Good day, and thank you for standing by. Welcome to the C3 AI Third Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Amit Berry.

Good afternoon, and welcome to C3 AI's Earnings Call for the Third Quarter of Fiscal Year 2026, which ended on January 31, 2026. My name is Amit Berry, and I lead Investor Relations at C3 AI. With me on the call today are Stephen Ehikian, Chief Executive Officer; and Hitesh Lath, Chief Financial Officer. After the market closed today, we issued a press release with details regarding our third quarter results, 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, and good afternoon, everyone. Our results this quarter were clearly inadequate and well below our objectives. We failed to close business as planned and in particular, our performance in North America and Europe was disappointing. I came to this company 2 quarters ago after 12 years building AI companies, followed by a fastening tenure leading a U.S. government agency, deploying AI and fighting fraud, waste and abuse. I joined with the expectation that there is an opportunity for C3 AI to win in enterprise AI. Over the past 6 months, I spent nearly all of my time visiting customers, prospects, government agencies, partners and our employees and dealing with market participants and investors. What I consistently hear is that every CEO is making AI a top strategic priority, and they want to realize measurable economic value from it. That is exactly what our products deliver. That said, it became clear to me that our cost structure was simply too high, and we were not organized correctly for the opportunity. I have assessed the business with the management team, and we have built an exacting execution plan with 5 strategic initiatives. First, we are immediately rightsizing our cost structure and reducing our cash burn. Second, we are flattening our sales organization, realigning our strongest sales personnel with those sales leaders who are proven, who now report directly to me. Third, in product, we are focusing on those product areas where we have clear market leadership, a demonstrated track record of success and where we deliver fast economic value to our customers. These include AI and automation across a business value chain, asset performance, supply chain optimization and procurement for industries such as energy, manufacturing, health care and public sector including defense, intelligence and government services. Fourth, we are…

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 $53.3 million. Subscription revenue for the quarter was $48.2 million, representing 90% of total revenue. Professional services revenue was $5.1 million, of which $3.3 million was revenue from prioritized engineering services or PES. Professional services represented 10% of total revenue during the quarter. Our subscription and PES revenue combined was $51.5 million and accounted for 97% of total revenue. Our bookings during the quarter were $46.9 million. Non-GAAP gross profit for the quarter was $19.6 million and non-GAAP gross margin was 37%. Non-GAAP gross margin for professional services was 82%. Non-GAAP operating loss for the quarter was $63.4 million. Non-GAAP net loss for the quarter was $56.4 million and $0.40 per share. Free cash flow for the quarter was negative $56.2 million. We continue to be very well capitalized and closed the quarter with $621.9 million in cash, cash equivalents and marketable securities. During the third quarter, we signed 14 IPDs, including 5 Gen AI IPDs. At the end of the quarter, we had cumulatively signed 408 IPDs, of which 258 are still active. 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. As Stephen said, in Q4, we launched a restructuring plan to materially improve our operating efficiency and position the company for long-term success. This plan includes expense reductions across our business to produce full year cost savings of approximately $135 million. And more importantly, it also reduces the annual cash burn by approximately the same amount. We expect to…

[Operator Instructions] And our first question comes from Kingsley Crane with Canaccord Genuity.

So I think you closed 8 Gen AI agreements, 5 or 6 IPDs within that segment. That quantity is down a bit from quarter -- a couple of quarters ago. So I guess just how would you characterize the quality of those IPDs and then just the total opportunity with those customers?

Yes. In terms of IPDs, we have a much better qualification criteria in terms of our likelihood of generating enough economic value for the customer as well as the likelihood of those IPDs converting to production contracts. So we are being selective with the IPDs we sign up for and we expect a higher likelihood of those converting to production contracts.

Okay. And maybe this 1 for Stephen. Given you're abstracting away AI complexity from customers, how are you evaluating models from various providers at various price points. So whether that's Opus 4.6 or Haiku or Gemini or MiniMax both from a functionality standpoint and then a cost structure standpoint, especially as it sounds like you're leaning in towards Agentic coding at this point?

Yes. So there's 2 questions is what we're using internally and then what our customers are using. Maybe on the second point, we've built our architecture, so it's model agnostic and it's really driven by the customer demands. So depending on the exact use case and the capabilities they can select which model they want to drive this with full flexibility. In terms of internally, we provide flexibility to our employees just like the model that works best for them. We did this across engineering, products, marketing, sales, and we're seeing success across a wide swath of models today.

Our next question comes from Brian Essex with JPMorgan.

Maybe start off 1 for Hitesh. 36% reduction in sales and marketing, pretty substantial. I would love to get some thoughts about how you approach that cost reduction, where those reductions kind of manifested within the organization? And what can we expect from an investment in growth versus cost efficiency mindset going forward?

Yes, sure. Our cost reduction, it covers all locations and all functions across the company. And we -- when we started on this exercise, we took a hard look at our cost by function and by location and identified opportunities where we could be more efficient. We also compared our cost structure with other comparable companies in the software industry and that reinforce our view that the cost reduction had to be across the board. And in terms of reduction in costs across sales and marketing and other areas, I provided some perspective on that from a headcount reduction standpoint. And the reduction in sales and marketing is primarily coming from a reduction in our sales force as well as marketing spend.

Yes. Very helpful. Maybe for Stephen. Maybe if you could frame out, how are your customer conversations changing with respect to adoption of the platform. Is this purely an AI conversation? Is it more of the cost management conversation or maybe conversely, is it a revenue-generating conversation? And then are there any other budgets? Are these AI-specific budgets? Or are these primarily projects within specific verticals and specific operations that are turning to AI to make themselves more efficient. I'd love to just get your kind of take on what you've heard so far.

It's a great question. I think the market is moving extremely fast. So let me just highlight, I've been here 6 months and spent all that time on the road talking to our customers, our partners, even our employees and so that conversation is changing in real time where every CEO is looking to make an investment in AI, but they're tired, and I kind of highlighted the pilot purgatory. They don't want to just test out AI for the purpose of testing it and doing it for 6 months. They want to move today and adopt an AI platform, not for a single solution, but they're looking for a transformational change across the departments. I think of the customers we sell into, industrial, manufacturing, federal governments. These are areas where there's massive transformation happening and it's to grow and drive revenue and really, really imagine the business. So what I think is some of our leading companies, one of the largest biopharma companies in the world, they're talking with this -- we're solving a supply chain for them, but they're talking about this as a zero back office supply chain, right? We have a human on the loop and more autonomy. You think about asset performance and we have the idea of an autonomous site manager. So this is a much bigger transformational story, which reflects the changes we're making in the organization to get started faster and be able to provide a road map to a large transformation change for our customers today. So I think those are the conversations, I think I've been impressed with the speed and urgency to adopt and move beyond one use case in many use cases. That's where we're seeing value today, and that's where I'm doubling down on to.

Our next question comes from Sanjit Singh with Morgan Stanley.

This is Oscar on for Sanjit. Thank you for -- we appreciate all the details around the operational restructuring and strategic initiatives. But I wanted to maybe get a bit of color or insight into as we look at the decline in the top line, sort of base a question on the recurring nature of the business. And so I wanted to understand more how much of the business today is recurring in nature versus onetime? And with that in mind, how should we think about guide visibility, particularly as we think about growth in fiscal year '27?

Yes, sure, Sanjit. As you've heard in my commentary, 90% of our revenue this quarter came from subscription and the remaining 10% came from professional services. And as it relates to subscription revenue, there was no nonrecurring subscription revenue in the quarter.

Got it. Okay. And then maybe as a follow-up, in terms of the performance in the quarter, you noticed some like weakness in North America and Europe. Maybe some more detail on what particularly went wrong there?

I was going to say simply sales execution, full stop. And we're going to fix that. As part of this, I mentioned, we're going to flatten the organization. I did this in the federal space in Q2 with the sales team reporting to me. We were able to drive faster execution there. I'm going to take that same playbook and applied to North America and EMEA. So I think sales execution, first and foremost, that falls on me full stop. I own that, and I'm going to fix that.

Thank you. I would now like to turn the call back over to Stephen for any closing remarks.

Well, 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. This concludes the conference. Thank you for your participation. You may now disconnect.