Q1 2026 C3.ai Inc Earnings Call
Amit Berry: Good afternoon, and welcome to C3.ai's earnings call for the first quarter of fiscal year 2026, which ended on July 31, 2025. My name is Amit Berry, and I lead Investor Relations at C3.ai. With me on the call today are Tom Siebel, Executive Chairman; Stephen Aiken, Chief Executive Officer; and Hitesh Lath, Chief Financial Officer. After the market closed today, we issued a press release with details regarding our first 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.
Speaker #2: Good Good afternoon, and welcome to C3.ai's earnings call for the first quarter of fiscal year 2026. Which ended on July 31, 2025. My name is Amit Berry, and I lead investor relations at C3.ai.
Speaker #2: With me on the call today are Thomas Siebel, Executive Chairman; Stephen Ahikyan, Chief Executive Officer; and Hitesh Lath, Chief Financial Officer. After the market closed today, we issued a press release with details regarding our first 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.
Speaker #2: 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.
Amit Berry: 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 that could affect our actual results, please refer to our most recent annual report on Form 10-K filed with the SEC, as it may be supplemented by other filings and reports we make with the SEC from time to time, including our quarterly report on Form 10-Q that will be filed for the fiscal quarter ended July 31, 2025. All financial results will be discussed on a non-GAAP basis unless otherwise noted.
Speaker #2: 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.
Speaker #2: 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, another important factor that could affect our actual results: please refer to our most recent annual report on Form 10-K, filed with the SEC.
Speaker #2: As it may be supplemented by other filings and reports we make with the SEC from time to time, including our quarterly report on Form 10-Q that will be filed for the fiscal quarter ended July 31, 2025.
Speaker #2: All financial results will be discussed on a non-GAAP basis unless otherwise noted. A reconciliation of GAAP to non-GAAP financial measures, to the extent reasonably available, is included in our press release.
Amit Berry: A reconciliation of GAAP to non-GAAP financial measures, to the extent reasonably available, 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 into the dynamics of our business and 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 Hitesh.
Speaker #2: 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 and our quarterly results.
Speaker #2: 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 Hitesh.
Hitesh Lath: Good afternoon, everyone, and thank you for joining our call today. I will share our financial results and provide additional color on our business. All figures are non-GAAP unless otherwise noted. Total revenue for the quarter was $70.3 million, a decrease of 19% year-over-year. Subscription revenue for the quarter was $60.3 million, representing 86% of total revenue. Revenue from sale of software licenses that are demonstration versions of C3 AI applications was $17.9 million during the quarter, which was sequentially lowered by $15.9 million. We sell these licenses at the request of our distribution partners to enable them to demonstrate our software effectively to their customers, and at the request of our large strategic customers to enable them to accelerate C3 AI application adoption across their companies. Professional services revenue was $10 million, of which $8.7 million was revenue from prioritized engineering services, or PES.
Speaker #3: Good afternoon, everyone, and thank you for joining our call today. I will share our financial results and provide additional color on our business. All figures are non-GAAP unless otherwise noted.
Speaker #3: Total revenue for the quarter was $70.3 million, a decrease of 19 percent year-over-year. Subscription revenue for the quarter was $60.3 million, representing 86 percent of total revenue.
Speaker #3: Revenue from the sale of software licenses that are demonstration versions of C3.ai applications was $17.9 million during the quarter, which was sequentially lower by $15.9 million.
Speaker #3: We sell these licenses at the request of our distribution partners to enable them to demonstrate our software effectively to their customers and at the request of our large strategic customers to enable them to accelerate C3.ai application adoption across their companies.
Speaker #3: Professional services revenue was $10 million, of which $8.7 million was revenue from prioritized engineering services (PES). Professional services represent 14 percent of total revenue during the quarter.
Hitesh Lath: Professional services represent 14% of total revenue during the quarter. Our subscription and PES revenue combined was $69 million and accounted for 98% of total revenue. I'll now walk you through some of our strategic customer wins this quarter. Nucor has expanded its commitment with C3.ai in a multi-year partnership to build an enterprise-wide AI program across their facilities. We are supporting and optimizing day-to-day planning, inventory, and scheduling decisions, and now expanding to additional plants and use cases. Kamerika, a global leader in chemicals, launched its first enterprise-scale AI program with C3.ai. After initial success improving yield in its salt business, Kamerika is now scaling to 100 assets and multiple use cases, the start of a company-wide AI transformation. HII, America's largest military shipbuilder, is expanding its partnership with C3.ai to accelerate throughput at Ingalls and Newport News.
Speaker #3: Our subscription and PES revenue combined was 69 million dollars and accounted for 98 percent of total revenue. I'll now walk you through some of our strategic customer wins this quarter.
Speaker #3: Nucor has expanded its commitment with C3.ai in a multi-year partnership to build an enterprise-wide AI program across their facilities. We are supporting and optimizing day-to-day planning, inventory, and scheduling decisions.
Speaker #3: And now, expanding to additional plants and use cases. Comerica, a global leader in chemicals, launched its first enterprise-scale AI program with C3.ai. After initial success improving yield in its salt business, Comerica is now scaling to 100 assets and multiple use cases.
Speaker #3: The start of a company-wide AI transformation: HII, America's largest military shipbuilder, is expanding its partnership with C3.ai to accelerate throughput at Ingalls and Newport News.
Hitesh Lath: Initial deployments cut complex shipbuilding timelines, and we are now scaling these AI capabilities across HII shipyards to strengthen U.S. Navy fleet readiness. The U.S. Army Rapid Capabilities and Critical Technologies Office is deploying a contested logistics application built on the C3 Agentic AI platform to support frontline vehicles in high-risk environments. This system applies Agentic and generative AI to enhance sustainment, readiness, and decision speed in contested environments. I'll now move on to the rest of the financial results. Non-GAAP gross profit for the quarter was $36.3 million, and non-GAAP gross margin was 52%. Non-GAAP gross margin for professional services remained high at over 80%. Non-GAAP operating loss for the quarter was $57.8 million. Non-GAAP net loss for the quarter was $49.8 million, and non-GAAP net loss per share was $0.37. Our net cash used in operating activities was $33.5 million.
Speaker #3: Initial deployments cut complex shipbuilding timelines, and we are now scaling these AI capabilities across HII shipyards to strengthen U.S. Navy fleet readiness. The U.S.
Speaker #3: Army Rapid Capabilities and Critical Technologies Office, is deploying a contested logistics application built on the C3 Agentic AI platform, to support front-line vehicles in high-risk environments.
Speaker #3: This system applies Agentic and generative AI to enhance sustainment, readiness, and decision speed in contested environments. I'll now move on to the rest of the financial results.
Speaker #3: Non-GAAP gross profit for the quarter was 36.3 million dollars, and non-GAAP gross margin was 52 percent. Non-GAAP gross margin for professional services remained high, at over 80 percent.
Speaker #3: Non-GAAP operating loss for the quarter was $57.8 million. Non-GAAP net loss for the quarter was $49.8 million, and non-GAAP net loss per share was $0.37.
Speaker #3: Our net cash used in operating activities was 33.5 million dollars. Free cash flow for the quarter was negative 34.3 million dollars. We continue to be well-capitalized, and close the quarter with 711.9 million dollars in cash, cash equivalents, and marketable securities.
Hitesh Lath: Free cash flow for the quarter was -$34.3 million. We continue to be well-capitalized and closed the quarter with $711.9 million in cash, cash equivalents, and marketable securities. During the first quarter, we signed 28 initial production deployments or IPDs. At the end of the quarter, we had cumulatively signed 374 IPDs, of which 266 are still active. This means they are either in their original three to six-month term or extended for some duration, or converted to ongoing subscription or consumption contract, or are currently being negotiated for conversion to ongoing subscription or consumption contract. Non-GAAP gross margin declined this quarter to 52%, primarily due to a higher mix of IPD-related cost, a lower mix of demonstration license revenue and PES revenue, and lower economies of scale.
Speaker #3: During the first quarter, we signed 28 Initial Production Deployments (IPDs). At the end of the quarter, we had cumulatively signed 374 IPDs, of which 266 are still active.
Speaker #3: This means they are either in their original 3 to 6-month term, or extended for some duration, or converted to ongoing subscription or consumption contract, or are currently being negotiated for conversion to ongoing subscription or consumption contract.
Speaker #3: Non-GAAP gross margin declined this quarter to 52%, primarily due to a higher mix of IPD-related costs, a lower mix of demonstration license revenue and PES revenue, and lower economies of scale.
Hitesh Lath: As compared to fiscal 2025, we expect to continue to see moderated gross margins in the near term due to a higher mix of IPDs, which carry a greater cost of revenue during the initial production deployment phase of the customer lifecycle due to our investments in expanding our support capacity and lower economies of scale. Now I'll move on to our guidance for the next quarter. Our revenue guidance for Q2 of fiscal year 2026 is $72 million to $80 million. Our guidance for non-GAAP loss from operations for Q2 of fiscal year 2026 is $49.5 million to $57.5 million. Given the appointment of our new Chief Executive Officer and the recent restructuring of the sales and services organizations, we are withdrawing our previous guidance.
Speaker #3: As compared to fiscal 2025, we expect to continue to see moderated gross margins in the near term due to a higher mix of IPDs, which carry a greater cost of revenue during the initial production deployment phase of the customer lifecycle, due to our investments in expanding our support capacity and lower economies of scale.
Speaker #3: Now I'll move on to our guidance for the next quarter. Our revenue guidance for Q2 of fiscal year 2026 is 72 million dollars, to 80 million dollars.
Speaker #3: Our guidance for non-GAAP loss from operations for Q2 of fiscal year 2026 is 49.5 million dollars, to 57.5 million dollars. Given the appointment of our new Chief Executive Officer, and the recent restructuring of the sales and services organizations, we are withdrawing our previous guidance.
Hitesh Lath: We plan on providing guidance for the third quarter of fiscal 2026 and full year fiscal 2026 when we announce our financial results for the second quarter of fiscal 2026. With that, I'd like to turn the call over to Tom.
Speaker #3: We plan on providing guidance for the third quarter of fiscal 2026 and the full year fiscal 2026 when we announce our financial results for the second quarter of fiscal 2026.
Speaker #3: With that, I'd like to turn the call over to Tom.
Tom Siebel: Thank you, Hitesh, and good afternoon, everyone. As Hitesh reported, the financial results of the first quarter were completely unacceptable and completely unacceptable in virtually every respect. I've given this a lot of thought as to what the root cause of this is. Is there a market? The market is huge. Is there some new competitor that changed the competitive dynamics of the space? There is not. Is there some secular change in the market that we haven't seen before? There is not. The fact of the matter is that it boiled down to poor sales execution and poor resource coordination. It's clear that the new leadership that we brought into the organization globally in sales and service, in the service organization, in EMEA, in federal, in North America, mid-quarter, caused confusion in the sales process.
Speaker #4: Thank you, Hitesh. And good afternoon, everyone. As Hitesh reported, the financial results of the first quarter were completely unacceptable, and completely unacceptable in virtually every respect.
Speaker #4: I've given this a lot of thought as to, you know, what the root cause of this is. Okay? Is there a market? The market is huge.
Speaker #4: Is there some new competitor that changed the competitive dynamics of the space? There is not. Is there some secular change in the market that we haven't seen before?
Speaker #4: There is not. The fact of the matter is that they boiled down to four sales execution and poor resource coordination. It's clear that the new leadership that we brought into the organization in, got a globally and sales and service, in the service organization, in EMEA, in federal, in North America, kind of mid-quarter, and it caused confusion in the sales process.
Tom Siebel: As I have previously announced, I ran into some unanticipated health issues, and as a result of these health issues, I was unable to participate as actively as I used to in the sales processes and the coordination of resources necessary to make these sales processes successful and come to closure. In hindsight, it's clear that my active involvement in that sales process had a greater impact than any of us knew. The good news is that we have completely restructured our sales and service organizations globally. We have brought in new, highly experienced leadership across the board to drive growth and to drive customer satisfaction.
Speaker #4: As I have previously announced, I ran into some unanticipated health issues. As a result of these health issues, I was unable to participate as actively as I used to in the sales processes and the coordination of resources necessary to make these sales processes successful and come to closure.
Speaker #4: In hindsight, it's clear that my active involvement in the sales process had a greater impact than any of us knew. The good news is that we have completely restructured our sales and service organizations globally.
Speaker #4: We have brought in new, highly experienced leadership across the board, okay, to drive growth and to drive customer satisfaction. Even better, consistent with our announcement last July, we have completed the search and we have appointed a new Chief Executive Officer in the person of Stephen Ahikyan, who is highly experienced and well-equipped to drive the details of this business, the coordinate resources, and to accelerate growth.
Tom Siebel: Even better, consistent with our announcement last July, we have completed the search, and we have appointed a new Chief Executive Officer in the person of Stephen Aiken, who is highly experienced and well-equipped to drive the details of this business, to coordinate resources, and to accelerate growth. In the sales and service organizations, we have combined these organizations under a new leader in the person of a Chief Commercial Officer to bring a more seamless experience focused on delivering value for each and every one of our customers. In addition to the Chief Commercial Officer, we brought in a new General Manager of EMEA. We brought in a new Group Vice President for North American Operations, and we brought significant leadership into the federal business operations.
Speaker #4: In the sales and service organizations, we have combined these organizations under a new leader in the person of a Chief Commercial Officer, to bring a more seamless experience of focused on delivering value for each and every one of our customers.
Speaker #4: In addition to a Chief Commercial Officer, we've brought in a new General Manager of EMEA, a new Group Vice President for North American Operations, and we've brought in significant leadership into the federal business operations.
Tom Siebel: By combining the sales and service organizations into a cohesive whole, we are assuring a focus on delivering rapid economic benefits to each one of our customer engagements to ensure their continued success. As we entered Q2, we have installed new leadership across the board. We have reorganized our sales and service organizations with a tightly integrated, detailed execution plan going forward where everybody knows where they sit, what their job responsibilities are, and we've assured that everybody has the resources to do their job. We have a product that is unmatched in technical sophistication and functionality. We have over 131 turnkey enterprise AI applications in the market. I believe we have the highest levels of customer satisfaction as measured by Net Promoter Scores in the application software industry. We have a huge and rapidly growing addressable market opportunity.
Speaker #4: By combining the sales and service organizations into a cohesive whole, we are assuring a focus on delivering rapid, economic benefit to each of one of our customer engagements to ensure their continued success.
Speaker #4: As we entered Q2, we have installed new leadership across the board. We have reorganized our sales and service organizations with a tightening integrated detailed execution plan going forward, where everybody knows where they sit, what their job responsibilities are, and we've assured that everybody has the resources to do their job.
Speaker #4: We have a product that is unmatched in technical sophistication and functionality. We have over 131 turnkey enterprise AI applications in the market. I believe we have the highest levels of customer satisfaction as measured by Net Promoter Scores in the application software industry. We have a huge and rapidly growing addressable market opportunity. We have the leadership in place, and we are positioned to grow. We are in a position to gain market share, and we are in a position to assure the success of each and every one of our customer engagements.
Tom Siebel: We have the leadership in place, and we are positioned to grow. We are in position to gain market share, and we are in a position to assure the success of each and every one of our customer engagements. An important development in Q1 was the introduction of our Strategic Integrator Program. This is a software OEM program whereby we are licensing the C3 Agentic AI platform to others, enabling them to design, develop, provision, and operate the industry and domain-specific applications for their markets. We're finding that the Strategic Integrator Program is being well received by OEMs, systems integrators, service providers into the defense intelligence and civilian government communities, and we expect this to be a large and rapidly growing line of business for C3.ai going forward.
Speaker #4: An important development in Q1 was the introduction of our Strategic Integrator Program. This is a software OEM program, whereby we are licensing the C3 Agentic AI platform to others.
Speaker #4: Enabling them to design, develop, provision, and operate the industry and domain-specific applications for their markets. We're finding that the strategic integrator program is being well-received by OEMs, systems integrators, service providers into the defense intelligence and civilian government communities, and we expect that this to be a large and rapidly growing line of business for C3.ai going forward.
Tom Siebel: The use of the Agentic AI platform enables them to use all of the assets that they've developed in the last couple of decades, be these machine learning models. It is an entirely open architecture that allows them to use any of the capabilities that they have, any new capabilities that the market may bring going forward. It is an entirely open model-driven architecture enabling complete flexibility going forward and avoiding vendor lock-in. It's difficult to overestimate the scale of the generative AI and Agentic AI opportunity that is before us. As at the end of the first quarter, we're involved in approximately 60 large-scale customer engagements in state and local government, in manufacturing, in federal government, in defense, intelligence, manufacturing, what have you.
Speaker #4: The use of the Agentic AI platform enables them to utilize all of the assets that they've developed in the last couple of decades, whether these are machine learning models or other capabilities. It's an entirely open architecture that enables them to leverage any of the capabilities they have, as well as any new capabilities that the market may introduce going forward. This completely model-driven architecture provides full flexibility and helps avoid vendor lock-in.
Speaker #4: It's difficult to overestimate the scale of the generative AI and Agentic AI opportunity that is before us. As at the end of the first quarter, okay, we're involved in approximately 60 large-scale customer engagements in state and local government, in manufacturing, in federal government, in defense, intelligence, manufacturing, what have you.
Tom Siebel: Many of you are familiar with the MIT report that shows that an order of 95% of these LLM projects run into a dead end and are unsuccessful. Our experience is that the majority of our LLM deployments are successful across industries and across use cases. The reason for this success is the combination of these generative pre-trained transformers with the C3 Agentic AI platform solves all the hobgoblins that are associated with generative AI. These hobgoblins include data exfiltration, cybersecurity risk, hallucination, the inability to enforce data access controls, the inability to take advantage of omnimodal integration. All of these problems are solved by C3 Generative AI, resulting in a very, very high success rate associated with our projects. Q1 2025 was our 19th quarter operating as a public company. This is the first quarter in which we have missed our revenue guidance.
Speaker #4: Many of you are familiar with the MIT report that shows that order of 95 percent of these LLM projects run into a dead end and are unsuccessful.
Speaker #4: Our experience is that the majority of our LLM deployments are successful across industries and across use cases. The reason for this success is the combination of these generative pre-trained transformers with the C3 Agentic AI platform, which solves all the hot goblins that are associated with generative AI.
Speaker #4: These hot goblins include data exfiltration, cybersecurity risk, hallucination, the inability to enforce data access controls, the inability to take advantage of omni-modal integration, all of these problems are solved by C3 generative AI, resulting in a very, very high success rate associated with our projects.
Speaker #4: Q1 2025 was our 19th quarter operating as a public company. This is the first quarter in which we have missed our revenue guidance. Know that we take that very seriously.
Tom Siebel: Know that we take that very seriously, and we will take that seriously going forward. Candidly, there is no excuse for the economic results that we delivered in the first quarter. That being said, going forward, our objective remains the same. We are here to establish and maintain a market leadership position globally in enterprise AI applications, not in infrastructure, not in semiconductors, not in machine learning models, not in professional services implementations. We're here to establish a market leadership position in enterprise AI software, both with the C3 Agentic AI platform and with the enterprise AI application footprint that we have in place and will be expanding. We have tried, tested, and proven products. We have an incredibly sophisticated architecture in the Agentic AI platform. We're establishing clear leadership in Agentic AI, a concept for which you know that we hold the patents.
Speaker #4: And we will take that seriously going forward. Candidly, there is no excuse for the economic results that we delivered in the first quarter. That being said, our objective remains the same going forward.
Speaker #4: We are here to establish and maintain a market leadership position globally in enterprise AI applications. Not in infrastructure, not in semiconductors, not in machine learning models, not in professional services implementations, okay?
Speaker #4: We're here to establish a market leadership position in enterprise AI software, both with the C3 Agentic AI platform and with the enterprise AI application footprint that we have in place and will be expanding.
Speaker #4: We have tried, tested, and proven products; we have incredibly sophisticated architecture in the Agentic AI platform. We're establishing clear leadership in Agentic AI, a concept for which you know we hold the patents. We have tried, tested, and proven executive leadership in place, we have highly satisfied customers, and we have a large and expansive addressable market opportunity before us that some estimate approaches $2 trillion a year, okay?
Tom Siebel: We have tried, tested, and proven executive leadership in place. We have highly satisfied customers. We have a large and expansive addressable market opportunity before us that some estimate approaches $2 trillion a year. We are geared up to grow our product footprint, grow our market share, increase our market penetration, and operate a rapidly growing, cash-positive, profitable business. Going forward, I will continue to remain actively engaged in the business, now in the role as Executive Chairman. In that role, I will particularly focus on strategic partner relationships, strategic customer relationships, and keep an eye on direction and product strategy going forward. I am most enthusiastic to announce the appointment of Stephen Aiken as the new Chief Executive Officer of C3.ai. Stephen brings a superlative educational background, a wealth of industry experience, having started and built and grown two successful AI companies that he sold to Salesforce.
Speaker #4: And we are geared up to grow our product footprint, grow our market share, increase our market penetration, and operate a rapidly growing cash-positive, profitable business.
Speaker #4: Going forward, I will continue to remain actively engaged in the business, now in the role of Executive Chairman. In that role, I will particularly focus on strategic partner relationships, strategic customer relationships, and keep an eye on direction and product strategy going forward.
Speaker #4: I am most enthusiastic to announce the appointment of Stephen Ahikyan, as the new Chief Executive Officer of C3.ai. Stephen brings a superlative educational background, a wealth of industry experience, having guarded and built and grown two successful AI companies that he sold to Salesforce, Stephen is also an experienced and accomplished public sector leader, having served as President Trump's appointee as the Acting Administrator of the General Services Administration, where Stephen was responsible for performing the General Services Administration's reforming the acquisition activities of all the divisions of the federal government and driving President Trump's AI strategy across the federal government.
Tom Siebel: Stephen is also an experienced and accomplished public sector leader, having served as President Trump's appointee as the Acting Administrator of the General Services Administration, where Stephen was responsible for reforming the General Services Administration, reforming the acquisition activities of all the divisions of the federal government, and driving President Trump's AI strategy across the federal government. On behalf of the Board of Directors of C3.ai, the executive leadership of C3.ai, and the, I don't know, 1,100 or 1,200 employees of C3.ai, whatever that number may be, I can tell you we're all enthusiastic about working closely with Stephen in his new leadership role to ensure that he is successful in bringing more creativity to the process, more energy to the process, more drive to the process as we accelerate growth, accelerate market penetration, and accelerate market leadership in enterprise AI.
Speaker #4: On behalf of the Board of Directors of C3.ai, the executive leadership of C3.ai, and the, I don't know, 1,100 or 1,200 employees of C3.ai, whatever that number may be, I can tell you we're all enthusiastic about working closely with Stephen in his new leadership role.
Speaker #4: To ensure that he is successful in bringing more creativity to the process, more energy to the process, and more drive to the process, as we accelerate growth, accelerate market penetration, and accelerate market leadership in enterprise AI.
Tom Siebel: Ladies and gentlemen, thank you so much for your time, and now I'll turn this back to Hitesh to field your questions.
Speaker #4: Ladies and gentlemen, thank you so much for your time. Now, I'll turn this back to Hitesh to field your questions.
Speaker 5: Thank you, Tom. Operator, could you please open the line for questions?
Speaker #3: Thank you, Tom. Operator, could you please open the line for questions?
Speaker 6: Thank you. If you would like to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, press star one one again. One moment while we compile the Q&A roster. Our first question will come from the line of Radi Sultan with UBS. Your line is open.
Speaker #5: Thank you. If you would like to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, press *11 again.
Speaker #5: One moment while we compile the Q&A roster. And our first question will come from the line of Radi Sultan with UBS. Your line is open.
Speaker 7: Awesome. Thank you. First, for Tom, your involvement in the sales process has obviously been very critical here. Is there any way to more concretely understand how involved you're planning on being in the sales process going forward and what you're doing to ensure a smooth handoff to Stephen and the new sales leadership?
Speaker #3: Awesome, thank you. First for Tom, you know, your involvement in the sales process has obviously been very critical here. I mean, is there any way to more concretely understand how involved you're planning on being in the sales process going forward, and what you're doing to ensure a smooth handoff to Stephen and the new sales leadership?
Tom Siebel: I am here to do everything I can to ensure that Stephen is successful. Now we have an entire new layer of senior leadership in the company, who are tried, tested, and proven at selling enterprise AI globally. I suspect with Stephen's leadership, they're going to be enormously successful. That being said, I will continue to be involved as necessary in monitoring that process and assisting that process to ensure that this transition goes very smoothly and we dramatically ramp up the sales and service capacity globally.
Speaker #4: I am here to do everything I can to ensure that Stephen is successful, okay? And so, no, we have a new entire layer of senior leadership in the company who are tried, tested, and proven at selling enterprise AI globally. I suspect that with Stephen's leadership, they're going to be enormously successful.
Speaker #4: That being said, I will continue to be involved as necessary in monitoring that process and assisting that process to ensure that this transition goes very smoothly and we dramatically ramp up the sales and service capacity globally.
Speaker 7: Awesome. Second, for Hitesh, obviously a lot of moving parts in the quarter. What are you seeing that's giving you confidence in the Q2 guide? As you think about Q3 and Q4, what is the right starting point to think about that sort of back half outlook? Any sort of building blocks would be helpful as we calibrate numbers.
Speaker #3: Awesome. And then, second for Hitesh, obviously a lot of moving parts in the quarter. What are you seeing that's giving you confidence in the Q2 guide? And then, as you think about Q3 and Q4, what is the right starting point to think about that sort of back half outlook?
Speaker #3: Any sort of building blocks would be helpful as we calibrate numbers?
Speaker 5: As showed earlier, our Q2 guidance is based on the sales activity we've seen in the month of August, as well as our review of sales pipeline for the rest of the quarter with the new sales leadership. As it relates to the period beyond Q2, while we're not providing any guidance at this point, we note that most analysts who have updated their revenue forecasts for the year are forecasting fiscal 2026 revenue ranging from $290 million to $300 million. At this point, I would not argue against any number within that range. As it relates to path to profitability, we acknowledge our performance in Q1 has put us behind, but we remain committed to achieving non-GAAP profitability and free cash flow.
Speaker #4: Yeah, sure, Radi. Our Q2 guidance is based on the sales activity we've seen in the month of August, as well as our review of the sales pipeline for the rest of the quarter, with the new sales leadership.
Speaker #4: As it relates to the period beyond Q2, while we're not providing any guidance at this point, we note that most analysts who have updated their revenue forecast for the year are forecasting fiscal 2026 revenue ranging from $219 million to $300 million.
Speaker #4: And at this point, I would not argue against any number within that range. As it relates to the path to profitability, we acknowledge that our performance in Q1 has put us behind.
Speaker #4: But we remain committed to achieving non-GAAP profitability and free cash flow. We are still bullish about the business, as Tom said, and we will get to profitability and free cash flow with the right scale. That is a matter of time.
Speaker 5: We are still bullish about the business, as Tom said, and we will get to profitability and free cash flow with the right scale, and that is a matter of time.
Speaker 7: Awesome. Thank you.
Speaker #3: Awesome, thank you.
Speaker 6: Thank you. One moment for our next question. That will come from the line of Pat Walravens with Citizens. Your line is open.
Speaker #5: Thank you. One moment for our next question. And that will come from the line of Patrick Wall-Ravens with Citizens. Your line is open.
Speaker 7: Hey, guys, thank you so much for taking my question. This is Nick on for Pat. Tom, one quick one for you. You guys closed 40 partner-led deals this quarter. How do you see the mix of partner-led versus direct sales evolving?
Speaker #6: Hey guys, thank you so much for taking my question. This is Nick on for Pat. Tom, one quick one for you. You guys closed 40 partner-led deals this quarter.
Speaker #6: How do you see the mix of partner-led versus direct sales evolving?
Tom Siebel: That's a great question. I think something like, Amit, correct me, is it 80% or 90%?
Speaker #4: That's a great question. I think something like, Amit, correct me if I'm wrong, it's 80 percent or 90 percent? The 90.
Speaker 7: 90 this quarter.
Speaker #3: 90 this quarter.
Tom Siebel: 90% of the business that we closed this quarter was with partners, particularly Azure, AWS, GCP, and McKinsey QuantumBlack. You can expect that our investment in those partnerships going forward is going to be big time. I think there are, certainly, without quoting a number, tens of thousands of salespeople at Azure alone, and we are amping up our go-to-market activities with Microsoft, AWS, and GCP in a big way globally. We would hope we're going from, say, hundreds of engagements that we're involved in today where we're trying to selling, and we would hope that will go soon to thousands. That is a major, major advantage that we have this partner ecosystem, and we fully intend to exploit that advantage.
Speaker #4: Percent of the business that we closed this quarter was with partners, particularly Azure, AWS, GCP, and McKinsey Quantum Black. You can expect that our investment in those partnerships going forward is going to be big time.
Speaker #4: I think there are, you know, certainly without quoting a number, there are certainly tens of thousands of salespeople at Azure alone, and we are amping up our go-to-market activities with Microsoft, with AWS, with GCP, in a big way globally.
Speaker #4: And so we would hope we're going from, say, hundreds of engagements that we're involved in today, where we're trying to sell, and we would hope that will go to soon to thousands.
Speaker #4: So, that is a major, major advantage that we have in this partner ecosystem, and we fully intend to exploit that advantage.
Speaker 7: Great. Thank you. As a follow-up, if I heard Stephen was in the room, if I could ask him a quick one, that would be fantastic. Stephen, great to meet you, looking forward to working with you. How did you choose C3.ai and why was it a compelling opportunity?
Speaker #6: Great, thank you. And then, as a follow-up, if I heard Stephen was in the room, if I could ask him a quick one, that would be fantastic.
Speaker #6: You know, how did you choose C3? Great to meet you. I'm looking forward to working with you. Why was it a compelling opportunity?
Stephen Aiken: The market opportunity here for enterprise AI is enormous. Every company, every government is exploring how to transition away from testing and experimenting with AI to actually rolling out across their core operations and workflows. What's exciting for me is C3.ai has the technology platform and applications that customers need today. Their technology is being deployed across some of the most valuable customers in the world in some of the most challenging environments. For me, on top of all that, the ability to learn from Tom Siebel, who invented this entire enterprise AI market, as well as with the extraordinary team here, was honestly an easy decision to say yes to.
Speaker #3: Yeah, well, first, the market opportunity here for enterprise AI is enormous. Every company and every government is exploring how to transition away from testing and experimenting with AI to actually rolling it out across their core operations and workflows.
Speaker #3: With exciting for me is C3 has the technology platform and applications that customers need today. Their technology is being deployed across some of the most valuable customers in the world, into the most challenging environments.
Speaker #3: So for me, on top of all that, the ability to learn from Tom Siebel, who invented this entire enterprise AI market, as well as with the extraordinary team here, was honestly an easy decision to say yes to.
Speaker 7: Awesome. Thank you very much. Looking forward to working with you.
Speaker #6: Awesome, thank you very much. Looking forward to working with you.
Stephen Aiken: Likewise, thank you.
Speaker #3: Likewise, thank you.
Speaker 6: One moment for our next question. That will come from the line of Matthew Kaletri with Needham & Co. Your line is open.
Speaker #5: And one moment for our next question. And that will come from the line of Matthew Kalitree with Needham & Co. Your line is open.
Tom Siebel: Hi, guys, this is Matt Kaletri out from Mike Seacrest over at Needham. Thanks for taking our questions. Tom, how would you weight the underperformance this quarter between sales disruption and your impact on the sales process? I think it was a combination of both, but I would put it, you know, probably 70% sales disruption and 30% my not being as involved in the details as I have previously been. I think that, you know, so those are the facts. The quarter was dreadful. Okay, now we need to pick ourselves up, dust ourselves off, and get on with business, which is exactly what we're going to do.
Speaker #7: Hi guys, this is Matt Kalitree on for Mike Sikos over at Needham. Thanks for taking our questions. Tom, how would you weight the underperformance this quarter between sales disruption and your impact on the sales process?
Speaker #4: I think it was a combination of both, but I would put it, you know, probably 70 percent sales disruption and 30 percent my not being as involved in the details as I previously had been.
Speaker #4: And, you know, I think that, you know, so those are the facts. And, you know, the quarter is the quarter was dreadful. Okay, and now we need to pick ourselves up, test ourselves off, and get on with business, which is exactly what we're going to do.
Speaker 7: Understood. Looking at the execution steps, how would you categorize them as far as assigning pilots or converting them into contracts? What exactly were you seeing there?
Speaker #7: Understood. And then, looking at the execution missteps, how would you categorize them as far as assigning pilots or converting them into contracts? What exactly were you seeing there?
Speaker #4: It's, it's all of the above, Matt. I mean, there were a lot of new people involved, there was new leadership involved. I think, you know, when you do that, you know, sometimes channels get crossed a little bit and they get things get confused.
Tom Siebel: It's all of the above, Matt. There were a lot of new people involved. There was new leadership involved. I think, you know, when you do that, sometimes channels get crossed a little bit and things get confused. We were driving the car down the road and replacing the engine, the transmission, and the wheels at the same time. The guy who used to drive the car wasn't there. It was a bad quarter. It happens. I mean, come on, I was at Oracle in 1989 when Oracle had its first miss. I think that the stock went from $27 to $3, as I recall. It was the end of the world. Since then, as you know, Oracle has missed 34 quarters, and it's still not the end of the world. Nvidia has missed 10. Amazon has missed 23.
Speaker #4: And, you know, we were, you know, we were, you know, driving the car down the road and replacing the engine in the transmission at the wheels at the same time, and, you know, the and the guy used to drive the car wasn't there.
Speaker #4: So, it was a bad quarter. It happens. I mean, when I was at Oracle in 1989, when Oracle had its first miss, I think that the stock went from $27 to $3, as I recall, and it was the end of the world.
Speaker #4: Well, since then, as you know, Oracle has missed 34 quarters, and it's still not the end of the world. NVIDIA has missed 10, Amazon has missed 23, and Salesforce has missed a few, certainly six months ago and 12 months ago. Today, nobody remembers any of that.
Tom Siebel: Salesforce has missed a few, certainly six months ago and 12 months ago. Today, nobody remembers any of that. Six months from now, nobody will remember this because we're going to be rocking.
Speaker #4: Six months from now, nobody will remember this because we're going to be rocking.
Speaker 7: Understood. Thanks so much.
Speaker #7: Understood, thanks so much.
Speaker 6: Thank you. That is all the time we have for Q&A today. I would now like to turn the call back over to Mr. Siebel for any closing remarks.
Speaker #5: Thank you. That is all the time we have for Q&A today. I would now like to turn the call back over to Mr. Siebel for any closing remarks.
Tom Siebel: Ladies, gentlemen, thank you for your time this afternoon. We really appreciate your attention. You know, keep your eye on the screen. There is going to be a lot of things happening at C3.ai, and it's exciting. We're encouraged, and we are going for it, people. Stay tuned. Thank you, thank you, thank you.
Speaker #4: Ladies and gentlemen, thank you for your time. This afternoon, we really appreciate your attention. You know, keep your eye on the screen; there's going to be a lot of things happening at C3.ai, and it's exciting.
Speaker #4: We're encouraged, and we are going for it, people! So stay tuned, and thank you, thank you, thank you.
Speaker 6: Ladies and gentlemen, this concludes today's program. Thank you all for participating. You may now disconnect.