Good day. And thank you for standing by. Welcome to the C3.ai, Inc.'s Second Quarter Fiscal Year 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Amit Berry. Please go ahead.

Good afternoon. And welcome to C3.ai, Inc.'s Earnings Call for the 2026. Which ended on 10/31/2025. My name is Amit Berry, I lead investor relations at C3.ai, Inc. With me on the call today are Stephen Ehigian, Chief Executive Officer, Hitesh Lath, Chief Financial Officer, and Tom Siebel, Executive Chairman. 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 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. And with that, let me turn the call over to Stephen.

Thank you, Amit. Good afternoon, everyone, and thank you for joining our call today. Our results in Q2 were solid. Revenue grew 7% sequentially and bookings increased by 49% sequentially to $86 million. High-value deal activity was particularly strong. We closed 17 agreements over $1 million and six agreements over $5 million. You'll remember that we previously warned that a government shutdown would have an adverse effect on our business. No one could have predicted that the shutdown would last 43 days. However challenging we thought it could be, it was far worse. It created headwinds across our federal business. In both the Department of War and in civilian, also affected related markets including shipbuilding, health care, manufacturing, and industrials. Despite these headwinds, we delivered a fine quarter, and I'm proud of the company's execution. We saw significant traction in the federal business. Total bookings across federal, defense, and aerospace increased by 89% year over year and accounted for 45% of total bookings. We signed new and expansion agreements with the US Department of Health and Human Services, the US Department of War, US Intelligence Community, the US Army, the Naval Air Warfare Center Aircraft Division, the Naval Sea Systems Command, the US Marine Corps, and Los Alamos National Laboratory, among others. The federal market continues to be a large growth vector for us. The opportunity there is huge. Across government, agencies are focused on moving away from bespoke government-built solutions and towards commercial off-the-shelf solutions that can deliver production AI quickly and securely. Virtually every agency is now reevaluating its technology stack. Executing the administration's AI action plan, and driving the revitalization of America's industrial base and technology leadership. For example, this quarter, the Department of Health and Human Services selected C3.ai, Inc. to establish a unified secure, and…

Thank you, Stephen. 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 $75.1 million, a quarter over quarter increase of 7%. Subscription revenue for the quarter was $70.2 million, a quarter over quarter increase of 16.5%, and representing 93% of total revenue. Revenue from the sale of software licenses that do not require maintenance and support services and for which revenue is recognized upon delivery to the customer was $21.9 million during the quarter. Professional services revenue was $4.9 million, of which $3.9 million was revenue from prioritized engineering services or PES. Professional services represented 7% of total revenue during the quarter. Our subscription and PES revenue combined was $74.2 million and accounted for 99% of total revenue. Our bookings during the quarter were $86.4 million, an increase of 49% from last quarter. Non-GAAP gross profit for the quarter was $40.9 million and non-GAAP gross margin was 54%. Non-GAAP gross margin for professional services was 72%. As compared to fiscal 2025, we expect to continue to see moderated gross margins in the near term primarily due to high mix of YPDs. Which carry a greater cost of revenue during the initial production deployment phase. And due to our investments in expanding our support capacity and lower economies of scale. Non-GAAP operating loss for the quarter was $42.2 million. Non-GAAP net loss for the quarter was $34.8 million and $0.25 per share. We remain focused on expense management and improving operational efficiency without compromising our strategic investments primarily in the sales, and customer services organizations. During the quarter, we reduced our non-GAAP expenses by $10.7 million quarter over quarter. This was through a combination of reduction in personnel cost, cloud infrastructure cost, sales and…

Thank you. To ask a question, please press 11 on your telephone. And our first today comes from the line of Patrick Walravens of Citizens. Your line is open.

Oh, great. Thank you very much. And, Stephen, nice job stepping in here and driving the bookings. I thought it might be helpful if you could just, sort of take a step back. I mean, two quarters ago, this company was, you know, growing in the 70. And now the business is shrinking and the gross margins are down and the losses are big. And I think some of us understand sort of the setup that you walked into. But if you could just take a minute and explain, you know, why the business fell off by so much and then, the steps you're taking to bring it back picture, think that would be really helpful.

Patrick, thank you very much. The biggest thing I would say is sales execution and Tom hit on this last quarter, fell off. It was totally unacceptable, and Tom would probably acknowledge that his health contributed towards that. So I think he spoke at that at length on the last call. That was attributed towards the poor performance. But I can say this, being in here for ninety days now, the demand for C3.ai, Inc. and enterprise AI is only accelerating. I've been actually surprised coming in here how much bigger the opportunity was than when I first came in. So the market's there, the product itself, I've spent countless meetings with customers and prospects and partners. We have a world-class product. And I hear this. I see the NPS scores but I'm also, seeing this in the amount of economic value we've been delivering. And I think that was maybe lost sight earlier this year. When we actually focus on delivering real value the actual results come. I think GSK is a great example of that. That started off as an IPD to do, like, demand forecasting accuracy. They saw real value, and that converted, into an enterprise-wide agreement. So, you know, from my perspective, we need to focus on more of those opportunities, be very disciplined, I, you know, I can tell you what I'm seeing going forward. We have the plan in place, and the operational rigor to go deliver on this. Last thing I'll highlight is we have the talent density. I've been part of a lot of great teams. This is the best team I've been a part of, not just pure intelligence, but people who truly care about the customer. And I see that every day. I hear that from our customers how much they love not just the technology, but the people. And then last thing on my side, I would say Tom Siebel. Obviously, everyone knows Tom. He's a phenomenal businessman, entrepreneur, philanthropist. Also been a phenomenal mentor and supporter of mine. So I want to say thank you, Tom. It's an incredible ninety days and very excited for Q3.

Alright. Fantastic. And then just a follow-up, and I know you're not guiding to it, but just in general, how is your confidence in getting this business back to growth and profitability?

I would say Q2 execution was very strong. It was solid results. I'm confident in the opportunity ahead of us. We gotta execute that. I mean, there's no there's work to be done. Yeah. So I'm not gonna say it is easy, but I know the market there, the technology can deliver. It's purely, like, I gotta drive this business is what you're hearing from me. And I believe we have the plan in place to go do so.

Fair enough. Alright. Thank you very much.

Thank you.

One moment for the next question. And our next question will be coming from the line of Mike Cikos of Needham and Company. Your line is open.

Hey, team. This is Matt Calitri on for Mike Cikos over at Needham. Thanks for taking our questions. I want to start with a clarification, Hitesh, you mentioned $21.9 million during the quarter. I forget exactly how you described it, but was that from demo licenses? Was that what that was?

That is correct.

Okay. Great. And then sticking on the revenue line, it was quite a big change and mix between subscription and ProServe. I know you've talked about professional services generally staying within 10% to 20% of revenue long term. Any changes to that outlook? Is there any reason I should stay at these levels or anything to think about there?

Yeah. I would say in the long term, we would expect our gross up mix to continue to stay between 10% to 20%. Our professional services mix this quarter was on the lower side. That was primarily due to lower PES revenue. And PES, we sell these prioritized engineering services on an opportunistic basis, to some of our large customers. So that is we had a lower PES revenue just because of the low demand this quarter. But on a go-forward basis, we would generally expect to be between 10% to 20%. Pro cell mix as I mentioned.

Got it. Okay. Thank you. And then maybe on the public sector, pretty strong bookings growth despite some of the headwinds you guys spoke about. Just wondering what your view is there for the rest of the year going forward and obviously, any lingering impacts of this extended shutdown?

The strength of the federal business is gonna be a durable growth engine for C3.ai, Inc. There's multiple factors, and I'm kinda related to my time in government, and the other side of this, there's a big push within the government to buy more commercial off-the-shelf solutions. So moving away from government-built. So that's one big tailwind. The other is this push to drive AI adoption for the AI action plan. And I think there's a every single almost virtually every agency is reevaluating their AI, their AI of what solutions are in place, and they're doubling down on areas where they can actually get real value. And I would say the third big piece is the reindustrialization such things as the maritime industrial base. These are multiple years of generational changes in terms of investments to prepare ourselves, and we are benefiting from all three of those trends. COTS focus, the AI action plan adoption, and then the reindustrialization of the maritime industrial base. I expect that to continue.

As a reminder, if you would like to ask a question, please press 11 on your telephone. And one moment for the next question. Our next question will be coming from the line of Brian Esses of JPMorgan. Your line is open.

Hi. Good afternoon. Thank you for taking the question. Stephen, great to see that color that you provided on how you're approaching maybe getting the company back on its feet. I guess if we think about facilitating a pathway to better growth, and I think you gave us some nice detail around incentives or initiatives that you've done with the management team to maybe drive accountability. Are there a few north stars that you could point to where, you know, you're setting expectations and holding management accountable for delivering better execution going forward?

Yeah. Honestly, it's starting the small things, and a big driver of our growth is gonna be the IPD motion. That is the most efficient way for us to deliver value to the market and our customers. So it's the qualification IPDs. It's the rigorous evaluation and setting milestones. And working very closely with our customers. If I had to say the one thing we need to do better, it's to continue to drive a rigorous evaluation and delivery of value as fast as possible. I find when we actually deliver economic value quickly, it converts much faster. So I think there's a direct correlation. You can expect my focus will be on that, going forward. The technology is there. It's literally demonstrating value as fast as possible in these sales cycles. So that's my North Star.

Are these initiatives to tie back to, I guess, discrete metrics that we can see kind of, like, looking from the outside, whether it's, like, bookings or subscription revenue or, you know, how might we kind of evaluate progress as you kind of execute on your plan over the next number of quarters?

I would say bookings are gonna be the leading indicator of how to evaluate C3.ai, Inc. As well as the growth in the IPD, in production revenue.

Got it. Super helpful. Thank you so much.

At this time, I would like to turn the call back to Mr. Ehigian for closing remarks. Please go ahead.

Thank you all for joining us today and for your continued engagement. We appreciate your questions and look forward to updating you on our progress next quarter. Thank you.

Thank you all for joining today's conference call. You may now disconnect.