C3.ai, Inc. 2027 Q1 Earnings Call

Please go ahead. Good afternoon, and welcome to C3.ai's earnings call for the first quarter of fiscal year 2027, which ended on July 31, 2026.

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 first quarter results, which can be accessed through the investor relations section on 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 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 filings with the SEC. All figures will be discussed on a non-GAAP basis unless otherwise noted. Also during today's call, we will refer to certain non-GAAP financial measures. 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 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.

Good afternoon, everyone, and thank you for joining us. Three months ago, I returned as Chief Executive Officer with a mandate to turn this company around. I returned as CEO because the company was candidly underperforming despite every advantage. The product offerings are exceptional, the market is huge and rapidly growing, and the balance sheet is rock solid. None of that was the problem. The problem was execution. One quarter into the turnaround, I believe the company is on track. In the past three months, we have restored fundamental management discipline to this business. We completely restructured the company, we restructured sales, we restructured products, we restructured services. We reset the cost structure, driving massive costs out of the business, and implemented rigorous cost controls. We reinstated the fundamental management practices necessary to run a serious business, clear ownership, hard deadlines, weekly reviews.

We rebuilt the selling motion around disciplined account management and pipeline development rather than heroics. We now have experienced executives in charge of every aspect of the business, in sales, in products, in services, in finance, in legal. This is the leadership team that will execute the turnaround. We refocused the product offerings on our agentic AI stack, our greatest technical strength, and the largest and most rapidly growing segment of the market. This quarter showed meaningful progress. Revenue came in above our guidance. Bookings grew at 73%, and we took real costs out of the business to narrow our operating loss and generate free cash flow in the quarter. We closed 22 enterprise agreements in the quarter, including with Heidelberg Materials, Johnson & Johnson, Ford Motor Company, Seaspan, Holcim, the U.S. Department of Defense, the Defense Logistics Agency, and the U.S. Department of Agriculture. Federal business was particularly strong, with federal bookings growing 138% year over year.

These results are early evidence that the turnaround is taking hold. The C3 Agentic AI Platform remains the starting point of every sales engagement. It reflects over 15 years of software development in which we invested in excess of $3 billion. Last month, Forrester Research released a very significant study in which they evaluated the strengths of all the AI platform providers. In that evaluation, they ranked C3.ai at the top of the stack. Forrester ranked the C3.ai platform number one in data modeling, number one in agent development, number one in application development tools, number one in cohesive experience, number one in governance controls, number one in platform management, number one in security certification, and number one in supporting services and offerings.

The other companies evaluated in this study include a who's who in software, Palantir, Google, Databricks, and 11 others. So this study is a pretty significant benchmark and really a hallmark to the technology of achievement of C3.ai in the marketplace over the last 15 years. Our primary offerings today include the C3 Agentic AI Platform, C3 Generative AI, C3 AI Studio, and importantly, C3 Code. The C3 AI Studio is our control plane for developing and operating large-scale enterprise AI applications. C3 Code is our agentic AI application builder that turns a natural language prompt into a working enterprise AI application in minutes to hours. C3 Code will be at the vanguard of our growth engine going forward. This product is absolutely remarkable, and I encourage you to go onto the web, take a look at it, and take it for a try.

As an example of the power of C3 Code, you can take an RFP or you can take a six-inch thick product specification. You can provide it to C3 Code. It assembles the data, it does the data aggregation, it autonomously builds the ontology, it develops the pipeline, it builds the machine learning models, it designs the user interface, and it autonomously delivers a working enterprise AI application without writing one line of manual code. This is really remarkable, and you have to see it to believe it. C3 Code, broader platform adoption, federal systems growth, and sales discipline are at the heart of our growth engine going forward. In closing, let me be clear about where we are going. Our priorities are clear. They are measured. The turnaround is on track. We have a well-designed plan, and this is all about execution.

Return the company to quarter-over-quarter consistent revenue growth, attain free cash flow from operations, and reach non-GAAP profitability. Every objective in this company ties to those goals every day, every week, every month. We're not going to ask the market to underwrite a story. Our plan is to deliver results quarter over quarter and let those results speak for themselves. With that, let me turn the call over to Hitesh Lath to talk about the specific financial results of the quarter.

Thank you, Tom. Total revenue for the quarter was $52.4 million. Subscription revenue was $49.2 million, representing 94% of total revenue. Professional services revenue was $3.2 million, of which $1.8 million was revenue from prioritized engineering services or PES. Our subscription and PES revenue combined was $50.9 million and accounted for 97% of total revenue. Non-GAAP gross profit for the quarter was $26.1 million, and non-GAAP gross margin improved sequentially from 37% last quarter to 50%, primarily due to cost reduction actions we've taken over the last few months. Next quarter, as we make selective investments in a forward deployed engineering organization, we expect our non-GAAP gross margin to moderate to mid-40s. Non-GAAP operating loss for the quarter was $36.2 million. This was $8.3 million better than the midpoint of our guidance. Non-GAAP net loss for the quarter improved to $30.7 million and $0.20 per share.

Our non-GAAP expenses for the quarter were $88.5 million. This reflects a reduction of almost $40 million as compared to the actual non-GAAP expenses of $128.1 million same quarter last year, and a reduction of over $17 million as compared to the last quarter. Free cash flow for the quarter was positive $2.1 million as compared to negative $34.3 million same quarter last year, and negative $54.8 million last quarter. This was due to a significant reduction in our quarterly cash expenses as well as strong collections. We continue to be very well capitalized and closed the quarter with $651.1 million in cash equivalents, and marketable securities. Now a quick update on our restructuring plan. Our restructuring is almost complete, and we have been able to achieve annualized cost savings of approximately $135 million across our business.

This includes cost savings from approximately 40% headcount reduction across all organizations, as well as from reduction in non-employee expenses. As we said on the last quarter's earnings call, some of the cost savings will be fully realized starting with the second half of fiscal year 2027. With a substantially improved cost structure, reorganized, and focused sales services and products organizations, we are well-positioned to achieve revenue growth, materially improve our operating efficiency and free cash flow, and position the company for long-term success. Now I'll move on to our guidance for second quarter and fiscal year 2027. Our revenue guidance for second quarter of fiscal year 2027 is $51 million to $55 million. Our guidance for non-GAAP loss from operations for second quarter is $34.5 million to $42.5 million. Our revenue guidance for fiscal year 2027 is $210 million to $240 million.