Core Insights - C3.ai, Inc.'s first-quarter fiscal 2026 results showed a 19% year-over-year revenue decline to $70.3 million, attributed to weaker demand for demonstration licenses and organizational changes [1][8] - Despite the weak start, the company remains optimistic about global trends in AI-based solutions, with approximately 60 large-scale customer engagements across various sectors [2][8] - The introduction of the Strategic Integrator Program aims to enhance platform adoption through partnerships with systems integrators and OEMs, which has received positive early feedback [3][8] Company Positioning - C3.ai is strategically positioned in the generative AI landscape, focusing on industry-specific, production-ready AI applications and a strong alliance with Microsoft to facilitate market integration [5] - The company faces competition from BigBear.ai, which specializes in defense-oriented AI solutions, and Palantir Technologies, which utilizes a platform-first approach to unify complex datasets [6][7] - C3.ai's integrated offerings, including the C3 Agentic AI platform, address various challenges in generative AI, such as cybersecurity risks and data access control [2][4]

Financial Data and Key Metrics Changes - Total revenue for Q3 increased 26% year-over-year to $98.8 million, with subscription revenue growing 22% to $85.7 million, representing 87% of total revenue [16][34] - Non-GAAP gross profit was $68.2 million, resulting in a gross margin of 69% [16][37] - Non-GAAP operating loss improved to $23.1 million, better than the guidance of $38.6 million to $46.6 million [17][38] - Free cash flow for Q3 was negative $22.4 million, an improvement from negative $45.1 million in the same quarter last year [40] Business Line Data and Key Metrics Changes - Revenue from software licenses was $28.6 million, while professional services revenue was $13.1 million, accounting for 13% of total revenue [34][36] - Subscription and professional engineering services revenue combined was $91.4 million, representing 93% of total revenue, an increase of 18% compared to the previous year [37] Market Data and Key Metrics Changes - The partnership with Microsoft resulted in closing 28 agreements across nine different industries, marking a 460% increase quarter-over-quarter [18][22] - The joint qualified sales pipeline with Microsoft surged 244% year-over-year, targeting 621 eligible customer opportunities [19] Company Strategy and Development Direction - The company is focusing on expanding its strategic alliances with Microsoft, AWS, and McKinsey QuantumBlack to enhance global reach and execution speed [20][29] - The emphasis on Generative AI and Agentic AI is expected to drive innovation and customer traction, with plans to ensure proper organization for expanding direct sales and services [30][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning to capitalize on the growing enterprise AI market, with fiscal years 2026 and 2027 expected to focus on expanded growth and market share [31][32] - The company anticipates continued moderation in gross margins due to a higher mix of pilots in the near term, but expects to be free cash flow positive for Q4 [43][44] Other Important Information - The company closed 50 pilots during Q3, with 245 still active, indicating strong customer engagement [42] - The company ended the quarter with $724.3 million in cash, cash equivalents, and marketable securities, indicating strong capitalization [40] Q&A Session Summary Question: Can you provide more color on the total number of pitches and pipeline? - Management indicated involvement in over 600 engagements with Microsoft, with 28 agreements closed in the last quarter [49][56] Question: Can you discuss remaining performance obligations trends? - Management noted that the total remaining performance obligations (RPO) at the end of the quarter was around $208 million, with expectations of some decline in RPO in the near term [62] Question: What drove the outperformance in professional services this quarter? - The outperformance was attributed to an uptick in revenue from consulting services, paid implementation services, and training services [78] Question: Why are demonstration licenses outperforming? - The increase in demonstration licenses was driven by the need to equip sales teams with effective tools to engage customers independently, resulting in higher revenue recognition [84][85]

Financial Data and Key Metrics Changes - Total revenue for Q3 increased 26% year-over-year to $98.8 million, with subscription revenue growing by 22% to $85.7 million, representing 87% of total revenue [15][33] - Non-GAAP gross profit was $68.2 million, resulting in a gross margin of 69% [15][36] - Non-GAAP operating loss improved to $23.1 million, better than the guidance of $38.6 million to $46.6 million [16][37] - Free cash flow for Q3 was negative $22.4 million, an improvement from negative $45.1 million in the same quarter last year [39] Business Line Data and Key Metrics Changes - Revenue from software licenses was $28.6 million, while professional services revenue was $13.1 million, accounting for 13% of total revenue [33][35] - Subscription and professional engineering services revenue combined was $91.4 million, representing an 18% increase compared to the previous year [36] Market Data and Key Metrics Changes - The partnership with Microsoft resulted in 28 closed agreements across nine different industries, marking a 460% increase quarter-over-quarter [17][21] - The joint qualified sales pipeline with Microsoft surged by 244% year-over-year, targeting 621 accounts recognized as eligible customer opportunities [18] Company Strategy and Development Direction - The company is focusing on expanding its strategic alliances with Microsoft, AWS, and McKinsey QuantumBlack to enhance global reach and execution speed [19][20] - The emphasis on Generative AI and Agentic AI is expected to drive innovation and customer traction, with a goal of increasing market share in fiscal years 2026 and 2027 [30][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning to capitalize on the growing enterprise AI market, highlighting the importance of their partner ecosystem [30][31] - The company anticipates continued investments in sales, partner ecosystem, and research and development, expecting to be free cash flow positive in Q4 [42][43] Other Important Information - The company closed 50 pilots during Q3, with 310 pilots cumulatively signed, of which 245 are still active [41] - The total accounts receivable balance at the end of Q3 was $180.4 million, with a strong health of accounts receivables [40] Q&A Session Summary Question: Can you give more color on the total number of pitches and pipeline? - The company is currently involved in over 600 engagements with Microsoft, with 28 agreements closed in the last quarter [48][55] Question: Can you discuss the trends in remaining performance obligations? - The total remaining performance obligations (RPO) at the end of the quarter was around $208 million, with expectations of some decline in RPO in the near term [61] Question: What drove the outperformance in professional services this quarter? - The uptick in professional services revenue was driven by increased revenue from consulting services, paid implementation services, and training services [78] Question: Why are demonstration licenses outperforming this year? - The increase in demonstration licenses is attributed to the need for sales teams to have effective tools to engage customers, leading to a significant rise in interest from large organizations [82][84]