Good day, and thank you for standing by. Welcome to the C3.ai Third Quarter Fiscal Year 2025. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amit Berry. Please go ahead.

Good afternoon, and welcome to C3.ai's earnings call for the third quarter of fiscal year 2025, which ended on January 31, 2025. My name is Amit Berry, and I lead Investor Relations at C3.ai. With me on the call today are Tom Siebel, Chairman and Chief Executive Officer; and Hitesh Lath, Chief Financial Officer. After the market closed today, we issued a press release with details regarding our third quarter results as well as our supplemental to our results both of which can be accessed through the Investor Relations section of our website at ir.c3.ai. This call is being webcast, and a replay will be available on our IR website following the conclusion of the call. During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a further discussion of the material risks and other important factors, please refer to our filings with the SEC. All figures will be discussed on a non-GAAP basis unless otherwise noted. Also, during today's call, as we refer to certain non-GAAP financial measures, a reconciliation of GAAP to non-GAAP measures is included in our press release. Finally, at times in our prepared remarks and in response to your questions, we may discuss metrics that are incremental to our usual presentation to give greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future. And with that, let me turn the call over to Tom.

Thank you, Matt, and thank you, everyone, for joining us this afternoon to talk about our business results for the third quarter. Let me provide some kind of introductory comments. Clearly, the market for what's going on in enterprise AI is huge and it is rapidly growing. This has been - this interest has been clearly accelerated okay, by Generative AI and Agentic AI, which is becoming a large and rapidly growing business for us. Now as a matter of background, some of you will recall that we began work with Generative AI in 2020 associated with some classified work that we're doing for the United States Missile Defense Agency that I believe continues today. And so when Generative AI became - most of the world became generally aware of it, I believe, in November of 2022, we were well prepared to take advantage of this technology as we do. Now many organizations, government agencies, corporations are really kind of wrestling with the problematic issues associated with these language models and Agentic AI with which everybody on the call is familiar problems like hallucination, problems like unimodal or bimodal data sources, problems like data exfiltration, problems that are now being well documented, where we're opening up new attacks, cyberattack vectors, IP liability exposure, et cetera. Now by combining the work that we did, you'll recall that we did really billions of dollars of software engineering associated with the C3 Agentic AI platform, okay, which - where we address these issues of identity, security and factor authentication, omni modal data fusion, what have you. So by using these language models and Agentic AI in the context of the C3 platform orchestration layer, we've really solved all those problems. And so as a result, C3 Generative AI is installed today in some…

Thank you, Tom. I will now provide a recap of our financial results and additional color on our business. All figures are non-GAAP unless otherwise noted. Total revenue for the quarter increased 26% year-over-year to $98.8 million. Subscription revenue increased 22% year-over-year to $85.7 million representing 87% of total revenue. Revenue from sale of software licenses that are demonstration versions of C3.ai applications was $28.6 million during the quarter. We sell these licenses to our distribution partners to enable them to demonstrate our software effectively to their customers and to large strategic customers to enable them to accelerate AI adoption across their companies. I will also note that our non-Baker Hughes revenue grew by 43% year-over-year in this quarter. Professional services revenue was $13.1 million. This represents 13% of total revenue during the third quarter of fiscal '25. Prioritized Engineering Services or TES revenue was $5.7 million. As we said in prior quarters, we expect the professional services revenue, including PES to generally stay within 10% to 20% of total revenue for fiscal '25. Our subscription and PES revenue combined was $91.4 million and accounted for 93% of total revenue, an increase of 18% compared to $77.5 million one year ago. Gross profit for the quarter was $68.2 million and gross margin was 69%. Gross margin for professional services remained high at over 85%. Operating loss for the quarter was $23.1 million, and our net loss for the quarter was $15.8 million. Our operating loss was substantially better than guidance due to continued focus on expense management. In particular, we elected to reduce our marketing spend, including advertising and to focus on expanding the sales organization and dramatically expanding our strategic partner ecosystem, impact of which will manifest over time. Our non-GAAP net loss per share was $0.12. Our net…

Thank you. [Operator Instructions] Now first question coming from the line of Timothy Horan with Oppenheimer. Your line is now open.

Good morning. Thanks guys. Great job on the relationship here with Microsoft, Amazon, McKinsey. Can you give a little bit more color? What's going on with the total number of pitches that you're going on at this point and pipeline, and when do you think that will start converting to revenue? Thank you.

It is converting to revenue. I believe that we're involved with just one of these companies with Microsoft, we're involved with over 600 engagements today where we are the preferred enterprise AI solution, and they are the preferred platform solution. So I mean understand that, I think this agreement was signed September 30. Memory serves you correct. We announced it in a made stage format at Microsoft Ignite in Chicago. I believe it was November 20. Not much happened between November 20, and the end of the year, because that would be the end of the quarter for Microsoft. So they were focused on their business. And then you get to the first of the year, you get to like the roughly, people get to after work when like 15th of January or whatever. And so, we've really been at this for a little bit over a month with Microsoft. And today, we're engaged in over 600 joint selling relationships with them in Europe, South America, North America, EMEA what have you in across a wide range of industries. So that's just Microsoft. Okay. And so, now we have AWS, we have this business with McKinsey, QuantumBlack is huge. And these relationships that we have are most unusual. These are not simple distribution arrangements. These are, co-selling arrangements, teaming arrangements. And it is, this occupied a lot of our attention. Okay. In the last four months. And we were, for whatever reason that we could talk about some other time. Okay. We were swarmed by these guys, and I think the right thing to do was to respond accordingly. The agreements are all inked. They are executed, they are announced and we are open for business. So it is, there's no way, know-how. This is not a growth accelerator for C3.ai. This is a genuine big deal.

So the 600 engagements have only been since you've announced the deal with Microsoft? And maybe just some color how long does it usually take from initial engagement until you sign a contract?

Well, we've already closed. We said how many have we closed so far. Last quarter, we closed, how many?

28. We have closed 28 agreements in Microsoft already.

28 already in last quarter? So I mean, that's pretty quick.

Great. And then just lastly, just a little bit more color on the remaining procurement obligations. What's going on with the trends there?

I didn't hear the question. So if one of you guys could...

Can you repeat the question, please?

Yes, just remaining performance obligations. Can you just talk about the trends there when - what we should kind of expect going forward?

Yes. The total ARPU at the end of the quarter, it was around $208 million. And as we've indicated in the past, RPO is not the leading indicator of our business. So you should continue to expect some decline in our RPO in the near term.

Thank you.

Thank you. Our next question coming from the line of Patrick Walravens with Citizens JMP. Your line is now open.

Pat, we cannot hear you.

Please check your mute button.

My apologies. So let me add my congratulations on the - all the partnership momentum. Tom, would you be okay talking about the note that you published on February 18. So sorry - but if you could just talk about what the health setback was, and what steps you're taking in terms of running the business, I think that would be great?

Yes. I came down with something like flu-like symptoms after Christmas, which lasted some weeks and that kind of degenerated into kind of a pretty bad flu like symptoms, and the - so I was sick. And then that turned out was a precursor for an autoimmune disease, that autoimmune disease has been identified as - I'm sorry, giant cell arteritis, okay? And so when we get into February, this autoimmune disease kicks in, and attacks my optical nerve. And so my optical paths kind of fried and, so my vision is impaired. Now as it relates to operating the business, it has so - Tom has to learn some new skills, and we put the accommodations in place. I mean, you know me to be intimately familiar with the details of this business, okay? And you can imagine that we spent exacting detail with this management team or how we were reorganizing this company around this new opportunity that's here. We've done the same - we have the same meeting with all of our salespeople around from the world. I spent a lot of time personally with all of the - a lot of time personally, okay, with all of the partners that we've discussed. I put the accommodations in place for - about really the only thing I can't do is read e-mail. So the - so we put the competition in place, there is somebody here with a hot computer, who reads the e-mails to me. I comment, I respond, I approve, I don't prove what have you. I am here in the office. I am managing the business every day. In the short-term, my travel, the medical community has me on kind of - they don't want me going real far or a high altitude, and so we've made arrangements for Jim Snabe, who you most certainly know or know of, and one of our more distinguished directors. Jim, of course, was the Co-CEO of SAP, Chairman of Maersk, Chairman of Allianz, Chairman of Siemens. And so Jim assumed the role as a special assistant to the Chief Executive, okay? And he's filling in for the events that Tom can't do, let's say, I was supposed to be at VivaTech at Paris, or what have you, or maybe we need to do an executive customer review at Shell in London. And so this is how it's organized. I am fully engaged managing details of the business every day, as you know me a little bit, and you know I'm generally in touch with those details. My health is excellent, okay? So beyond all of the infirmities that I had, I just can't see. And the show that - how - is that answer acceptable? Or would you like to know more?

No, that is a very complete answer. Everyone on this call is wishing you a speedy recovery, Tom. Thank you so much for the details.

Thank you, buddy.

Thank you. Our next question coming from the line of Austin Dietz with UBS. Your line is now open.

Yeah, Tom, best of luck on the health front. And then, yes, a question for Tom or Hitesh. Within Pro Services this quarter, the services fees outperformed by, I think, $4 million or so relative to the first half of the year. I think it was up $6.5 million, or so compared to the year ago quarter. Can you maybe just speak to what drove the services outperformance this quarter?

Yes. So this is Hitesh. Our professional services revenue, it includes prioritize engineering services revenue, as well as revenue from consulting services, paid installation services and training services. So we saw an uptick in revenue from consulting services, paid implementation services, and training services during the quarter.

Okay. Got it. And then on - it was helpful color on the demonstration licenses piece this quarter. It feels like those demonstration licenses, have really been outperforming pretty considerably over the last few quarters. So I guess, like why are we seeing so much outperformance in demonstration licenses this year? Sort of what's been driving that? And how should we think about those going forward?

This is Tom. Let me comment on this. I mean come guys. I mean I don't know how many salespeople we just took on, okay, at Azure and AWS. But I believe it's tens of thousands, okay? And the - and they have a very, very complex bag of technology that they need to sell whether they're selling all these fabrics or C3 buckets, or all these various tools in the widgets they sell now we're selling solutions, okay? We're selling predictive maintenance. We're selling reliability. We're selling predictive maintenance for furnaces, for polyethylene facilities. We're selling supply chain optimization for consumer packaged goods companies. And so, it is absolutely imperative, okay, that we arm these people with complete sales kits, not only sales presentation, Q&A, a generative AI for asking for answering questions. But also demonstration software so that they can go kick in the door, and do the first demo to the customer on their own, and then we can come in. So I mean we were simply overwhelmed by interest in big, important people organizations in the last three, four months. And for us not to arm them, with demonstration licenses is just not rational. And - so now the way that the way that the demonstration licenses. Do not have continuing performance - ongoing performance obligations, so that the way that they work under ASC 606 is you recognize the revenue in the period in, which they're delivering. But that was a must-do to make these people effective. And I mean they're not selling on their own, they're selling with us, okay? But this shows them, so we're there on the sales call, we're there are on the demo, we're are there on the statement of work, where they're working on making the pilot successful, but also they need to be able to operate independently of us, and this is a absolute critical success factor. And so it did result in an increase in that form of revenue.

Awesome. Thanks, Tom. Thanks, Hitesh.

Thank you.

Thank you. And I would now like to turn the conference call back to Mr. Seibel for any closing remarks.

Ladies and gentlemen, thank you so much for your time, and continuous attention. It's difficult to describe how exciting it is here, and it is - it's - we are involved in some of the largest, the most complex and most fascinating enterprise AI deployments on earth. We - and it's - this is - I assure you, it's the professional experience of a lifetime, and I think we are on the verge of building one of the world's great companies. So thank you for your attention today, and we look forward to keeping you posted on our progress as we power forward. Thank you all.

This concludes today's conference call. Thank you all for participating, and you may now disconnect.