million adjusted for certain non cash items primarily consisting of stock based compensation of 216 5 million depreciation and amortization of 6 1 million and non cash operating lease cost of 7 0 million The 72 2 million cash outflow related to changes in operating assets and liabilities was primarily attributable to an increase in accounts receivable of 54 5 million inclusive of an increase in related party balances of 38 8 million a decrease in accounts payable of 22 0 million inclusive of a decrease in related party balances of 16 3 million a decrease in other liabilities of 10 6 million inclusive of a decrease in related party balances of 2 5 million a decrease to deferred revenue of 1 3 million inclusive of an increase in related party balances of 0 1 million and an increase in prepaid expenses other current assets and other assets of 0 6 million inclusive of an increase in related party balances of 4 7 million This was partially offset by cash inflows related to an increase in lease liabilities of 13 6 million and an increase to accrued compensation and employee benefits of 3 2 million
Net cash used in investing activities of 66 6 million for the fiscal year ended April 30 2024 was primarily attributable to purchases of marketable securities of 827 9 million and capital expenditures of 28 0 million mainly related to the leasehold improvements associated with leased space partially offset by maturities and sales of marketable securities of 789 3 million
Net cash provided by investing activities of 59 9 million for the fiscal year ended April 30 2023 was primarily attributable to the maturities and sales of marketable securities of 876 7 million partially offset by purchases of investments of 745 2 million and capital expenditures of 71 5 million mainly related to the leasehold improvements associated with the new leased space
Net cash provided by financing activities of 11 3 million for the fiscal year ended April 30 2024 was due to 13 8 million of proceeds from the exercise of stock options for Class A common stock and 10 8 million of proceeds from the issuance of Class A common stock under the Employee Stock Purchase Plan or ESPP partially offset by 13 2 million of taxes paid related to net share settlement of equity awards
Net cash provided by financing activities of 0 6 million for the fiscal year ended April 30 2023 was primarily due to 4 5 million of proceeds from the exercise of stock options for Class A common stock and 3 1 million of proceeds from the issuance of Class A common stock under the ESPP partially offset by 6 9 million of taxes paid related to net share settlement of equity awards
Our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10 K are prepared in accordance with GAAP The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets liabilities revenue costs and expenses and related disclosures We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances Actual results could differ significantly from our estimates To the extent that there are differences between our estimates and actual results our future financial statement presentation financial condition results of operations and cash flows will be affected
We believe that the following accounting policies involve a high degree of judgment and complexity Accordingly these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations See
to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10 K for a description of our other significant accounting policies The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes Although we believe that the estimates we use are reasonable due to the inherent uncertainty involved in making those estimates actual results reported in future periods could differ from those estimates The critical accounting estimates assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below
Revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services
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 consumption based pricing Sales of our software licenses grant customers the right to use our functional intellectual property either on their own cloud instance or internal hardware infrastructure over the contractual term As part of our customer acquisition strategy we also sell premium stand ready COE support services hosting services pilots and trials of our applications and software licenses that are prototype versions of C3 AI Applications configured for a customer that do not require maintenance and support services Sales of our software as a service offerings include the right to use our software in a hosted environment over the contractual term Substantially all of our subscriptions offerings include our software and our maintenance and support services Our maintenance and support services 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 Revenue from software licenses that do not require maintenance and support services is recognized when the control of the software is transferred to the customer
We generate additional runtime subscription fees for the use of our C3 AI Platform a type of consumption billing based on computing and storage resources required to run our software Customers may purchase blocks of runtime in advance We typically recognize the consumption or usage based revenue in excess of committed purchased runtime upon occurrence
Professional services fees are based on the level of effort required to perform such tasks and are typically a fixed fee engagement with a duration of less than 12 months We recognize revenue for our professional services over time on an input or output basis as the performance obligations are satisfied
Most of our contracts with customers contain multiple performance obligations Our subscriptions are sold for a broad range of amounts and a representative standalone selling price or SSP is not always discernible from past transactions or other observable evidence When appropriate we determine SSP based on the price at which the performance obligation has previously been sold through past standalone transactions When the SSP of a license or subscription and bundled maintenance and support services is highly variable and the contract also includes additional performance obligations with observable SSP we first allocate the transaction price to the performance obligations with established SSPs and then apply the residual approach to allocate the remaining transaction price to the license or subscription and bundled maintenance and support services If the contract contains a single performance obligation the entire transaction price is allocated to the single performance obligation
Determining whether the software subscriptions and the related support are considered distinct performance obligations that should be accounted for separately or as a single performance obligation requires significant judgment Management applies judgment in identifying and evaluating terms and conditions in customer contracts that may impact evaluation of performance obligations and revenue recognition
Determining the relative SSP for contracts that contain multiple performance obligations requires significant judgement If there is no observable SSP it is estimated using judgement and considering all reasonably available information including but not limited to pricing practices in customer contracts with multiple goods and services competitor pricing strategies internally approved pricing guidelines and other observable inputs If applying the residual approach results in zero or very little consideration being allocated to a performance obligation we consider all reasonably available data to determine an appropriate allocation of the transaction price
We are exposed to market risks in the ordinary course of our business Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates We do not hold or issue financial instruments for trading purposes
As of April 30 2024 we had cash cash equivalents and marketable securities of 750 4 million As of April 30 2023 we had cash cash equivalents and marketable securities of 812 4 million Interest earning instruments carry a degree of interest rate risk We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure As of April 30 2024 a hypothetical 10 relative change in interest rates would not have had a material impact on the value of our cash equivalents or marketable securities portfolio Any realized gains or losses resulting from such interest rate changes would only occur if we sold the marketable securities prior to maturity
Our functional currency is the U S dollar For the fiscal years ended April 30 2024 2023 and 2022 approximately 5 8 and 13 of our sales were denominated in euros respectively and therefore our revenue accounts receivable and cash deposits are subject to foreign currency risk Our foreign operating expenses are denominated in the local currencies of the countries in which we operate Our consolidated results of operations and cash flows are therefore subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates A hypothetical 10 change in foreign currency exchange rates may result in a material impact on our consolidated financial statements As our international operations grow we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates
We do not believe that inflation has had a material effect on our business results of operations or financial condition If our costs were to become subject to significant inflationary pressures including higher employee compensation costs we may not be able to fully offset such higher costs through price increases Our inability or failure to do so could harm our business financial condition or results of operations
We have audited the accompanying consolidated balance sheets of C3 ai and subsidiaries the Company as of April 30 2024 and 2023 the related consolidated statements of operations comprehensive loss stockholders equity and cash flows for each of the three fiscal years in the period ended April 30 2024 and the related notes collectively referred to as the financial statements In our opinion the financial statements present fairly in all material respects the financial position of the Company as of April 30 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended April 30 2024 in conformity with accounting principles generally accepted in the United States of America
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of April 30 2024 based on criteria established in
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 18 2024 expressed an unqualified opinion on the Company s internal control over financial reporting
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matter below providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates
Certain of the Company s revenue contracts with customers include multiple performance obligations such as delivery of software licenses software as a service associated maintenance and support professional services and others The Company typically negotiates contracts with its customers and while many of these contracts contain standard terms and conditions customer contracts may have customer specific terms and conditions due to the nature of the contracts
Pursuant to accounting principles generally accepted in the United States of America the Company is required to evaluate whether each performance obligation represents goods and services that are distinct A good or service is distinct where the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company and is distinct in the context of the contract where the transfer of the good or service is separately identifiable from other promises in the contract The identification and evaluation of performance obligations can require significant judgment and could impact the amount of revenue recognized in a given period
We identified the Company s identification and evaluation of performance obligations impacting revenue recognition as a critical audit matter because of the judgment management makes in evaluating the terms and conditions in such contracts and the impact of such judgment on the amount of revenue recognized in a given period This required a high degree of auditor judgment and an increased extent of testing
We tested the effectiveness of internal controls over the Company s process related to the identification of performance obligations specifically around the review of the terms and conditions and proper evaluation of performance obligations
We evaluated management s significant accounting policies related to revenue recognition including the identification of performance obligations for reasonableness and compliance with generally accepted accounting principles
Assessed the terms and conditions in the contract source documents and evaluated the appropriateness of management s application of their accounting policies in the identification and evaluation of performance obligations
Class A common stock 0 001 par value 1 000 000 000 shares authorized as of April 30 2024 and 2023 respectively 120 205 931 and 110 442 569 shares issued and outstanding as of April 30 2024 and 2023 respectively
Class B common stock 0 001 par value 3 500 000 shares authorized as of April 30 2024 and 2023 respectively 3 499 992 and 3 499 992 shares issued and outstanding as of April 30 2024 and 2023 respectively
C3 ai Inc including its subsidiaries C3 AI or the Company is an enterprise artificial intelligence AI software provider The Company s C3 AI Platform supports accelerating digital transformation in various industries with prebuilt and configurable C3 AI Applications for business use cases including predictive maintenance fraud detection sensor network health supply network optimization energy management anti money laundering and customer engagement The Company supports customers in the United States Europe and other parts of the world The Company was initially formed as a limited liability company in Delaware on January 8 2009 and converted to a Delaware corporation in June 2012
The Company prepares its consolidated financial statements in accordance with generally accepted accounting principles in the United States U S GAAP and applicable rules and regulations of the U S Securities and Exchange commission the SEC The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries All intercompany balances and transactions have been eliminated in consolidation
The preparation of the accompanying consolidated financial statements in conformity with U S GAAP requires management to make estimates and assumptions about future events These estimates and the underlying assumptions affect the amounts of assets and liabilities reported disclosures about contingent assets and liabilities and reported amounts of revenue and expenses Actual results and outcomes could differ significantly from the Company s estimates judgments and assumptions Significant estimates include but are not limited to determining standalone selling price for performance obligations in contracts with customers and estimating variable consideration the estimated expected benefit period for deferred contract acquisition costs the useful lives of long lived assets the incremental borrowing rate for operating leases other assumptions used to measure stock based compensation and the valuation of deferred income tax assets and uncertain tax positions These estimates and assumptions are based on management s best estimates and judgment Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors including the current economic environment which management believes to be reasonable under the circumstances The Company adjusts such estimates and assumptions when facts and circumstances dictate Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods As future events and their effects cannot be determined with precision actual results could materially differ from those estimates and assumptions
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents marketable securities and accounts receivable The majority of the Company s cash and cash equivalents are held by one financial institution The Company is exposed to that financial institution to the extent that its cash balance with that financial institution is in excess of Federal Deposit Insurance Company FDIC insurance limits The Company s investment policy is to invest in securities with a minimum rating of P 2 by Moody s A 2 by Standard Poor s F2 by Fitch s or higher for short term investments and minimum rating of BBB by Moody s Standard Poor s Fitch s or higher for long term investments For accounts receivable the Company is exposed to credit risk in the event of nonpayment by customers up to the amounts recorded on the consolidated balance sheets The Company manages its accounts receivable credit risk through ongoing credit evaluation of its customers financial conditions The Company generally does not require collateral from its customers See
The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents The Company s cash equivalents consisted of investments in money market funds certificates of deposit commercial paper and corporate debt securities as of April 30 2024 and 2023
The Company had restricted cash pledged as security deposits at April 30 2024 and 2023 of 12 6 million and 12 6 million respectively representing a security deposit required by certain leases The balance of restricted cash as of April 30 2024 and 2023 was recorded in other assets non current and prepaid expenses and other current assets on the consolidated balance sheets
The Company s investments in marketable debt securities have been classified and accounted for as available for sale and are recorded at estimated fair value The Company s available for sale marketable securities comprised of money market funds U S treasury securities certificates of deposit U S government agency securities commercial paper and corporate debt securities are classified as available for sale marketable securities The Company considers all of its marketable securities as available for use in current operations including those with maturity dates beyond one year and therefore classifies these securities within current assets on the consolidated balance sheet Purchase premiums and discounts are amortized or accreted using the effective interest method over the life of the related security and such amortization and accretion are included in interest income in the consolidated statements of operations
For available for sale marketable securities in an unrealized loss position the Company first assesses whether it intends to sell or it is more likely than not that the Company will be required to sell the security before the recovery of its entire amortized cost basis If either of these criteria is met the security s amortized cost basis is written down to fair value through other income expense net in the consolidated statements of operations If neither of these criteria is met the Company further assesses whether the decline in fair value below amortized cost is due to credit or non credit related factors In making this assessment the Company considers the extent to which fair value is less than amortized cost any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security among other factors Credit related unrealized losses are recognized as an allowance on the consolidated balance sheets with a corresponding charge in the other expense income net in the consolidated statements of operations Non credit related unrealized losses and unrealized gains on available for sale marketable securities are reported in other comprehensive loss income as a separate component on the consolidated statements of comprehensive loss Realized gains and losses are determined based on the specific identification method and are reported in interest income on the consolidated statements of operations
Accounts receivable includes billed and unbilled receivables net of allowance of doubtful accounts Trade accounts receivable are recorded at invoiced amounts and do not bear interest The expectation of collectability is based on a review of credit profiles of customers contractual terms and conditions current economic trends and historical payment experience The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice and the collection history of each customer to determine the appropriate amount of allowance for doubtful accounts An allowance for doubtful accounts balance of 0 4 million and 0 4 million was recorded as of April 30 2024 and 2023 respectively Accounts receivable included unbilled receivables of as of April 30 2024 and April 30 2023 of 62 3 million and 77 6 million respectively
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date Assets and liabilities that are measured at fair value are reported using a three level fair value hierarchy that prioritizes the inputs used to measure fair value This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs The three levels of inputs used to measure fair value are as follows
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market the determination of fair value requires more judgment Accordingly the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3 A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement
Prepaid expenses and other current assets are comprised primarily of prepaid cloud subscriptions other receivables costs to obtain and fulfill a contract prepaid software subscriptions prepaid rent and prepaid insurance premiums
Property and equipment are stated at cost less accumulated depreciation Assets are depreciated using the straight line method over useful lives of three to five years Leasehold improvements and certain furniture and fixtures are amortized using the straight line method over the lesser of the remaining respective lease term or useful lives
The Company evaluates long lived assets or asset groups for impairment whenever events indicate that the carrying value of an asset or asset group may not be recoverable based on expected future cash flows attributable to that asset or asset group Recoverability of assets held and used is measured by comparing the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group If the carrying amount of an asset or asset group exceeds estimated undiscounted future cash flows then an impairment charge would be recognized based on the excess of the carrying amount of the asset or asset group over its fair value Assets to be disposed of are reported at the lower of their carrying amount or fair value less costs to sell There were no impairment charges recognized related to long lived assets during the fiscal years ended April 30 2024 2023 and 2022
Goodwill is the amount by which the cost of acquired net assets in a business combination exceeds the fair value of the net identifiable assets on the date of purchase and is carried at its historical cost The Company tests goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired The Company performs its annual impairment test of goodwill as of February 1 and whenever events or circumstances indicate that the asset might be impaired The tests did not result in an impairment to goodwill during the fiscal years ended April 30 2024 2023 and 2022
The Company determines if an arrangement is or contains a lease at inception by evaluating various factors including if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration and other facts and circumstances Lease classification is determined at the lease commencement date
The Company has lease arrangements that include lease and non lease components The Company has elected to not account for the lease and non lease components separately For short term leases defined as leases with a lease term of 12 months or less the Company elected to not recognize an associated lease liability and right of use ROU asset Lease payments for short term leases are expensed on a straight line basis over the lease term
In addition the Company subleases certain of its unoccupied facilities to third parties Any impairment to the associated right of use assets leasehold improvements or other assets as a result of a sublease is recognized in the period the sublease is executed and recorded in the consolidated statements of operations The Company recognizes sublease income on a straight line basis over the sublease term Sublease income is recorded as a reduction to the Company s operating lease costs
The Company does not have financing leases Operating lease ROU assets represent the Company s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term The Company uses the rate implicit in the lease when readily determinable at lease inception If the implicit rate is not readily determinable the Company uses its incremental borrowing rate based on the information available at the adoption date for leases that commenced prior to the adoption date and the commencement date for leases that commenced after the adoption date The incremental borrowing rate assumptions include the lease term and the Company s credit risk The operating lease ROU asset also includes any advance lease payments made and excludes lease incentives The Company s lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option Lease expense for lease payments is recognized on a straight line basis as operating expense in the consolidated statements of operations over the lease term
The Company capitalizes certain software development costs subsequent to the establishment of technological feasibility Based on the Company s product development process and substantial development risks the Company s products are made available for general release as soon as technological feasibility is reached
The Company expenses the cost of purchased software that is to be sold leased or otherwise marketed as part of a product until the technological feasibility of the product has been established or where the software has an alternative future use Once the technological feasibility of the product to be externally marketed has been established or where the software has an alternative future use the Company capitalizes the cost of purchased software until the associated product is available for general release to customers at which point the capitalized cost is amortized on a product by product basis the greater of the ratio of current gross revenues to the total of current and anticipated future gross revenues or over the remaining estimated economic life of the product
As of April 30 2024 and 2023 capitalized software costs of 4 3 million and 3 0 million respectively were included in other assets non current on the consolidated balance sheets The Company amortized capitalized software costs of 1 3 million 1 1 million and 0 7 million during the fiscal years ended April 30 2024 2023 and 2022 respectively and included in cost of subscription revenue in the consolidated statements of operations
Deferred revenue consists of billings or cash received for services in advance of revenue recognition and is recognized as revenue when all of the Company s revenue recognition criteria are met The portion of deferred revenue that is anticipated to be recognized as revenue during the succeeding twelve month period is recorded as deferred revenue current and the remaining portion is recorded as deferred revenue non current on the consolidated balance sheets The Company s contract liabilities are classified as deferred revenue upon the right to invoice or when payments have been received for undelivered products or services
ASC 606 for all periods presented The core principle of ASC 606 is to recognize revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services This principle is achieved by applying the following five step approach
A contract with a customer exists when 1 the Company enters into an enforceable contract with a customer that defines each party s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services 2 the contract has commercial substance and 3 the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer s intent and ability to pay the promised consideration
Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct whereby the customer can benefit from the goods or services either on their own or together with other resources that are readily available from third parties or from the Company and are distinct in the context of the contract whereby the transfer of the goods or services is separately identifiable from other promises in the contract To the extent a contract includes multiple promised goods or services the Company applies judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract If these criteria are not met the promised goods or services are accounted for as a combined performance obligation
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer net of sales taxes or value added taxes If the transaction price includes variable consideration the Company includes an estimate of the amount it expects to receive if it is probable that a significant reversal of cumulative revenue recognized will not occur Usage based fees earned in exchange for the use of the Company s software licenses and subscription services in excess of committed usage are recognized in the period when usage occurs
Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price SSP When appropriate the Company determines SSP based on data points that include the price at which the performance obligation has previously been sold through past transactions on a stand alone basis internally approved pricing guidelines and other relevant data points If there is no observable SSP it is estimated using judgement and considering all reasonably available information including but not limited to pricing practices competitor pricing strategies and other observable inputs When the SSP of a license or subscription and bundled maintenance and support services is highly variable and the contract also includes additional performance obligations with observable SSP the Company first allocates the transaction price to the performance obligations with established SSPs and then applies the residual approach to allocate the remaining transaction price to the license or subscription and bundled maintenance and support services If applying the residual approach results in zero or very little consideration being allocated to the performance obligation the Company considers all reasonably available data to determine an appropriate allocation of the transaction price If the contract contains a single performance obligation the entire transaction price is allocated to the single performance obligation
The Company satisfies substantially all of its performance obligations over time as discussed in further detail below Revenue is recognized at the time the related performance obligation is satisfied with the transfer of a promised good or service to a customer over time Revenue from software licenses that do not require maintenance and support services is recognized when the control of the software is transferred to the customer
Our subscription revenue is primarily comprised of software licenses software as a service offerings SaaS stand ready Center of Excellence COE support services pilots and trials of our C3 AI Applications or Generative AI and consumption based pricing Licenses represent a contractual right for a customer to take possession of the software and it is feasible for the customer to host the software independently SaaS represents a right for a customer to access the software through the Company s cloud environment and the customer does not have the right to take possession of the software Subscriptions generally include our maintenance and support services that comprise of critical and continuous updates to the software that are integral to maintaining the intended utility of the software over the contractual term For the significant majority of the Company s offerings software and maintenance and support services are highly interdependent and interrelated and represent a single performance obligation within the context of the contract and are generally satisfied over time
The Company s subscriptions are generally offered under renewable multi period fixed fee contracts where payments are typically due in advance A time elapsed output method is used to measure progress because the nature of the promise is a stand ready service The Company also offers premium stand ready C3 AI COE support services hosting services and trial services which are distinct performance obligations A description of the Company s offerings are as follows
C3 AI Platform is a comprehensive suite that allows for the design deployment and operation of AI predictive analytics and applications at enterprise scale The C3 AI Platform provides data scientists and application developers robust advantages for rapid application and analytics development and deployment Customers primarily pay for the C3 AI Platform via fixed annual fees based on the number of development users allowed to access the C3 AI Platform The C3 AI Platform offering is primarily a term subscription but at times has been sold as a perpetual license and generates additional runtime subscription fees a form of consumption or usage based revenue based on compute and storage resources required to run the C3 AI Platform
C3 AI Applications are production applications that address a wide range of predictive analytics reporting visualization and Generative AI use cases C3 AI Applications are industry tested and proven enterprise grade applications built on a cohesive suite architecture that is designed to integrate and process highly dynamic data sets from sensor networks and enterprise and extraprise information systems and enable advanced ML capabilities C3 AI Applications sold without the C3 AI Platform can be in the form of term or perpetual licenses or subscriptions and earn revenue through a fixed fee or through runtime subscription fees This includes software licenses that are prototype versions of C3 AI Applications configured for a customer and do not require maintenance and support services
combines the utility of 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
C3 AI Maintenance and Support Services are provided for the C3 AI Platform and the C3 AI Applications that are selected by the customer This support includes standard monitoring performance monitoring database maintenance security monitoring upgrading backup and restore patching etc provided by the Company The Company continuously provides updates that are critical to the continued and enhanced utility of the software
COE Support Services provide premium development services and support by an available pool of resources to allow the customer to utilize extend or modify C3 AI Applications and or to develop its own applications on the C3 AI Platform COE Support Services represent a stand ready performance obligation comprised of a series of distinct days of service that is satisfied and recognized in revenue ratably over the term of the COE agreement Revenue for COE Support Services is included within subscription revenue in the consolidated statements of operations
Pilots are subscriptions for unlimited developers access to C3 AI Platform one C3 AI Application or C3 Generative AI and COE support services of up to six months 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 charge
Trial projects are typically fixed price eight to 16 week product trials during which the Company works with customers to define a specific business problem or use case and address the use case using AI based predictive analytics integrate data configure ML algorithms supporting the use case and present the resulting insights demonstrating a working application that shows the utility benefit and economic value to be gained from a production deployment These paid trials are solely meant to demonstrate the feasibility of the Company s offering to the customer and to encourage them to enter into a large multi year arrangement with the Company Trial revenue is recognized over time during the trial period
For certain customers the Company provides access to the C3 AI Platform and or C3 AI Applications in the Company s cloud environment The customer consumes and receives benefit throughout the hosting period from the entity s performance of hosting and providing access to the hosted software which the customer would otherwise have to undertake itself or obtain another party to do The Company recognizes hosting services over time based on the consumption patterns of the customers Customers who choose to install the C3 AI Platform and or C3 AI Applications in their own cloud environments do not subscribe to the Company s hosting services Hosting services are generally offered as part of the subscription for C3 AI Platform and or C3 AI Application arrangements including pilots and the amount of revenue recognized on a monthly basis varies based on actual consumption by the customer
The Company s professional services primarily include implementation services training and prioritized engineering services The Company offers a complete range of professional service support both onsite and remotely including training application design project management system design data modeling data integration application design development support data science and application and AI Platform administration support Professional services fees are based on the level of effort required to perform such tasks and are typically a fixed fee engagement with a duration of less than 12 months Prioritized engineering services are undertaken at the request of customers to accelerate the development of software features in C3 AI software products These features are typically part of the Company s product roadmap but the customer contracts with the Company to obtain such features on a time accelerated basis The Company generally recognizes revenue from professional services over time as the performance obligations are satisfied
The Company typically invoices customers for subscription fees in annual increments upon execution of the initial contract or subsequent renewal payable within 30 to 60 days and providing customers access to the C3 AI Platform and or C3 AI Applications For pilots the Company typically invoices customers upon execution of the contract Monthly usage based runtime and hosting charges are billed as they are delivered or in arrears Certain government contracts are cancellable during the subscription term depending on the future fiscal funding available to the contract The Company has not experienced any cancellation due to the funding constraint related to such contracts
The timing of revenue recognition may differ from the timing of invoicing to customers Accounts receivable are recorded at the invoiced amount net of an allowance for doubtful accounts A receivable is recognized in the period the Company delivers goods or provides services or when the Company s right to consideration is unconditional whichever is earlier In situations where revenue recognition occurs before invoicing an unbilled receivable is recorded
While the timing of revenue recognition usually differs from the timing of payment the Company has determined the contracts generally do not include a significant financing component because the period between when the Company transfers its software and services to a customer and when the customer pays for the software and service is typically one year or less The primary purpose of the invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company s software and services not to receive or provide financing
Sales commissions are deferred and then amortized taking into consideration the pattern of transfer to which assets relate If the commissions paid on the initial and renewal contracts are not commensurate to each other the Company amortizes the commissions paid on the initial contract over an expected period of benefit including expected renewals which is determined to be approximately five years In arriving at the average period of benefit the Company considered the duration of the Company s relationships with customers and the Company s technology Sales commissions for renewal contracts are generally deferred and amortized over the contract period Sales commissions for renewal contracts are expensed as incurred when the expected amortization period is one year or less
Costs to obtain a contract that will be amortized within the succeeding 12 month period are classified as current and included in prepaid expenses and other current assets on the consolidated balance sheets The remaining balance is classified as non current and are included in other assets on the consolidated balance sheets Amortization expense is included in sales and marketing expenses in the consolidated statements of operations Deferred commissions are periodically analyzed for impairment
Cost of subscription revenue consists primarily of fulfillment costs related to compensation including salaries bonuses benefits stock based compensation and other related expenses for the production environment support and COE staff hosting of the Company s AI Platform including payments to outside cloud service providers and allocated overhead and depreciation for facilities
Cost of professional services revenue consists primarily of compensation including salaries bonuses benefits stock based compensation and other related costs associated with the Company s professional service personnel that are fulfilling contracts with customers and allocated overhead and depreciation for facilities
The Company s arrangements generally include provisions for indemnifying customers against liabilities if its services infringe on a third party s intellectual property rights They also generally include service level agreements warranting defined levels of uptime reliability and performance
The Company does not consider such assurance type warranties as performance obligations under ASC 606 To date the Company has not incurred material costs as a result of its warranties and indemnifications There are no accrued liabilities related to these obligations on the consolidated financial statements
Stock based compensation expense related to stock option awards restricted stock units RSUs and employee stock awards related to the Employee Stock Purchase Plan ESPP is recognized based on the fair value of the awards granted
The fair value of each option and ESPP awards are estimated on the grant date using the Black Scholes option pricing model The Black Scholes option pricing model requires the input of assumptions including the fair value of the underlying common stock the expected term of the option the expected volatility of the price of the Company s common stock risk free interest rates and the expected dividend yield of the Company s common stock which are estimated as follows
For stock options considered to be plain vanilla options the Company estimates the expected term based on the simplified method which is essentially the weighted average of the vesting period and contractual term as the Company s historical option exercise experience does not provide a reasonable basis upon which to estimate the expected term The expected term for ESPP awards approximates the offering period
The Company s RSUs include time based RSUs and performance based RSUs with market conditions PRSUs The fair value of each time based RSU is based on the fair value of the Company s common stock on the date of grant The fair value of each PRSU is measured using a Monte Carlo simulation valuation model which requires the use of various assumptions including the stock price volatility and risk free interest rate as of the valuation date corresponding to the length of time remaining in the performance period Stock based compensation expense for awards with market conditions is recognized over the requisite service period using the accelerated attribution method and is not reversed if the market condition is not met The related stock based compensation expense is recognized on a straight line basis over the requisite service period of the awards
Research and development expenses consist primarily of employee related costs including salaries bonuses benefits and stock based compensation for personnel involved in developing and refining platforms and applications including adding new features and modules increasing their functionality and enhancing the usability of platforms and applications Research and development expenses also include cloud infrastructure costs other IT related costs and allocated overhead and depreciation for facilities This includes certain costs related to development of features and modules created through prioritized engineering services purchased by customers where the Company retains the related intellectual property Research and development costs are expensed as incurred
Advertising expenses of 15 8 million 6 9 million and 51 9 million incurred during the fiscal years ended April 30 2024 2023 and 2022 respectively were expensed as incurred as a component of sales and marketing expenses on the consolidated statements of operations
The Company has a 401 k tax deferred savings plan under which eligible employees may elect to have a portion of their salary deferred and contributed to the plan Employer matching contributions are determined by the Company and are discretionary During the fiscal years ended April 30 2024 2023 and 2022 the Company did not match any employee contributions
The functional currency of the Company s foreign subsidiaries is the U S dollar Accordingly monetary assets and liabilities of the Company s foreign subsidiaries are remeasured into U S dollars at the exchange rates in effect at the reporting date non monetary assets and liabilities are re measured at historical rates and revenue and expenses are re measured at average exchange rates in effect during each reporting period Foreign currency transaction gains and losses are recognized in other expense income net within the consolidated statements of operations
The Company accounts for income taxes using the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements Under this method the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date
Deferred tax assets are recognized to the extent that these assets are more likely than not to be realized In making such a determination the Company considers all available positive and negative evidence including future reversals of existing taxable temporary differences projected future taxable income tax planning strategies and results of recent operations If the Company determines that it is able to realize its deferred tax assets in the future in excess of their net recorded amount the Company records an adjustment to the deferred tax asset valuation allowance which reduces the provision for income taxes
Tax benefits from uncertain tax positions are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position The tax benefits recognized in the Company s consolidated financial statements from such positions are measured based on the largest benefit that has a greater than 50 likelihood of being realized Interest and penalties are recognized associated with tax matters as part of the income tax provision and include accrued interest and penalties with the related income tax liability on the Company s consolidated balance sheets
Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two class method required for participating securities The rights including the liquidation and dividend rights of the holders of Class A and Class B common stock are identical except with respect to voting and conversion As the liquidation and dividend rights are identical the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share will therefore be the same for both Class A and Class B common stock on an individual or combined basis The net loss is allocated on a proportionate basis to participating securities and the resulting net loss per share attributable to common stockholders was the same for Class A and Class B common shares Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of stock options RSUs and ESPP As the Company has reported losses for all periods presented all potentially dilutive securities are antidilutive and accordingly basic net loss per share equals diluted net loss per share
Operating segments are defined as components of an entity where discrete financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance The Company has identified its Chief Executive Officer CEO as the chief operating decision maker CODM The Company operates in one operating segment The Company s CODM allocates resources and assesses performance at the consolidated level See
for revenue by geographic region The Company s property and equipment net are primarily located in the United States No single other country accounted for more than 10 of total property and equipment net as of April 30 2024 and 2023
The Company entered into an agreement establishing the C3 ai Digital Transformation Institute C3 ai DTI a program established to attract the world s leading scientists to join in a coordinated and innovative effort to advance the digital transformation of business government and society As part of the agreement the Company issued cash grants to C3 ai DTI which are conditional in nature and subject to execution of the program in line with specific requirements on a quarterly basis The cash grants do not represent an exchange transaction since there is not a commensurate transfer of resources at fair value resulting in the application of the contribution accounting model The Company expects contributions to C3 ai DTI to primarily benefit its research and development efforts The Company recognized nil nil and 11 5 million of expense related to the contribution in research and development for the fiscal years ended April 30 2024 2023 and 2022 respectively
In November 2023 the Financial Accounting Standards Board FASB issued ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures ASU 2023 07 to improve the disclosures regarding a public entity s reportable segments and address requests from investors for additional more detailed information about a reportable segment s expenses The Company is required to adopt the guidance in the fourth quarter of fiscal 2025 though early adoption is permitted The Company is currently evaluating the impact of this amendment on its consolidated financial statements
In December 2023 the FASB issued ASU 2023 09 Income Taxes Topic 740 Improvement to Income Tax Disclosures ASU 2023 09 to provide disaggregated income tax disclosures on rate reconciliation and income taxes paid The Company is required to adopt the guidance in the fourth quarter of fiscal 2026 though early adoption is permitted The Company is currently evaluating the impact of this amendment on its consolidated financial statements
The United States comprised 86 79 and 78 of the Company s revenue in the fiscal years ended April 30 2024 2023 and 2022 respectively No other country comprised 10 or greater of the Company s revenue for each of the fiscal years ended April 30 2024 2023 and 2022
As of April 30 2024 and 2023 the Company s deferred revenue balances were 39 0 million and 47 9 million respectively Revenue of 47 8 million and 48 9 million was recognized during the fiscal years ended April 30 2024 and 2023 respectively that was included in the deferred revenue balances as of April 30 2023 and 2022 respectively
Remaining performance obligations are committed and represent non cancellable contracted revenue that has not yet been recognized and will be recognized as revenue in future periods Some contracts allow customers to cancel the contracts without a significant penalty and the cancellable amount of contract value is not included in the remaining performance obligations
The Company excludes amounts related to performance obligations and usage based royalties that are billed and recognized as they are delivered or billed and recognized in the same period This primarily consists of monthly usage based runtime and hosting charges
Revenue expected to be recognized from remaining performance obligations was approximately 244 3 million as of April 30 2024 of which 163 8 million is expected to be recognized over the next 12 months and the remainder thereafter
As of April 30 2024 and 2023 the amount of costs to obtain a contract included in prepaid expenses and other current assets was 7 0 million and 6 2 million respectively The amount of costs to obtain a contract included in other assets non current as of April 30 2024 and 2023 were 11 0 million and 14 5 million respectively Expenses recognized for costs to obtain a contract for the years ended April 30 2024 2023 and 2022 were 7 2 million 5 9 million and 5 1 million respectively and are included in sales and marketing expenses on the consolidated statements of operations The Company recognized an immaterial impairment cost related to costs to obtain or fulfill a contract for the fiscal years ended April 30 2024 2023 and 2022 respectively
A majority of the Company s Customer Entities consist of corporate and governmental entities A Customer Entity is defined as each entity that is the ultimate parent of a party contracting with the Company A limited number of Customer Entities have accounted for a large part of the Company s revenue and accounts receivable to date For the purpose of determining customer concentration and accounts receivable unbilled receivables have been excluded from the accounts receivable balance Two separate Customer Entities accounted for 27 and 14 of revenue for the fiscal year ended April 30 2024 One Customer Entity accounted for 35 of revenue for the fiscal year ended April 30 2023 One Customer Entity accounted for 31 of revenue for the year ended April 30 2022 Two separate Customer Entities accounted for 25 and 16 of accounts receivable at April 30 2024 Two separate Customer Entities accounted for 20 and 18 of accounts receivable at April 30 2023
The Company s financial instruments consist primarily of cash equivalents restricted cash available for sale marketable securities accounts receivable and accounts payable Cash equivalents and available for sale marketable securities are reported at their respective fair values on the consolidated balance sheets The remaining financial instruments are reported on the consolidated balance sheets at amounts that approximate current fair values
The estimated fair value of securities classified as Level 2 financial instruments was determined based on third party pricing services The pricing services utilize industry standard valuation models including both income and market based approaches for which all significant inputs are observable either directly or indirectly to estimate fair value Inputs used for fair value measurement categorized as Level 2 include benchmark yields reported trades broker or dealer quotes issuer spreads two sided markets benchmark securities bids offers and reference data including market research publications
The Company considers all of its marketable securities as available for use in current operations including those with maturity dates beyond one year and therefore classifies these securities within current assets on the consolidated balance sheet as of April 30 2024
The following table summarizes the fair values and unrealized losses of the Company s available for sale marketable securities classified by length of time that the securities have been in a continuous unrealized loss position but were not deemed to be other than temporarily impaired as of April 30 2024 and 2023 in thousands
As of April 30 2024 the Company had 219 marketable securities in an unrealized loss positions As of April 30 2023 the Company had 119 investment positions in an unrealized loss position The Company considers factors such as the duration the magnitude and the reason for the decline in value the potential recovery period creditworthiness of the issuers of the securities and its intent to sell For marketable securities it also considers whether i it is more likely than not that the Company will be required to sell the debt securities before recovery of their amortized cost basis and ii the amortized cost basis cannot be recovered as a result of credit losses No significant facts or circumstances have arisen to indicate that there has been any significant deterioration in the creditworthiness of the issuers of the securities held by the Company The decline in fair value below amortized cost basis was not considered other than temporary as it is more likely than not that the Company will hold the securities until maturity or a recovery of the cost basis and no significant credit related impairment losses were recorded as of April 30 2024 and 2023
Capital in progress primarily consisted of costs related to various leasehold improvements in connection with leased space that is not considered available for use and has not yet been placed into service
The Company leases its facilities for office space under non cancellable operating leases with various expiration dates through the fiscal year ending April 30 2033 Certain lease agreements include options to renew or terminate the applicable lease which are not reasonably certain to be exercised and therefore are not factored into the determination of lease payments
On August 25 2021 the Company entered into a new lease to acquire approximately 283 015 square feet of office space in several phases in Redwood City California The lease commencement date of the first two phases was determined to have occurred in the quarter ended January 31 2022 when the landlord delivered the leased space to the Company The lease commencement date of the third phase was determined to have occurred in the quarter ended October 31 2022 when the landlord delivered the leased space to the Company The lease commencement date of the fourth phase was determined to have occurred in the quarter ended April 30 2023 when the landlord delivered the leased space to the Company The lease commencement date of the fifth phase was determined to have occurred in the quarter ended July 31 2023 when the landlord delivered the leased space to the Company The Company recorded 1 6 million of lease liability in other long term liabilities and corresponding right of use asset in other assets non current in the consolidated balance sheets related to the fifth phase of the lease The lease commencement date of the sixth phase was determined to have occurred in the quarter ended January 31 2024 when the landlord delivered the leased space to the Company The Company recorded 1 7 million of lease liability in other long term liabilities and corresponding right of use asset in other assets non current in the consolidated balance sheets related to the sixth phase of the lease The lease commencement date of the seventh phase will be determined when the landlord delivers the applicable leased space to the Company
On February 21 2023 the Company entered into a sublease agreement with First Virtual Group Inc the Subtenant whereby the Company agreed to sublease to the Subtenant approximately 3 130 square feet of space located in Redwood City California Refer to
Variable lease costs are primarily related to payments made to the Company s landlords for common area maintenance property taxes insurance and other operating expenses Short term lease costs primarily represent payments related to marketing arrangements that contain embedded short term leases of billboards Supplemental cash flow information and non cash activity related to leases was as follows in thousands
The following table presents the lease balances within the consolidated balance sheets weighted average remaining lease term and weighted average discount rates related to the Company s operating leases in thousands
The Company entered into a non cancellable arrangement with a cloud services provider in July 2022 Under the arrangement the Company committed to spend an aggregate of at least 100 0 million for the period of three years beginning July 2022 on services with this vendor The Company has incurred costs totaling 31 8 million and 8 3 million during the fiscal years ended April 30 2024 and April 30 2023 respectively under the arrangement
The Company entered into a non cancellable arrangement with a professional services provider in October 2023 Under the arrangement the Company committed to purchase an aggregate of 15 0 million of professional services for a period of 18 months beginning October 2023 The Company has incurred costs totaling 7 8 million during the fiscal year ended April 30 2024 under the arrangement
The Company entered into a non cancellable arrangement with a professional services provider in January 2024 which was amended in April 2024 Under the amended arrangement the Company committed to purchase an aggregate of 31 0 million of professional services for a period of two years beginning January 2024 The Company has incurred costs totaling 3 5 million during the fiscal year ended April 30 2024 under the arrangement
In February 2020 the Company entered into an agreement establishing the C3 ai Digital Transformation Institute C3 ai DTI a program established to attract many of the world s leading research institutions to join in a coordinated and innovative effort to advance the digital transformation of business government and society As part of the agreement the Company has agreed to issue grants to C3 ai DTI which are subject to compliance with certain obligations The grants shall be paid by the Company over five years in the form of cash publicly traded securities or other property of equivalent net value As of April 30 2024 and 2023 the total potential remaining contributions are 31 6 million and 31 6 million respectively The future grant payments are conditional in nature and subject to execution of the program in line with specific requirements
On March 4 2022 a putative securities class action complaint captioned The Reckstin Family Trust v C3 ai Inc et al 22 cv 01413 HSG was filed in the U S District Court for the Northern District of California against the Company and certain current and former officers and directors On December 12 2022 the court appointed a lead plaintiff and lead counsel On February 15 2023 the lead plaintiff and three additional named plaintiffs filed an amended complaint The amended complaint names as defendants the Company four current and former officers and directors the underwriters in the Company s initial public offering IPO and Baker Hughes Company Baker Hughes The amended complaint generally alleges that the defendants made material misstatements or omissions about the Company s partnership with Baker Hughes and the Company s own salesforce The amended complaint alleges that defendants made these misstatements or omissions in connection with the Company s IPO in violation of Sections 11 and 15 of the Securities Act of 1933 and between December 9 2020 and December 2 2021 inclusive in violation of Sections 10 b and 20 a of the Securities Exchange Act of 1934 The amended complaint further alleges that certain defendants engaged in insider trading in violation of Section 20A of the Securities Exchange Act of 1934 Plaintiffs seek unspecified damages interest fees and costs All defendants moved to dismiss plaintiffs amended complaint on May 1 2023 On June 30 2023 plaintiffs voluntarily dismissed the underwriter defendants On February 22 2024 the court granted the motion to dismiss on all claims except for portions of the alleged violations of Section 11 and Section 15 Plaintiffs filed a second amended complaint on April 4 2024 Defendants filed motions to dismiss on May 17 2024
Five putative shareholder derivative actions have been filed 1 Suri v Siebel et al 22 cv 03031 filed on May 23 2022 in the U S District Court for the Northern District of California 2 Rabasca v Siebel et al 23 cv 1566 filed on April 3 2023 in the U S District Court for the Northern District of California 3 Vo v Siebel et al 23 cv 428 filed on April 19 2023 in the U S District Court for the District of Delaware and 4 Lanfair v Siebel et al 24 cv 01869 filed on March 26 2024 in the U S District Court for the Northern District of California and 5 Pankow v Siebel et al 2024 0530 NAC on May 15 2024 in the Chancery Court of Delaware In these cases the plaintiffs assert claims on the Company s behalf against certain of the Company s current and former officers and directors for breach of fiduciary duty aiding and abetting breach of fiduciary duty gross mismanagement corporate waste abuse of control unjust enrichment and violations of the Securities Exchange Act of 1934 based on allegations similar to those in the securities class action In all four cases the Company is named as a nominal defendant The derivative complaints seek unspecified damages disgorgement of profits from board member stock sales an award of costs and expenses including reasonable attorneys fees and corporate governance reforms On September 7 2022 Suri was stayed pending resolution of the Reckstin case On August 3 2023 Vo was transferred to the U S District Court for the Northern District of California 3 23 cv 03895 and on August 30 2023 the Vo action was stayed on the same terms as the Suri action On December 4 2023 the parties in Rabasca filed a stipulation to consolidate the Rabasca action with the Suri action and to stay the Rabasca action on the same terms as the Suri action The Company has not yet been required to answer the complaints in Suri Rabasca and Vo and has not yet been served with the complaint in the Lanfair or Pankow matters
As of the date of this report the Company does not believe it is probable that these cases will result in an unfavorable outcome however if an unfavorable outcome were to occur in these cases it is possible that the impact could be material to the Company s results of operations in the period s in which any such outcome becomes probable and estimable Due to the early stages of these legal proceedings neither the likelihood that a loss if any will be realized nor an estimate of the possible loss or range of loss if any can be determined
On February 27 2024 the Company filed a lawsuit in the Court of Rome Italy against Enel Global Services S r l and any involved corporate affiliates Enel The claims in the suit against Enel include misappropriation of trade secrets under Articles 98 and 99 of the Italian Industrial Property Code and breach of contract In this action the Company seeks compensatory damages in the amount of 2 1 billion equitable and other relief as well as fees and costs The Company has also filed a report of criminal misconduct with Italian law enforcement under Article 623 of the Italian Criminal Code The Company is evaluating other legal venues to fully redress its claims The Company is considering filing a report of misconduct with federal law enforcement in the United States Since any legal action is unpredictable it is difficult to quantify the potential recoveries associated potential costs and timeline associated with resolution of this matter Any gain on this matter is considered a gain contingency and will be recognized in the period in which the award is realized or realizable The Company does not assume any obligation to provide regular updates on this legal action
In addition from time to time the Company is involved in various other legal proceedings arising in the ordinary course of business Apart from the foregoing the Company is not presently a party to any other such litigation the outcome of which the Company believes if determined adversely to the Company would individually or taken together have a material adverse effect on the Company s business operating results cash flows or financial condition
The Company has authorized 200 000 000 shares of undesignated preferred stock with a par value of 0 001 per share with rights and preferences including voting rights designated from time to time by the board of directors As of April 30 2024 there were no shares of Preferred Stock issued or outstanding
The Company has authorized 1 000 000 000 shares of Class A common stock and 3 500 000 shares of Class B common stock The shares of Class A common stock and Class B common stock are identical except with respect to voting conversion and transfer rights Each share of Class A common stock is entitled to one vote Each share of Class B common stock is entitled to 50 votes Class A and Class B common stock have a par value of 0 001 per share and are referred to as common stock throughout the notes to the consolidated financial statements unless otherwise noted Holders of common stock are entitled to receive any dividends as may be declared from time to time by the board of directors
Shares of Class B common stock may be converted to Class A common stock at any time at the option of the stockholder Each share of Class B common stock will be automatically converted into one share of Class A common stock upon the earliest of the following i the date that is six months following the death or incapacity of Mr Siebel ii the date that is six months following the date that Mr Siebel is no longer providing services to the Company as an officer employee director or consultant iii December 11 2040 which is the twentieth anniversary of the completion of the IPO or iv the date specified by the holders of a majority of the then outstanding shares of Class B common stock voting as a separate class Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock
Under the Company s Amended and Restated 2012 Equity Incentive Plan the 2012 Incentive Plan and the Company s Amended and Restated 2020 Equity Incentive Plan the 2020 Incentive Plan certain optionholders are allowed to exercise stock options to purchase Class A common stock prior to vesting The Company has the right to repurchase at the original purchase price any unvested but outstanding shares of common stock upon termination of service of the optionholder The consideration received for an early exercise of a stock option is considered to be a deposit of the exercise price and the related amount is recorded as a liability There have been no net proceeds from the early exercise of such options during the fiscal years ended April 30 2024 2023 and 2022 respectively The Company has recorded a current liability of 0 3 million and 0 8 million as of April 30 2024 and 2023 respectively The liability is reclassified into equity on a ratable basis as the stock options vest Unvested Class A common stock of 43 188 and 148 239 shares as of April 30 2024 and 2023 respectively were subject to such repurchase right and are legally issued and outstanding as of each period presented See
In December 2021 the Company s board of directors approved a stock repurchase program for the repurchase of up to 100 0 million of the Company s outstanding shares of Class A common stock for the 18 months following the date of such approval Under the program the Company may purchase stock in the open market or through privately negotiated transactions in accordance with applicable securities laws The timing and actual amount of the stock repurchases will depend on several factors including price capital availability regulatory requirements alternative investment opportunities and other market conditions
In March 2022 the Company repurchased and immediately retired 0 7 million shares of its Class A common stock for an aggregate amount of 15 0 million The Company had not repurchased any shares of its Class A common stock under this program during the fiscal years ended April 30 2024 and 2023 The stock repurchase program expired in June 2023
On November 27 2020 the Company s board of directors adopted and its stockholders approved the 2020 Incentive Plan which became effective in connection with the IPO The 2020 Incentive Plan provides for the grant of incentive stock options non statutory stock options stock appreciation rights restricted stock awards RSU awards performance awards and other equity awards
As of April 30 2024 the number of shares of Class A common stock available for issuance was 8 769 914 under the 2020 Incentive Plan On August 15 2023 and August 21 2023 respectively the Company s compensation committee and board of directors adopted and on October 4 2023 its stockholders approved the amendment of the 2020 Incentive Plan to increase the maximum number of shares of Class A common stock that may be automatically added to the share reserve of the 2020 Incentive Plan on May 1 of each year from May 1 2024 until and including May 1 2030 pursuant to the evergreen provision of the 2020 Incentive Plan from five percent 5 to seven percent 7 of the total number of shares of the Company s Class A common stock and Class B common stock outstanding on April 30 of the immediately preceding fiscal year Prior to the adoption and approval of such amendment there was an automatic annual increase on May 1 2023 in the number of shares reserved for future issuance pursuant to the 2020 Incentive Plan in an amount equal to five percent 5 of the total number of shares of the Company s Class A common stock and Class B common stock outstanding as of April 30 2023
Stock options generally expire 10 years from the date of grant or earlier if services are terminated Generally each stock option for common stock is subject to a vesting schedule such that one fifth of the award vests after the first year anniversary and one sixtieth of the award vests each month thereafter over the remaining four years subject to continuous service
The weighted average grant date fair value of options granted during the fiscal years ended April 30 2024 2023 and 2022 was 16 70 7 88 and 19 15 respectively Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding in the money options The total intrinsic value of options exercised during the fiscal years ended April 30 2024 2023 and 2022 was 89 7 million 24 4 million and 187 3 million respectively The total grant date fair value of options vested during the fiscal years ended April 30 2024 2023 and 2022 was 34 7 million 49 9 million and 35 3 million respectively
As of April 30 2024 and 2023 there was 79 6 million and 104 7 million respectively of unrecognized compensation cost related to stock options which are expected to be recognized over an estimated weighted average period of 2 2 years and 2 5 years respectively
The grant date fair value of the options issued for the fiscal years ended April 30 2024 2023 and 2022 are estimated on the date of grant using the Black Scholes Merton option pricing model The weighted average assumptions underlying the fair value estimation are provided in the following table
The time based RSUs are typically subject to service based vesting conditions satisfied over five years with one fifth of the award vesting after the first year anniversary and one twentieth of the award vesting quarterly thereafter The related stock based compensation is recognized on a straight line basis over the requisite service period For the fiscal year ended April 30 2024 2023 and 2022 the Company recognized stock based compensation expense of 130 6 million 134 8 million and 72 9 million respectively associated with such time based RSUs
In July 2022 the compensation committee of the board of directors the Compensation Committee approved the grant of a maximum of 1 700 000 performance based restricted stock units the PRSU Award to the CEO pursuant to the 2020 Incentive Plan subject to and conditioned upon the subsequent determination by the board of directors of performance metrics upon the achievement of which the PRSU Award would vest In August 2022 the board of directors approved performance metrics in concept subject to further action by the Compensation Committee In December 2022 the Compensation Committee a determined and approved the performance metrics which are based on the achievement of certain total shareholder return results as measured against certain stock price hurdles the Market Condition and b extended the vesting period of the PRSU Award through December 31 2027 As an additional condition to vesting of each tranche of the PRSU Award Mr Siebel must remain in continuous service to the Company through a minimum service date that applies to such tranche or if later the date the applicable performance metric is achieved the Service Condition The grant date of the PRSU Award was established in December 2022
Stock based compensation expense associated with the PRSU Award will be recognized over the longer of the expected achievement period for the Market Condition or the Service Condition For the fiscal years ended April 30 2024 and 2023 the Company recorded stock based compensation expense of 5 4 million and 2 1 million respectively related to the PRSU Award
The Company determined the grant date fair value of the PRSU Award using a Monte Carlo simulation model with the following assumptions stock price of 12 90 risk free interest rate of 3 7 dividend yield of 0 and expected volatility of 51 4
As of April 30 2024 and 2023 there was 422 6 million and 423 8 million respectively of unrecognized stock based compensation expense related to outstanding RSUs granted to employees that is expected to be recognized over a weighted average period of 3 7 years and 3 9 years respectively
In June 2023 and 2022 the Compensation Committee approved the payment of fiscal year 2023 and 2022 bonuses respectively under the Company s annual bonus program in the form of fully vested RSUs covering shares of Class A common stock to employees The Company issued 532 842 and 811 790 shares of Class A common stock pursuant to this program during the fiscal year ended April 30 2024 and April 30 2023 respectively
On November 27 2020 the Company s board of directors also adopted and its stockholders also approved the 2020 Employee Stock Purchase Plan the 2020 ESPP which became effective immediately prior to the IPO The 2020 ESPP authorizes the issuance of shares of Class A common stock pursuant to purchase rights granted to employees A total of 3 000 000 shares of Class A common stock were initially reserved for future issuance under the 2020 ESPP The number of shares of Class A common stock reserved for issuance under the 2020 ESPP is subject to automatic evergreen increases annually through and including May 1 2030 pursuant to the terms of the 2020 ESPP There was an automatic annual increase on May 1 2023 in the number of shares reserved for future issuance pursuant to the 2020 ESPP in an amount equal to one percent 1 of the total number of shares of the Company s Class A common stock and Class B common stock outstanding on April 30 2023 The 2020 ESPP permits participants to purchase shares of Class A common stock in an amount not exceeding 15 of their earnings during the relevant offering period The offering dates and purchase dates for the 2020 ESPP are determined at the discretion of the Company s board of directors
Except for the initial offering period under the 2020 ESPP which commenced on October 16 2022 and ends on September 15 2024 the 2020 ESPP provides for 24 month offering periods beginning September 15 and March 15 of each year with each offering period consisting of four six month purchase periods The 2020 ESPP allows eligible employees to purchase shares of the Company s Class A common stock subject to purchase limits of 2 500 shares during each six month period or 25 000 worth of stock for each calendar year through payroll deductions at price per share equal to 85 of the lesser of the fair market value of the Company s Class A common stock on i the first trading day of the applicable offering period and ii the last trading day of each purchase period in the applicable offering period If the price per share of the Company s Class A common stock on any purchase date in the offering period is lower than the price per share of the Company s Class A common stock price on the enrollment date of that offering period the offering period will immediately reset after the purchase of shares on such purchase date and automatically roll into a new 24 month offering period
During the fiscal years ended April 30 2024 and 2023 the Company recognized 5 4 million and 3 7 million respectively of stock based compensation expense related to the 2020 ESPP During the fiscal years ended April 30 2024 and 2023 the Company s employees purchased 863 412 and 310 784 respectively shares of its Class A common stock under the 2020 ESPP As of April 30 2024 and 2023 there was 2 7 million and 5 8 million respectively of unrecognized stock based compensation expense that is expected to be recognized over the remaining term of the respective offering periods As of April 30 2024 and 2023 5 049 150 and 4 773 137 respectively shares of Class A common stock were available for future issuance under the 2020 ESPP
The Company records stock based compensation associated with the Company s annual bonus program and retention bonus program for certain employees which may be paid out in fully vested RSUs that are settled in shares of Class A common stock During the fiscal years ended April 30 2024 and 2023 the Company recognized 38 8 million and 35 0 million respectively of stock based compensation expense associated with these programs of which 31 2 million and 32 4 million was reflected under accrued compensation and employee benefits in the consolidated balance sheets as of April 30 2024 and 2023 respectively Upon settlement this amount will be reflected under common stock and additional paid in capital in the consolidated statements of stockholders equity
In determining the need for a valuation allowance the Company weighs both positive and negative evidence in the various jurisdictions in which it operates to determine whether it is more likely than not that its deferred tax assets are recoverable In assessing the ultimate realizability of its net deferred tax assets the Company considers all available evidence including cumulative losses since inception and expected future losses and as such management does not believe it is more likely than not that the deferred tax assets will be realized Accordingly a full valuation allowance has been established in the U S and no deferred tax assets and related tax benefit have been recognized in the accompanying financial statements The valuation allowance as of April 30 2024 and 2023 was 252 7 million and 180 6 million respectively The increase of 72 1 million in the Company s valuation allowance compared to the prior fiscal year was primarily due to an increase in deferred tax assets arising from net operating loss and capitalized R D expenses
As of April 30 2024 and 2023 the Company had net operating loss carryforwards for federal income tax purposes of approximately 599 3 million and 487 6 million respectively The federal net operating loss carryforwards will expire if not utilized beginning in year 2029 Federal research and development tax credit carryforwards of approximately 18 8 million will expire beginning in 2032 if not utilized Federal charitable contribution carryforwards of approximately 25 6 million will expire beginning in 2022 if not utilized Federal capital loss carryforwards of approximately 1 0 million will begin to expire in 2026 if not utilized
In addition as of April 30 2024 and 2023 the Company had net operating loss carryforwards for state income tax purposes of approximately 249 3 million and 187 8 million respectively The state net operating loss carryforwards will expire if not utilized beginning in the year 2032 The Company had state research and development tax credit carryforwards of approximately 14 2 million The state research and development tax credits do not expire State capitol loss carryforwards of approximately 0 4 million will begin to expire in 2026 if not utilized
The Tax Reform Act of 1986 and similar California legislation impose substantial restrictions on the utilization of net operating losses and tax credit carryforwards if there is a change in ownership as provided by Section 382 of the Internal Revenue Code and similar state provisions Such a limitation could result in the expiration of the net operating loss carryforwards and tax credits before utilization
As of April 30 2024 0 1 million of unrecognized tax benefits if recognized would impact the Company s effective income tax rate The Company does not expect any unrecognized tax benefits to be recognized within the next 12 months
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense As of April 30 2024 and 2023 the Company has no cumulative interest and penalties related to unrecognized tax benefits The Company does not anticipate a significant change in the unrecognized tax benefits over the next 12 months
Basic net loss per share was the same as diluted net loss per share for the periods presented because the Company was in a loss position for fiscal years ended April 30 2024 2023 and 2022 For purposes of this calculation stock options RSUs Class A common stock issuable in connection with the 2020 ESPP and early exercised stock options subject to repurchase are considered to be potential common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti dilutive
The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have had an antidilutive effect were as follows in thousands
In June 2019 the Company entered into multiple agreements with Baker Hughes under which Baker Hughes received a three year subscription to use the Company s software This arrangement was revised in June 2020 to extend the term to five years and modify the subscription fees due Under the agreements as revised in June 2020 Baker Hughes made minimum non cancellable revenue commitments inclusive of their direct subscription fees and third party revenue generated through a joint marketing arrangement with Baker Hughes in the amount of 46 7 million in fiscal year 2020 53 3 million in fiscal year ending April 30 2021 75 0 million in the fiscal year ending April 30 2022 125 0 million in fiscal year ending April 30 2023 and 150 0 million in fiscal year ending April 30 2024 The Company also agreed to pay Baker Hughes a sales commission on subscriptions and services offerings it resold in excess of the minimum revenue commitments
The Company and Baker Hughes again revised this arrangement in October 2021 to extend the term by an additional year for a total of six years with an expiration date in the fiscal year ending April 30 2025 to modify the amount of Baker Hughes annual commitments to 85 0 million in fiscal year 2023 110 0 million in fiscal year 2024 and 125 0 million in fiscal year 2025 and to revise the structure of the arrangement to simplify the sales process for Baker Hughes Beginning in the fiscal year ended April 30 2023 Baker Hughes annual commitments were reduced by any revenue the Company generates from certain customers Known and estimable revenue from certain customers related to the arrangement is a form of variable consideration which was determined at contract inception and reduced the revenue recognized from the arrangement The Company acknowledged that Baker Hughes had met its minimum annual revenue commitment for the fiscal year 2022 and recognized 16 0 million of sales commission as deferred costs during the fiscal quarter ended October 31 2021 related to this arrangement which will be amortized over an expected period of five years
The Company and Baker Hughes again revised and expanded the agreements in January 2023 Pursuant to this revised arrangement the frequency of payments due from Baker Hughes to the Company was accelerated Baker Hughes obtained expanded reseller rights and the Company agreed to provide additional products and services This results in an increase of the overall transaction price of the arrangement by eliminating potential variable consideration attributable to any revenue the Company generated from certain customers The amount of consideration to the Company may increase if Baker Hughes exceeds certain thresholds The Company also provided Baker Hughes the option to extend the subscription term upon payment of a renewal fee Pursuant to the January 2023 revised agreement the transaction price of the Baker Hughes arrangement is not impacted by revenue the Company recognizes from certain customers in the oil and gas field
Baker Hughes ceased to qualify as a related party of the Company as of June 30 2023 and the amounts disclosed related to them are accordingly presented only for the periods in which they were considered a related party
The Company recognized subscription revenue from direct subscription fees from Baker Hughes of 10 6 million 75 5 million and 60 4 million during the fiscal year ended April 30 2024 2023 and 2022 respectively The Company recognized professional services revenue from Baker Hughes of 5 8 million 16 8 million and 16 9 million during the during the fiscal years ended April 30 2024 2023 and 2022 respectively
The Company recognized cost of subscription revenue related to services purchased from Baker Hughes to be used for third party customer of nil nil and 0 6 million for the fiscal years ended April 30 2024 2023 and 2022 respectively The Company recognized sales and marketing expenses related to Baker Hughes of 0 8 million 14 0 million and 8 2 million inclusive of amortization of 0 8 million 4 9 million and 3 3 million respectively of deferred commissions for the fiscal years ended April 30 2024 2023 and 2022 respectively The Company paid sales commission of nil 16 0 million and 3 4 million during the fiscal years ended April 30 2024 2023 and 2022 respectively related to this arrangement
On February 21 2023 the Company entered into a sublease agreement the Sublease with First Virtual Group Inc the Subtenant whereby the Company agreed to sublease to the Subtenant approximately 3 130 square feet of space located in Redwood City California the Subleased Space The Company previously entered into a lease the Original Lease with DWF IV 1400 1500 Seaport Blvd LLC dated August 25 2021 for approximately 283 013 square feet of office space split between two office towers including the Subleased Space Thomas M Siebel Chief Executive Officer and Chairman of the Company serves as Chairman of the Subtenant The term of the Sublease commenced on February 1 2023 The Sublease was automatically renewed on October 1 2023 and will be automatically renewed for successive one year periods thereafter unless the Subtenant notifies the Company of its election to terminate the Sublease up to the expiration date of the Original Lease The monthly base rent for the Sublease is equal to the rate per square foot paid by the Company as stated in the Original Lease The monthly base rent the Subtenant pays was approximately 8 608 through September 30 2023 increasing annually thereafter In addition to base rent the Subtenant is responsible for its allocated share of costs incurred and expenditures made by the Company in the operation and management of the Subleased Space
Our management with the participation of our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a 15 e and 15d 15 e as of the end of the period covered by this Annual Report on Form 10 K and have concluded that based on such evaluation our disclosure controls and procedures were effective as of April 30 2024 at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded processed summarized and reported within the time periods specified in the SEC s rules and forms and is accumulated and communicated to our management including our principal executive and principal financial officers or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a 15 f and 15 d 15 f under the Exchange Act Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles Our management conducted an assessment of the effectiveness of the Company s internal control over financial reporting as of April 30 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission Based on the assessment our management has concluded that our internal control over financial reporting was effective as of April 30 2024
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a 15 d and 15d 15 d of the Exchange Act that occurred during the quarter ended April 30 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting
The effectiveness of any system of internal control over financial reporting including ours is subject to inherent limitations including the exercise of judgment in designing implementing operating and evaluating the controls and procedures and the inability to eliminate misconduct completely Accordingly in designing and evaluating the disclosure controls and procedures management recognizes that any system of internal control over financial reporting including ours no matter how well designed and operated can only provide reasonable not absolute assurance of achieving the desired control objectives In addition the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs Moreover projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting
issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO In our opinion the Company maintained in all material respects effective internal control over financial reporting as of April 30 2024 based on criteria established in
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated financial statements as of and for the year ended April 30 2024 of the Company and our report dated June 18 2024 expressed an unqualified opinion on those financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
During the three months ended April 30 2024 our directors and officers as defined in Rule 16a 1 f under the Exchange Act adopted or terminated the contracts instructions or written plans for the purchase or sale of our securities set forth in the table below
1 This 10b5 1 trading arrangement was adopted by Edward Abbo individually and as Trustee of the Abbo 2012 Children s Trust FBO Dana Lauren Abbo U A OTO 3 8 2021 the Abbo 2012 Children s Trust FCO Layla Grace Abbo U A OTO 3 8 2021 and the Abbo 2012 Children s Trust FBO Casey Cecile Abbo U A OTO 3 8 2021
The information required by this Item other than the information set forth in the next paragraph will be included in our definitive proxy statement for our 2024 annual meeting of stockholders or our 2024 Proxy Statement to be filed with the SEC within 120 days after the end of our fiscal year ended April 30 2024 and is incorporated herein by reference
Our board of directors has adopted a code of conduct that applies to all of our employees officers and directors including our Chief Executive Officer Chief Financial Officer and other executive and senior financial officers The full text of our code of conduct is posted on the investor relations section on our website which is located at https ir c3 ai We intend to satisfy the disclosure requirement under Item 5 05 of Form 8 K regarding amendment to or waiver from a provision of our code of conduct by posting such information in the investor relations section of our website
Under our Insider Trading Policy employees directors and designated consultants as well as immediate family members or others subject to the influence direction or control of these individuals are prohibited from insider trading hedging transactions pledges holding securities in margin accounts short sales and transactions involving derivative securities such as exchange traded put or call options or swaps relating to our securities A copy of our Insider Trading Policy has been filed as an exhibit to this report
The certifications furnished in Exhibits 32 1 and 32 2 that accompany this Annual Report on Form 10 K are not deemed filed with the SEC and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933 as amended or the Exchange Act whether made before or after the date of this Annual Report on Form 10 K irrespective of any general incorporation language contained in such filing
Portions of this exhibit indicated by asterisks have been omitted as the registrant has determined that 1 the omitted information is not material and 2 the omitted information would likely cause competitive harm to the registrant if publicly disclosed
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Thomas M Siebel and Hitesh Lath and each one of them as his or her true and lawful attorney in fact and agent with the power of substitution and re substitution for him or her and in their name place and stead in any and all capacities to sign any and all amendments to this Annual Report on Form 10 K and to file the same with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission granting unto said attorneys in fact and agents and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as they might or could do in person hereby ratifying and confirming all that each of said attorneys in fact or his or her substitute or substitutes may do or cause to be done by virtue hereof

Company Name	C3.ai, Inc. Vist SEC web-site
Category	SERVICES-PREPACKAGED SOFTWARE
Trading Symbol	AI