C3.ai, Inc.

and welcome to the C3AI Third Quarter Fiscal Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speakers today. Paul Phillips, Vice President of Investor Relations at C3AI. Thank you. Please go ahead, sir.

Good afternoon, everybody, and welcome to C3AI's earnings call for the third quarter of fiscal year 2021, which ended January 31st, 2021. This is Paul Phillips, Vice President of Investor Relations of C3AI. With me on the call today are Tom Siebel, Chairman and Chief Executive Officer, and David Varder, Chief Financial Officer. After the market closed today, we issued a press release with details regarding our third quarter results, as well as a supplement to our results, both of which can be accessed on 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. These risks are summarized in the press release that we issued today. For a further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our prospectus. Also, during the course of today's call, we will 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 comments or responses to your questions, we may discuss metrics that are incremental to our usual presentation to provide 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. With that, let me turn the call over to Tom for his prepared remarks.

Tom? Thank you, Paul, and good afternoon, everyone. It's my great pleasure to have the opportunity to spend some time with you this afternoon. So let's talk about the company and talk about the market. Overall, we're really quite pleased with the progress that we continue to make in the market globally. We continue to break ground as the only enterprise AI software pure play. This is a large and rapidly growing market. We continue to innovate. We continue to expand our market partner ecosystem and the associated increased distribution capacity associated with that. We continue to demonstrate technology leadership. I believe that we are increasingly well positioned to establish a global market leadership position in enterprise AI software. So let's talk about the financial highlights. All in all, it was a strong third quarter. Revenue in the third quarter was $49.1 million. $42.7 million of that was subscription revenue, an increase of 23% from a year earlier. Subscriptions have increased to 87% of our revenue mix. Services revenue for the quarter was $6.4 million, or 13% of total revenue. representing a decrease of 4% from a year ago. Non-GAAP operating expense for the quarter increased to $49.2 million, up 27% from a year ago. And non-GAAP operating loss for the quarter was $11.9 million, compared to $8.4 million a year ago. Let's talk about the overall state of the market. When we think about enterprise and digital transformation, we are focused on an extraordinarily large addressable market that according to analysts was $174 billion in 2020, increasing to $271 billion by 2024. This is a significant opportunity by any standard and the largest software market opportunity that I have seen in my professional career. Digital transformation enabled by enterprise AI remains at the top of the agenda of virtually every CEO and board globally. We see increasingly robust interest and demand for enterprise AI solutions, and our pipeline continues to grow substantially across all industries and all regions. Let me address a few of the significant customer wins in the third quarter. Firstly, Infor. Okay, we have formed a strategic wide-ranging relationship with Infor, a multibillion-dollar ERP software provider. Under the terms of the agreement, Infor will be integrating many existing Infor applications with the C3 AI suite and the C3 AI applications to market, sell, and deploy Infor. AI-based solutions to their customers under the Infor brand. This will evolve into a broader partnership with Infor to market C3 AI solutions to Infor customers, including C3 AI Reliability, C3 AI CRM, and C3 AI Ex Machina, a next-generation predictive analytics application that empowers anyone to develop, scale, and produce AI-based insights without writing code. Secondly, I want to talk about Johnson Controls in Milwaukee. Johnson Controls recently selected C3AI for the inventory and supply chain optimization. Johnson Controls is a $23.5 billion company that's a leading manufacturer of fire, HVAC, and security equipment for buildings and energy services. Finally, I want to talk about an opportunity at the United States Army where we expanded our work with the U.S. Army aviation to improve aircraft readiness. In addition, with our partner Raytheon, we recently began work on the US Army's next generation tactical ground station that will enable automated processing and analytics of massive amounts of incoming sensor data for improved situational battlefield awareness. This is, you know, this is very, very high tech, think Star Wars level technology. This AI-based system will provide decision support to commanders based on information coming from a multitude of sensors and sources within the C3 AI suite, synthesizing this into a single unified data image. I want to talk about industry diversification. We continue to diversify across industries. We're seeing increasing contributions from life sciences, financial services, and high-tech sectors, as well as increasingly healthy growth in international sales. High-tech accounted for 8% of our business in 2020. fiscal year 21 year to date, compared to less than 1% for the same period a year ago. Life sciences accounted for 7% of our business in fiscal year 21 year to date, compared to less than 1% for the same period a year ago. Manufacturing sector accounted for 11% of our business in fiscal year 21 to date, compared to approximately 1% over the same period a year ago. At the same time, oil and gas accounted for 38% of our business in fiscal year 21 year-to-date, compared to approximately 59% a year ago. Addressing strategic partnerships. Core to our market growth strategy is, one, the evolution of our global direct geographic and vertical market sales organizations to include major accounts, enterprise sales, mid-market sales, and mass market sales channels, and two, the expansion of our market partner ecosystem in both horizontal and vertical markets. We realized significant benefits from these efforts in the third quarter, with increased geographical expansion, increased vertical diversification, significant growth in software subscriptions, and importantly, increased volume and diversity in the average contract in our sales pipeline. By way of example, our average total subscription contract value decreased from $12.1 million in fiscal year 20 to $5.2 million in Q3 fiscal 21. This is substantial progress. We continue to build and increase our engagement with our partner ecosystem as a key growth strategy, enabling us to significantly expand our market reach and serve customers across industries globally. In the third quarter, we established or expanded such partnerships with Microsoft, Baker Hughes, Engie, Shell, Infor, FIS, and Raytheon. And you can expect to see continued activity, accelerated activity in this area going forward. In the financial services sector, our industry partner FIS launched FIS AML Compliance Hub powered by C3AI, the first joint product release under a broad alliance between FIS and C3AI. This solution leverages C3.AI's advanced machine learning technology combined with the deep financial industry domain expertise of FIS to dramatically improve the effectiveness of financial crime detection. C3.AI and Microsoft closed our first AI CRM deal with a Fortune 500 customer. We believe AI will represent a significant and growing part of the $60-plus billion CRM market globally. In the defense sector, we engaged with our defense industry partner Raytheon to provide technology for the U.S. Army's Intelligent Ground Station Initiative. As I referenced earlier, we formed a comprehensive alliance with Infor to integrate many existing Infor applications using the C3 AI suite and C3 applications and enabling Infor to market these applications to its customers through all its channels. You can expect that in the coming quarters, we will make increased efforts to expand our market partner ecosystem across both horizontal and vertical markets as we see this as a key point of leverage for market growth. We focused a lot on strengthening company leadership. We expanded the company's leadership with the addition of Jim Snabe, formerly co-CEO of SAP, and chairman of Siemens, also chairman of Maersk, to the C3 AI board of directors. I've come to rely on Jim as a trusted advisor, as he's been an advisor to the company for some time, as an advisor to me for some time, okay, as we work to establish C3AI as a leading global enterprise software company. He brings a unique set of leadership skills and expertise to the company and is a great addition to our world-class board. In addition... We continue to expand our global advisory board that has been really, really important in establishing customer relationships, okay, and building presence in country and in industries. The advisory board now includes Jacques Attali, who is founder and first president of the European Bank for Reconstruction and Development and former special advisor to the president of France. Sachin Javid, who is a member of parliament and former Home Secretary and former Chancellor of the Exchequer in the UK, Admiral Denny McGinn, former U.S. Assistant Secretary of the Navy in the Obama Administration, Rick Leggett, former Deputy Director of the NSA in the Obama Administration, Frank Cohen, former President of SAP in Europe, and George Matthew, former President and COO of Alteryx. Now, those of you who have been tuned into financial channels or watching the Wall Street Journal or reading the Financial Times or Bloomberg, you know, have noticed that we have been investing, okay, in branding globally. And we expanded our enterprise AI branding campaign to include significant cable TV and radio presence with spots running worldwide. on virtually all the major business and financial networks in the United States and Europe. We also expanded our advertising to include the UK, EMEA, and APAC, as well as the United States. We are becoming increasingly known as the enterprise AI market leader. Leading indicators of brand equity and brand recognition have been substantially increasing, including PR volume, public relations volume, news sentiment volume, social media sentiment, and Internet search frequency. Let's talk about energy sustainability. Well, the energy and sustainability market is back, okay, and it is on fire. And so we are seeing increased interest for AI-enabled solutions in the energy and sustainability market. This market is coming back strong. Over the last year alone, the number of companies and governments that have committed to reach net zero emissions has doubled. No doubt you've seen the flood of announcements from companies such as Engie, Shell, Baker Hughes, Microsoft, Amazon, Ford, BP, JetBlue, American Airlines, and others announcing their zero carbon commitments. Sustainability is also clearly a top priority for the U.S., for the new U.S. administration, targeting a $2 trillion investment in climate security. C3 AI is a leader in this space. Energy and climate sustainability is the core market, many of you will recall, where we started with our first product offering in 2010, C3 Energy Management, which we have deployed into production use with many large organizations globally, including Engene and the New York Power Authority. One iconic Fortune 100 company has been a customer since 2012. They have set ambitious sustainability goals and use our energy management application to identify and prioritize their energy efficiency and carbon reduction investments globally to meet their climate goals. Many utilities use C3 AI technology and C3 energy management applications. not only to optimize their own energy usage and optimize the grid infrastructure, but also to help their customers meet their energy efficiency and greenhouse gas goals. A great example is New York Power Authority that employs C3A Energy Management as a service, enabling its large commercial and industrial customers to achieve their energy efficiency and greenhouse gas goals. And with our energy partner, ENGIE, we're delivering innovative solutions built with C3 energy management. Ohio State University, for example, has deployed ENGIE smart institutions built on C3 AI technology to reduce and manage its energy use and carbon footprint across its entire 485-building campus in Columbus. We're also working with Engie on a novel cutting-edge solution addressing the very difficult challenges of managing Scope 3 emissions, a problem that requires an entirely new technology approach. In the third quarter, we significantly expanded our effort, our investment in the C3AI Digital Transformation Institute, issuing a new call for papers to fund innovative research in applying AI and digital transformation to energy and climate security. We're very excited to support this next wave of research by providing, enabling safer, cleaner, lower cost and more reliable energy and to help lead the way to a lower carbon future. We are extraordinarily well positioned for this new opportunity. Many of you will know that, you know, C3AI was recognized by Glassdoor as the best place to work during the pandemic. We were ranked among the top 25 cloud computing companies with stellar employee satisfaction during the COVID crisis. This ranking is based on employee feedback provided through Glassdoor during the first six months of the pandemic. I encourage those of you who are interested to take a look at Glassdoor to get a feel for the high levels of employee engagement and enthusiasm at C3.ai. As you know, we place an exceptionally strong focus on human capital at C3 AI and are aggressively expanding the company. In the few short months since the company went public in December, we've increased our headcount by approximately 10% to roughly 560 today. We continue to attract massive interest from the global data science and data engineering software pool. In the third quarter, we received over 17,000 job applicants. We conducted 3,966 interviews with over 1,700 candidates and administered almost 700 assessments. Of that, we hired 60 full-time employees, and we processed an additional 57 job offers that have been accepted. One of the unique aspects of C3 AI is our clear technology and product differentiation. And we continue to protect the company's intellectual property with a combination of trade secret, copyright, trademark, and a growing family of U.S. and foreign patents, with 13 U.S. and foreign patents having been awarded and 40 U.S. and foreign patent applications pending. The U.S. Patent Office recently awarded us a broad and important patent entitled Systems, Methods, and Devices for an Enterprise AI Development Platform. This is the most significant and substantial patent we have been awarded to date. This patent essentially secures the fundamental concepts of applying a model-driven architecture for all enterprise AI applications, and it secures it as C3 AI intellectual property. And we are working now to form a technology licensing office at C3 to license some of this IP to companies that elect to attempt to internally develop their enterprise AI applications. Big picture We see a robust and growing interest in enterprise AI software and the solutions that we offer. We continue to make significant progress on all fronts in our objective to establish and maintain a global leadership position in enterprise AI. We continue to aggressively grow the company, diversify our business across industries and geographies, and expand our partner ecosystems. We believe we are very well positioned to address this $200 billion-plus addressable market opportunity, and we are just getting started. With that, I will turn it over to our CFO, David Barter, for further details on our financial results in the third quarter. David.