Good afternoon and thank you for attending today’s C3.ai Earnings Call for the Fourth Quarter of the Fiscal Year 2022. My name is Jason and I will be the moderator for today’s call. [Operator Instructions] I would now like to pass the conference over to our host, Paul Phillips, Vice President of Investor Relations.

Good afternoon and welcome to C3.ai’s earnings call for the fourth quarter of fiscal year 2022 which ended April 30, 2022. This is Paul Phillips, VP of Investor Relations. With me on the call today are Tom Siebel, Chairman and CEO and Juho Parkkinen, Chief Financial Officer. After the market closed today, we issued a press release with details regarding our fourth quarter and full year 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 relating to our business that maybe 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. 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. 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 in response to your questions, we may discuss metrics that are incremental to our usual presentation to provide greater insights 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. Thank you for joining us. I am pleased to – I am here with Juho Parkkinen, our Chief Financial Officer. And I am pleased to share with you our results for the fourth quarter and for the entire fiscal year of 2022. Bottom line, it was a great quarter. We finished the quarter with $72.3 million in revenue, up 38% year-over-year, exceeding our guidance and exceeding, I believe, all analysts’ expectations. And I haven’t really looked at lately at the matrix of high-growth software companies, but I expect that would be in the top decile of growth rates. Subscription revenue was $56.3 million, up 31% year-over-year. Our non-GAAP gross profit was $58.5 million, a 43% improvement over the previous year. We ended Q4 of fiscal year ‘22 with GAAP RPO of $477.4 million, a 62% increase year-over-year. Non-GAAP RPO is $516 million, a 50% increase year-over-year. We continue to sustain healthy non-GAAP gross margins of 81%. Our free cash flow for the quarter was a negative $14.8 million, a 46% improvement year-over-year. We finished the quarter with $992 million in cash and cash equivalents. So, we have roughly $1 billion at the bank – in the bank. And at this rate, it will take quite a few quarters to deplete our cash reserves. Looking at the results for the year, they were quite good, exceeding our guidance and exceeding analyst expectations, finishing the year at $252.7 million in revenue, a 30% growth rate over the previous year. Subscription revenue was $206.9 million, a 31% increase year-over-year and our non-GAAP gross margin increased a little over 5 points to $81.7 million. Now, I want to talk a little bit about the addressable market opportunity, which is really quite staggering. Enterprise AI software is predicted…

Thank you, Tom. First off, I want to quickly recap on the summary financial results. As Tom mentioned, we ended the quarter with revenue of $72.3 million or 38% growth. Subscription revenue increased by a healthy 31% year-over-year growth. I would also like to highlight the remaining performance obligations of $477.4 million, a 62% year-over-year increase. Further, during the quarter, we repurchased approximately 720,000 shares for $15 million under our share repurchase program announced in Q3. With respect to the full year, we are roughly $0.25 billion business, as Tom mentioned, with a 38% year-over-year increase and we’ve been able to maintain really 5 excellent gross margin rates of 79% for the year, which is a 3-point increase from the prior year. Here are the trends from the past year, indicating again a nice healthy growth on a year-over-year basis. And moving on to the deal bans, we were quite happy to see a 35% sequential increase in deals to close 27 deals during the quarter. We saw a nice increase with respect to our pound of less than $1 million deals, where we do a lot of transactions in trials to customers. And then in the higher band, we saw application and platform deals, whether it was with new customers directly into enterprise deals, or renewals or expansions with existing customers. Overall, our path towards a lower average TCV continues to improve, where in Q3, we were at $5.6 million and now in Q4, our average TCV was $2.9 million. With respect to the revenue mix, subscription revenue was 78% of Q4 revenue and professional services was at 22%. When we think about the sizes of the deals we make with some of the most known entities on the planet, it’s not rational for us not to really invest…

[Operator Instructions] Our first question is from Arvind Ramnani with Piper Sandler. Please proceed.

Hi, thanks for taking my question. Just really want to ask about guidance. On the last earnings call, although you didn’t provide formal guidance, you had talked about being comfortable with consensus, which was about 33% growth. And then when I look at this year’s number, kind of growth is closer to like mid-20%. If you can just kind of talk about the change in environment that’s caused kind of the revision of guidance or is it – do I look at your guidance as sort of more – sort of conservative and this is a starting point for the year?

Well. Hi, Arvind, it’s Tom. Thanks for the question. I haven’t seen a lot of enthusiasm and sheer, okay, in any market activity in the last 2 months since our last call. I would say that what we’re seeing from the market is really quite dire. If you look at – candidly, so I think that given everything that is going on in the market, okay, it seemed prudent to us to set market expectations at conservatively, and that’s what we did.

Perfect. That’s great. And just in terms of kind of bookings growth still seems sort of healthy, if you can kind of double it and give us kind of a little bit granularity where you’re seeing kind of bookings growth from like the particular industries or clients that you’re seeing strong growth from in terms of bookings?

Yes. Well, if we look at – let’s see where is Q4? Let’s see, 42% of our bookings were in manufacturing, 18% in financial services, 15% in defense and aerospace, 13% in oil and gas, 4% in accounting services, and then it goes into agriculture, food processing, retail hospitals. But it’s becoming efficiently diversified.

Perfect. That’s very helpful. I will go back in queue for further questions.

And as I mentioned, for the year, I think booking growth in oil and gas, which is a big business for us and a good business, was 95%. And outside of gold gas, I think it was 115%. So, the diversification strategy is playing out well.

Yes, yes. I would agree with that.

Thank you for your question. Our next question comes from Patrick Walravens with JMP Securities.

Great. Thank you. Hey, Tom, can we start by hearing a little bit more about the deals that slipped in Q4?

Let’s see. I have to look at the pipeline. I don’t really have that one on my desk, Pat. I mean, I would say that we did see a number of deals move out Q4 into Q1 and Q2. They had – they didn’t disappear and they weren’t lost. They just kind of moved and they love to – there’s still lumpiness in the business. We did close how many deals in the course of the quarter? 27. So the number of deals is quite high, but we had – honestly, we had a number of deals that we expect to close in the quarter to continue. So the bookings number was not as high as we’d like to be. That being said, the revenue growth exceeded our expectations and everybody’s expectations for the quarter and for the year.

Yes. And can I ask how – so how it’s made in so far?

How is what?

How was the last month, beginning of this quarter?

I’m prepared to comment on the business as of the as of the end of the quarter of, Pat. And we’ve given our guidance for what we think is going to happen in Q1. And so far, I don’t think we’ve – I’m really quite confident that we’ve not fallen short of our guidance. I think every quarter we’ve been a public company, we’ve exceeded the guidance, six? Yes.

Yes. Okay. And so it seems like Bakers Hughes – I mean last quarter, you called out Baker Hughes because it contributed, I forget what the percentage was, but a really big percentage of the bookings. So with Baker Hughes seems like it was softer this quarter. Is that a fair assessment?

Well, oil and gas was 13% of our business in bookings. So I mean it was pretty strong, and oil and gas last year grew by 95%, which is pretty strong in bookings. So I would not describe it as soft. Did some oil and gas deals move out of the quarter?

Yes.

Yes. Okay. And then…

Business is quite healthy.

Okay. Great. And then Juho, one for you, which is – so can you repeat the how much of the – you have a $100 million buyback plan, right? And I think you told us how much you had bought back and I missed that.

Yes, it was $15 million, 720,000 shares.

720,000 shares. Okay. Great. Thank you. Sorry, last one. One more for you, Juho, what will free cash flow for this coming year if the operating loss is minus 75% to minus 86%, how should we think about free cash flow?

Well, yes, that’s a great question. I think on a cash flow basis, we still have a lot of lumpiness in that. I think on a more longer term perspective as we are going to reach the operating profit goals that I outlined, you are going to start seeing a more sustained operating or free cash flow positive. But as we march towards that goal, there is going to be lumpiness. There is going to be periods where we are going to be closer to positivity and then periods where we are going to be a little bit more free cash flow spend.

Okay. Just so we don’t have unpleasant surprises in Q1. So, just for Q1, you guided an operating loss of negative 23 to 28. Should we expect cash flow to be in that range, worse, better, how should we think about it?

Well, I think – yes, that’s a good question, Pat. I think more broadly speaking, again, there is going to be – we are going to have some activities. I think one of the things that you are aware of is that we are having the build-out on the new lease. And as part of that, we will be incurring some cash outflow items, which don’t show up as operating expenses until years after since they are capitalized as part of the new office.

We had tenant improvements in the office building that we are moving into.

Okay. Alright. Thank you.

Thank you for your question. Our next question comes from Brad Sills with Bank of America. Please proceed.

Hey. This is Adam on for Brad. Thanks for taking our question. So, for Juho, just a quick one. How should we be thinking about the Q1 guide in terms of the mix between subscription and professional services revenue has kind of been moving into a higher mix of pro-services. So, just wanted to get your take on how we should be thinking about that going forward?

I think that’s a great question. We have said earlier that we think a long-term target for this mix is probably in the 10% to 15% range. Obviously, this quarter, we ended at 22%. Last quarter, I think it was 18%. I think you should expect somewhere to be in the mid-teens, but there is still going to be some activities in the quarter that may change that. But I think that’s a fair assumption at this point.

Okay. Super helpful. And then a quick one for Tom. You guys kind of called out in the press release the extension of One Medical. Can you just talk about what the lining point looked like and then how that ultimately evolves into becoming an X mark in the customer? Thank you.

X mark, I believe that One Medical began as an X mark customer and has expanded as an X mark customer. So, if I am not mistaken, – that’s the extent of the product we have many customers that are only using X mark. The – regarding the professional services question, I want to say – I mean, think about kind of what’s going on and what we do where we are investing – maybe we have a $1 million deal or a $10 million deal or a $20 million deal with a company that makes it very clear that if we succeed then 60 – there is $100 million in business there. So, for right now, as we establish market presence and we had established successful customers, it’s kind of non-rational for us not to invest professional services in those accounts. Now professional services for us is a very high-margin business. But that being said, when we can take a company from €300,000 to €120 million and do that kind of over and over again to not invest in professional services in the few years to get them live. I would suggest, I mean it’s not rational for us not to do that. And in the short-term, it’s pushed up our professional services revenue a little higher than we would like to see. But we are achieving the objective of market penetration.

Alright. It sounds good. Thank you very much.

Thank you for your question. Our next question comes from Michael Turits with KeyBanc. Please proceed.

Hey. This is Eric Heath on for Michael. On the couple of deals you called out is pushing out of the quarter. I was curious if there was any commonalities across those deals either by geography or a vertical?

I would say, across verticals and it’s across geographies, some using it budget approval or to get something signed by some senior executive and it didn’t get signed in time or there is some committee that needed to go to or the committee didn’t get scheduled. And some of these are in Europe, it’s kind of Europe, the deals on Euro time. And so it’s – many of these are large organizations with a very erratic and their processes. And we need to get Board approval or CEO approval or CFO approval or whatever happened and just – they are operating on their timeline and not ours. That’s all. But I would say it’s pretty much across industries and across geographies. It was not – we didn’t see any specific industry fall apart. And I would say given kind of the market dynamics of what’s going on with supply chain disruption, I mean probably one of our biggest products is supply network risk and cast optimization of the supply chain. This is becoming really mission critical and associated with all of our applications where, as you can see from our presentations, our discussions with the customers is how much money are they saving in a year. So, as people start to tighten their belts in a what might be an economy that’s turning down, we provide tools that enable them to tighten their belts very cost effectively.

That’s helpful. And then just got some nice drawdown of the $500 million authorization in the DoD this quarter. So, just curious what else you might be seeing in the pipeline, specifically with the DoD and maybe just any broader commentary about opportunities you see in the Federal space?

DoD business looks good, okay. I had were – we had continued penetration in the Air Force with RSO. That is now accelerating at a – I think that offers a big opportunity to accelerate. We have two or three other agencies in the defense and intelligence communities that have made, okay, and our process in large C3.ai procurements. So, we have, I think $600 million in dry powder there almost to draw down, okay. And in contract vehicles that are in place, and we are working on additional contract rails at the same time. So, we are very optimistic about the U.S. Defense, Intelligence and Civilian businesses.

Got it. Thanks. That’s all for me.

Thank you for your question. Our next question comes from Bob Huang with Morgan Stanley. Please proceed.

Hi. This is Bob sitting in for Sanjay today. Thanks for taking the question. So, first, maybe if we can talk about just the billings for the next quarter and maybe for the full year a little bit. obviously, fourth quarter billings are seasonally high, but it was probably a little bit lighter than what we thought it would have been. Maybe if you can just give us sort of a trajectory or a better understanding of how we should think about sellings going forward for the next 12 months or so?

Juho, do you want to?

Yes. Thanks, Bob, for the question. So, I think some of the things that ties to what I was mentioning earlier to Pat on the cash flow items. So, we transact in – we have large deals with large multinationals and these individual payment terms with specific customers impact the calculated billings metric that you are looking at. So, at this point in our company, we are going to have a lot of lumpiness that you see this you could have an individual quarter where the calculated billings looks really good, and then the next quarter, it could be a little bit less. So, I don’t think it’s a metric that you need to focus on, particularly intensity.

Okay. That’s very helpful. My next question, just – you obviously had some quite a bit of success on the energy sector, oil and gas and such. In terms of various verticals that you are in as well as geography, like, for example, Europe versus U.S., oil and gas versus machinery. What verticals are you confident or feel good about going forward? And what are maybe some of the verticals or areas that you might want to keep a closer eye on going forward?

Energy looks strong. Utilities look strong. Oil and gas looks strong. Chemicals looks strong. Manufacturing looks strong. Really haven’t penetrated telco yet. I think there are big opportunities there. Financial services, I think there are big opportunities there. We are starting now to penetrate consulting companies, EY, PwC and others. I think there is going to be a big opportunity there. We are providing them tools to accelerate their – what they do. So, yes, I think it’s – the question is, I mean ultimately, this is just like CRM or like ERP, all industries adopt, it’s just at which industries adopt at which rates. And interestingly enough, we are seeing a lot of interest in agribusiness, which is a huge supply chain problem globally as it relates to agribusiness, as the world faces kind of potential famine associated with wheat and rice production. So, we are doing there with some work with Cargill and others that’s really interesting and really important. In general, we don’t really see right now a lot of softness out there, but we do read the newspapers, should read what you guys write, and we haven’t seen a lot of the newspapers. And while we don’t see it, our business looks quite good. I think as long as we didn’t read the newspapers, or turn off the TV, everything would be fine.

Thanks for that. That’s very helpful.

Thank you for your question. Our next question comes from Pinjalim Bora with JPMorgan. Please proceed.

It looks like we lost JPMorgan.

Sorry, I was – I think I was talking to myself on mute. Apologies. I wanted to ask you about the deals that got pushed out. From your conversations with those customers, is it entirely driven by macro-related considerations, or do you think is there an element of the sales organization changes that you have done or the amount of sales capacity that you have currently given the tight labor market?

Sales capacity has grown pretty considerably. Really, we have been – so it’s not a sales capacity issue. It’s just – I mean I am looking at these transactions that we expected to close, here is one in the United States Government. Here is an insurance company. This is an oil and gas company. Here is a beltway band at the large energy company in Europe, a pharmaceutical company in Europe, a bank in Canada, food services company in the United States, a retailer in Europe, civilian agency, oil and gas company. I am going right out of the list. Oil and gas company in Africa, U.S. Federal Agency, U.S. Federal Agency, U.S. Federal Agency, large big box retailer, division of the Air Force. Here is a company, I don’t know what they do, the division of defense, large food provider, local, a county with roughly 1 million people in it, a large credit card provider, U.S. Intelligence Agency. So, insurance – can I just read right down the list, okay. Of deals that we are looking at, that we were expecting – I would say, particularly the ones that we were absolutely expecting in the quarter would be Intel agency, insurance company, a large European oil company, beltway integrator, European energy company, European pharmaceutical company, large exchange, Stock Exchange, bank in Canada, food services company and manufacturing company in Wisconsin. So, it varies – it’s across industries, across geographies, and it’s just – it’s not that their business has gone south. They are going under. It’s just that they did – they are processed in time.

Understood. I guess one thing that people trying to understand...

That was not memory. I was reading down the list.

Yes. Understood. Well, the follow-up to the – my follow-up would be that AI obviously – or C3.ai, obviously saves a lot of money when deployed. You have really big economic benefits, right, when deployed. However, it seems like it’s a factor of the large initial outlay, which is kind of creating these problems, right? Otherwise, people should probably adopt AI during a slower economic environment. Won’t you say?

Well, I am not sure. I mean the initial outlay sometimes is $50,000, sometimes is $10,000. The initial outlay at a $300 billion oil company was $300,000, which were might seem like a lot – it’s not a lot for a $300 million company. So, I am not sure the initial outlays that I accept that. As you saw from the slides that I showed you, frequently, the initial outlay is $50,000 or $300,000 and then it grows every time.

So, the average is...

Is large compared to a lot of the other things that you look at in the AI space where I think their average sales price is like $20,000, we are not in that game.

Alright. Understood. Thank you.

There are no further questions for you at this time. So, I will pass the call back over. Go ahead.

Right. Thanks, everybody, for your time. We will wrap up the call now and appreciate everyone’s interest. Have a good rest of your day.

Thanks everybody.

That concludes the C3.ai earnings call of the fourth quarter fiscal year 2022. Thank you for your participation. You may now disconnect your lines.