Industrials Platform
Summary: C3 AI yesterday announced a "Production-Other Transaction Agreement" with the U.S. Department of Defense potentially worth $500 million over five years. While stating the agreement "accelerates the adoption of the C3 AI Suite" among defense agencies, the announcement didn't cite any specific new projects or customers.
Our Take: This is not a signed order adding an incremental $500 million over five years. Rather, the agreement appears to create a streamlined purchasing mechanism (similar to a blanket purchase agreement) that will allow defense agencies to buy C3 AI technology in an efficient manner should they choose to. Agreements of this kind typically don't come with any guaranteed new revenue, and it doesn't appear that the company is announcing any incremental orders at this time. C3 AI in November 2019 signed a $95 million OTA with the DOD, so access to the company's platform via a streamlined procurement process isn't entirely new.
While we view the announcement as evidence of steadily increasing traction with DOD customers, we caution that the $500 million figure is likely a notional maximum amount rather than a realistic estimate of DOD's expected spend over the next five years. $500 million is the maximum OTA ceiling amount allowed under federal regulations without special approval from top Pentagon officials, and it may have been selected as the ceiling value simply for this reason. While there's no guarantee DOD orders will approach the $500 million ceiling, it's also worth noting that the OTA signed in 2019 has generated orders of $32 million so far, roughly on pace to hit its $95 million ceiling value over the five-year term.
Summary of C3 AI federal transactions from the Nation Analytics data set:
Background: Other Transaction Agreements are an increasingly popular way for the government to build prototypes and conduct R&D while avoiding some of the administrative red tape involved in the standard government contracting process. If a prototype developed under an OTA is deemed successful, it can progress into a "Production OTA" like the one C3 AI announced. This allows the contractor to sell the technology demonstrated under the prototype project without further competition. C3 AI first received a prototype OTA in 2017 to test predictive maintenance software on military aircraft fleets, which led to the $95 million production OTA in 2019.
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