Juho Parkkinen : No, I think, let me just kind of add on to that. So for Ex Machina, just what Tom said, we’re still very early stages on that. So yes, we see those key customers that started early with us massive increase in consumption. Yes, we’re excited about that. But that entire product is completely in its infancy, and we have high expectations on it. The other point on other consumption. So remember, again, we start these targets, the consumption deals start with a six-month pilot and then it moves into consumption. We started this quarter. So we’re not really seeing any consumption until the initial six-month phases are complete. That question, and as we start talking about consumption under all the other deals that we do, we’ll start reporting and discussing that more detail probably in Q1 next year.
Operator: And our next question comes from the line of Kingsley Crane with Canaccord Genuity.
Kingsley Crane : So for Tom, it looks like there’s strong traction. In Department of Defense, new and expanded deals with numerous agencies. Imagine the AI Defense Forum with a helpful touch point to close these. So how would you characterize momentum in this sector? And then are these companies embracing the new consumption model? Or are they preferring to commit more upfront in the legacy model?
Operator: I’m showing our next question comes from the line of Kingsley Crane Kingsly high.
Kingsley Crane : Yes. Could you hear me?
Tom Siebel : No. One more time, please.
Kingsley Crane : Okay. Right. So for Tom, looks like there was really strong traction in Department of Defense, expanded deals with numerous agencies. How would you characterize momentum in this sector compared to a few years ago? And then are these companies looking at the consumption model? Or are they primarily sticking to the current model?
Tom Siebel : Great question. It takes some time to really get traction in DoD, okay? And we’ve been working on that since 2014, okay, at the level of the Secretary of the Army and the Secretary of the Air Force and the joint chiefs and the — and I mean, we’ve really been working it hard. I think we have 12 projects, all delivered on time, on budget to spec. And really, what we’re finding is the consumption model there is really, really well received. They like it, okay? And they’re kind of used to seeing these multibillion dollar juggernaut projects from the Lockheed Martins of the world or other providers, and we’re coming in where, hey, we bring the project live for $0.5 million, and after that, $0.55 per CPU hour. It’s like where do I sign?” So there it’s been very well received in that market.
Kingsley Crane : Okay. That’s really great to hear. And then for Juho, I just want to touch again on the services revenue, understandable that it would be lower given some of the trial activity. So since we expect trials to continue in the new consumption model. Just trying to get a better handle on how quickly services should ramp back up to that 10% to 20%?
Juho Parkkinen : Well, again, there’s a component of the ongoing gradations with our existing customers and potential services engagements with them. And then our expectation of services engagements as these pilot deals convert to consumption deals. So what I was alluding to earlier to Pat’s question, we are expecting services activity in the second half of this year. And then separately, in the long-term models, you should expect that as the pilots convert to consumption, there are services deals associated with those as well.
Operator: And our next question comes from the line of with Wolfe Research.
Unidentified Analyst: This is on for Gal. And I think on the call, you said there were 13 consumption pilot wins in the quarter, and maybe that was maybe better than you initially expected. Is that a run rate you’re comfortable with going into the end of the fiscal year? The back half? And any particular call-outs for sectors where the consumption model is maybe getting better traction than you initially expected?
Juho Parkkinen : So sorry, the second half of your question, it was a bit unclear, but let me address the first one. Yes, while we’re excited on the beginning of this, so we did 13 pilot plant trials. So there’s still a combination of some of the trials in there, but we do expect them to convert to a consumption-based arrangement at the end of the trial period. I do not — we would not want to increase any of our assumptions in the model we shared with you last quarter. So even though we said 5 this quarter and we came in at 13, I want to keep the model as it was that we provided last quarter.
Unidentified Analyst: Great. And then just a brief follow-up. In terms of stock-based compensation, I think it’s the second consecutive quarter where stock-based compensation as a percentage of sales is above 85%. I think in Q1, we talked about maybe that was a lot to do with share refreshers. And I wanted to see what dynamic was that happened in Q2. And what level of stock-based compensation should investors become comfortable with moving forward?
Juho Parkkinen : Yes. I think broadly speaking, you see this across the industry. But stock-based compensation under GAAP is stuck with the grad date fair value of the underlying equity instrument. And as you obviously know, the history of the entire tech sector on C3 AI in the last 1.5 years, we are carrying significant stock-based compensation cost for awards that were granted when the share price was much higher than it is today. So unfortunately, there’s nothing we can do about that unless the underlying employee decides to seek for other opportunities. So for now, until the end of these vesting terms for these awards, we are going to be carrying these pretty high stock-based compensation costs.
Tom Siebel : Never realized by the person who was granted the stock option. Never, but no time soon.
Operator: And our next question comes from the line of Adam Bergere, Bank of America.
Adam Bergere: Great. This is Adam on for Brad. Juho for you, can you talk a bit about the shape of the revenue curve for next year? I guess, naturally, we expect it to kind of increase sequentially every quarter given the sequential given the new consumption model. But is there a chance there’s still some lumpiness in that, as you know, certain larger customers may renew on kind of like the non-consumption license?
Tom Siebel : Yes, I think the short answer to that is yes. And what we guided last quarter, we beat it for this quarter. Our guidance for next quarter, you see sequential increase and it does have the Q4 as an increase to that with respect to the implied guidance. The revenue curve is flattening as a result of the consumption-based pricing business model. But as we enter into it, in the short term, and as we enter into FY ’24 and especially the second half of FY ’24, you should start seeing the graph to get steeper and steeper in line with the presentation we shared last quarter.
