C3.ai, Inc.

Hello, and thank you for standing by. Welcome to the C3 AI second quarter fiscal year earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. It is now my pleasure to introduce Ruben Gallegos.

Thank you, Andrew, and good afternoon, and welcome to C3AI's earnings call for the second quarter of fiscal year 2023, which ended on October 31st, 2022. My name is Ruben Gallegos, and I'm the Vice President of the Investor Relations. With me on the call today is Tom Siebel, Chairman and Chief Executive Officer, and Juho Parkinen, Chief Financial Officer. After the market closed today, we issued a press release with details regarding our second quarter results, as well as a 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 our 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 that could affect our actual results, please refer to our filings of the SEC. All figures will be discussed on a non-GAAP basis unless otherwise noted. 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 remarks, in response to your questions, we may discuss metrics that are incremental to our usual presentation to give greater insight to the dynamics of our business or 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, Ruben, and hello, everyone. Thank you for joining us. I'm here with Juho Parkinen, our Chief Financial Officer, and we are most pleased to share our results for the second quarter of fiscal year 23. Bottom line, it was a solid quarter in which we delivered our stated objectives and met expectations. despite the rocky economic situation and the generally morose condition of the markets. In the last earnings call, we described two strategic initiatives to spur faster growth. One was to recompose our sales team with an emphasis on technical and domain expertise. The second was to shift our pricing model from a subscription-based pricing model to a consumption-based pricing model. I'm happy to report these initiatives have been successfully completed in the second quarter. I will explain these actions in some detail, but first I'll comment on the financial results and some of the successes that we achieved during the quarter. At large, the quarter was quite solid. Subscription revenue for the quarter was $59.5 million, an increase of 26% year over year. Operating loss improved 15 points year-over-year to 24%. We continue to maintain a healthy growth margin of 77%. Customer count grew 16% year-over-year to 236. Current RPO of $164.5 million was down slightly and consistent with our expectations as we transitioned to a consumption-based pricing model. We ended the quarter with cash reserves of approximately $860 million. The number of completed contracts from the quarter increased to 25, approximately 100% increase year-over-year. Our average contract value in the second quarter was just over $800,000, down from $19 million a year earlier. This reduction in contract value was a direct result of our new pricing model. We believe the new pricing model will result in a substantially increased number of smaller transactions, providing greater forward visibility into both revenue and bookings. Our new consumption-based pricing model was well received by our customers, our prospects, our partners, and by our sales organization. We expect this new model to increase the number of customers with which we engage in any given quarter by an order of magnitude. As these customers continually increase their usage over time, we expect the compound effect on revenue growth to be quite significant. Our customers and prospects find the new consumption-based pricing easier to understand and easier to contract. Our market partners find this new pricing model well aligned with how they price their own services and one that facilitates their successfully selling CTAI products. I'm happy to report that our transition to this new consumption-based pricing model is now complete. Simultaneously, last quarter, we completed a transition of similar magnitude with the re-composition of our global sales team. We are now growing a team of highly qualified, well-trained, technologically expert sales professionals who are engaging with prospective customers and selling pilots, and expanding production usage with existing customers. There is no question that there is pervasive economic uncertainty in the global business community that continues to provide bookings headwinds. This has been especially significant in the tech markets that are experiencing experiencing a bloodbath in equity prices with significant layoffs in companies including Amazon, Meta, Salesforce, Google, Snap, and many others. I believe this is just the start of what will be a significant tech market correction. Layoffs at established companies will accelerate. The many Series A, B, C, and D companies that are hemorrhaging cash will simply not survive. Just like every other tech recession that we've seen, the human capital at the piece parts companies will be redistributed to those companies that survive. We're confident in our business outlook, especially with the nearly $600 billion addressable market opportunity that we have before us. We continue to invest in our products and in the talent required to meet our goal of building a cash-positive, profitable business that will return to a growth rate of greater than 30% year over year within the next 18 months. Our employee base grew last quarter to over 850, a sequential increase of 83, and we continue to hire key engineers, data scientists, sales professionals, and other key roles across the organization. Turning to some of our customer successes in the quarter, Shell has continued to expand their use of our solutions in new areas and has successfully implemented C3 AI sustainability for manufacturing at two of their key offshore platforms in the Gulf of Mexico. We also have successfully concluded an ESG trial with Shell that focused on leveraging NLP to generate targeted insights on the rapidly evolving ESG priorities of Shell's key stakeholders. Shell has already addressed and communicated that they are realizing massive economic value annually by deploying our C3A applications across the enterprise, upstream, downstream, midstream renewables. We're just getting started. There's a large and growing pipeline of enterprise AI applications that challenge building, testing, and deploying using the C3 AI platform, realizing the strategic value of our partnership and the fulfillment of the digital transformation of one of the largest and most iconic companies in the world. Cargill has continued to expand their use of our solutions, and optimizing food production and distribution to meet the dynamic needs of the market and ensuring sustained food value chains in North America, Latin America, Europe, Africa, and Asia. This is a critical mission that has enormous humanitarian ramifications, and we're proud to participate with Cargill in this important mission. Lastly, we're proud to say that we've continued to expand our relationship with the United States Air Force, working closely with them to improve aircraft availability and efficiency of readiness programs of the entire fleet of over 3,700 aircraft. The AI capabilities that we are putting into operation today offer the potential to improve readiness rates by up to 20% and reduce the cost of maintenance by up to $4 billion per year. Let me address our partner ecosystems. In recent weeks, there's been something of a seismic shift in the enterprise AI software space. Traditionally, the primary competition to purchasing C3A enterprise applications was to license, was for a company to license, so the alternative of purchasing C3 was for a company to license a large number of tools from the hyperscalers, piece parts, from providers like Caldera, Pivotal, Databricks, DataRobot, and the many of the scores of other point solution providers, and then engage in a long and expensive science experiment in an attempt to build a custom enterprise AI platform. No one to our knowledge ever succeeded at that. Now, the market is truly changing due to it changing and demonstrating an increased desire for production, tried, tested, proven enterprise AI solutions. All of the hyperscalers have acknowledged this within the last few months. Thomas Curran at Google Cloud was the leader, announcing the TCP would lead in the market, not with piece parts, but with turnkey production enterprise applications from C3 AI. Then last week, Adam Solitsky, CEO of AWS, announced that their customers were now demanding turnkey applications, not toolkits. This was followed the next day by Scott Cutler, EVP, and Microsoft Azure, all announced that the customers were telling them that they no longer wanted toolkits to build applications. They now want functional turnkey AI applications that accrue immediate value. With a growing family of 42 production enterprise C3 AI applications in the market that serve the needs of financial services, utilities, health, manufacturing, defense, intelligence, and other industries, C3 AI is well positioned to capitalize on this now clearly recognized market requirement. We sell with GCP. We sell with Azure. We sell with AWS. We sell with David Hughes. We sell with Bruce Callen Hamilton. and we are well positioned to help our partners to deliver to their customers the solutions they are demanding. CGAI and Google Cloud are continuing to jointly invest in industry applications with the launch of two new enterprise AI applications last quarter optimized on GCP. Our sales teams are actively co-selling today to over 300 accounts around the world. Last quarter, we closed an expansion with a large transportation company, jointly signed one of the top 50 retailers in the world to license our supply chain applications, and signed several new deals in the financial services and oil and gas industries. Our GCP joint selling activity is quite brisk, and as a result, GCP is our fastest growing install base. That being said, AWS remains C3.AI's largest installed base, constituting about 56% of our customer base. C3.AI and Microsoft continue to close deals, particularly in the energy and manufacturing sectors. Azure remains our second largest installed base, constituting approximately 27% of our customer base. We announced a number of new product enhancements here in the course of the quarter that I'm not going to review in this call, but we continue to invest in technology leadership. We continue to invest in R&D, and we continue to add to our industry-leading portfolio of enterprise AI applications and add greater depth and increase performance to these existing applications. Let me talk for a minute about human capital. C3AI continues to be recognized as a great place to work. In the second quarter, we received over 23,000 job applications. We interviewed over 2,200 of these applicants and we hired 90. One of the secular changes of this tech downturn is the increased availability of highly trained professionals who are willing to come into the office roll up their sleeves, and get to work. We have never been more confident with the team that we have and with their ability to execute our strategy. Turning to guidance, our Q3 revenue estimate is expected to be between 63 and 65 million, and we are reaffirming our full year, fiscal year 23 revenue guidance of $255 million to $270 million. For non-GAAP operating loss, we expect in Q3 between $25 million and $29 million. And for the full year, we expect operating loss between $85 million and $98 million. We continue to operate at roughly an 80% non-GAAP gross profit margin. We have a clear path to top-line growth, non-GAAP profitability, and cash-positive operations by the end of fiscal year 24. At this time, we do not see our cash balances falling below $700 million before that inflection. Final comments on the big picture. C3 AI is addressing a $600 billion addressable AI software market. If not the largest, we are one of the largest providers of these applications globally. Our business is exactly on track with what we have communicated to you. Our goal remains to establish and maintain the global leadership position in enterprise AI software. In the short one, we believe tech companies and tech equities will continue to face headwinds as long as the Fed keeps its foot on the brake. The collateral damage, I think, is going to be more significant than people think. That being said, when the Fed takes its foot off the brake, be that in 2023 or 2024, C3 AI will be bigger, stronger, cash positive, profitable, a clear market leader, and well positioned to benefit from the inevitable equity market surge that will ensue. Now let me turn the call over to our CFO, Juho Parkuden, for a summary of our financials and additional commentary. Juho.