Good day and thank you for standing by. Welcome to the C3 AI's Third Quarter Fiscal Year 2024 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amit Berry. Please go ahead.

Good afternoon and welcome to C3 AI's Earnings Call for the Third Quarter of Fiscal Year 2024, which ended on January 31st, 2024. My name is Amit Berry and I lead Investor Relations at C3 AI. With me, on the call today is Tom Siebel, Chairman and Chief Executive Officer, Juho Parkkinen, Chief Financial Officer, and Hitesh Lath, Chief Accounting Officer. After the market closed today, we issued a press release with details regarding our third 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 on 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 measures 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 Tom.

Thank you, Amit. Good afternoon, everyone, and thank you for joining our call today. C3 AI had a great third quarter. Total revenue of $78.4 million grew 18% year-over-year, exceeding the high end of our guidance range. The total number of customer engagements was 445, an increase of 80% compared to 247 a year ago. Subscription revenue was $70.4 million, constituting 90% of total revenue and increasing 23% from a year ago. Non-GAAP gross profit was $54.7 million, representing a 70% gross margin. Our GAAP operating loss was $82.5 million. Our non-GAAP operating loss was $25.8 million, better than our guidance for a loss of $40 million to $46 million. Our non-GAAP net loss per share was $0.13. We ended the quarter with $723.3 million in cash, cash equivalents, and investments. All these numbers exceeded our guidance and exceeded analysts' consensus. This is the 13th consecutive quarter as a public company in which we have met or exceeded our revenue guidance range. None of this should have come as a surprise. The enterprise AI market is on fire. We have been predicting for some years that the market for enterprise AI would be quite large. Those predictions were subject to much speculation in the analyst community and media. As of February 2024, I believe it's broadly resolved that the enterprise AI market opportunity is substantially larger than anyone predicted, constituting a secular change in the composition and growth rate of enterprise software writ large. Cloud infrastructure is scaling rapidly, NVIDIA grew 265% year-over-year. NVIDIA's data center GPU sales grew by 409% year-over-year. Now, some believe that this capacity is being built to use LLMs to write Christmas cards in the style of Charles Dickens and write college application essays to Yale. But that's simply not the case. This capacity is being built to run enterprise AI applications, stochastic optimization of the supply chain, supply network risk, predictive maintenance, demand forecasting, fraud detection, production optimization, customer engagement, predictive medicine, precision medicine, and government services. And that is what we do at C3 AI. So as we power into 2024 and 2025, the world is very much coming our way. C3 AI has been preparing for this enterprise AI market explosion for 15 years. We started in 2009 at the infancy of AWS. This is before Azure and before Google Cloud even existed. We carefully designed, developed, and tested a reference AI software platform architecture now known as the C3 AI platform. We then used that platform to design, develop and bring to market over 45 production enterprise AI applications that address the value chains of manufacturing, financial services, agribusiness, chemicals, lumber, paper products, utilities, oil and gas, state and local government, defense and intelligence. The market for enterprise— the market interest in enterprise AI is staggering. Virtually all commercial, military, and government organizations are focused today on leveraging AI to improve their operations, optimize their processes and transform their businesses. Our qualified opportunity pipeline has increased by 73% from a year ago. Now this is led by C3 Generative AI opportunities. Our go-to-market with partners is driving strong pilot additions, and it's still in the earliest innings. In the third quarter, we closed 62% more bookings with our partner network than we did in Q2. 337% more bookings than a year ago. Bottom line, the market demand for enterprise AI products is overwhelming. Customers in the commercial sector in Q3 included Boston Scientific, Pantaleon, Booz Allen, Southwire, Carpenter Technology, Florida Crystals, Santa Ana Agriculture, Cerveceria Guatemala, AbbVie, T-Mobile, Bloom Energy, Ball Corporation, DLA Piper, Carlisle Companies and Holcim among others. Holcim, a European leader in sustainable building solutions, embarked upon a production pilot with C3 AI beginning in May 2023 to configure and deploy the C3 AI reliability suite. Following a successful six-month pilot, Holcim entered into a four-year subscription agreement with C3 AI to scale the reliability application across its more than 100 cement plants. Holcim's predictive maintenance program monitors a large number of assets and will generate significant yearly economic value in reduced maintenance costs and production increases. Holcim is also implementing C3 Generative AI to enrich the reliability application and to assist with complex machinery troubleshooting. Another example, DLA Piper, a global law firm pioneering technology innovation in the legal sector worked with C3 AI to create a first-of-kind generative AI application to streamline the analysis of complex legal agreements. In just three months, DLA Piper applied C3 Generative AI to reduce the attorney time it takes to create over 200 point due diligence analyses of limited partner agreements, reducing the effort by 80%. As a result of this application, DLA Piper is realizing new operational efficiencies, allowing their attorneys the time to focus on delivering increased value to their clients. State and local government had a huge quarter, generating 29% of our bookings. Lighthouse agreements with San Mateo County, Daly City, and Riverside County, California, are spearheading growing awareness for our state and local government suite of applications and we're now closing deals nationally. We see a huge potential to expand our footprint through the counties, cities, and municipalities across the United States. San Mateo County Sheriff's Office and the Daly City Police Department both signed multi-agency expansion contracts for the C3 AI law enforcement application as a countywide crime investigation platform to combat organized retail, vehicle, and cargo theft. This contract involves a combined 15 local police departments and 16 agencies deploying the application in coordination, including Burlingame, Daly City, the City of San Mateo, San Bruno, Atherton, Redwood City, South San Francisco, Menlo Park, Foster City, Belmont, Pacifica, East Palo Alto, Colma, Broadmoor, Brisbane, and others. These deployments promise to significantly decrease the investigative timelines to solve crimes and empower multi-agency collaboration to help prevent crime. These engagements were funded through the Organized Retail Theft grant from the California Board of State and Community Corrections. And by the way, of all the submissions to this board, San Mateo County's submission ranked number one in priority as the best submission in the state, with C3 AI law enforcement being the top investment in their initiatives to combat retail theft in California. We also executed an agreement, actually multiple agreements with San Mateo County, to deploy C3 AI Property Appraisal, C3 AI Law Enforcement and C3 Generative AI applications. The assessors and county clerks, recorders and elections office licensed C3 AI Residential Property Appraisal and C3 AI Commercial Property Appraisal to monetize the appraisal of over 230,000 parcels each year, constituting more than $300 billion in assessed property value. And to do this more accurately, more expeditiously, and more defensively. Our US federal business continues to show significant strength. Third quarter revenue was up over 100% year-over-year, and bookings were up 85%. We signed new and expansion agreements with the Missile Defense Agency, the Department of Defense, the United States Air Force, and the US Intelligence community, including seven new generative AI agreements at the Missile Defense Agency, the United States Air Force, JROC, and the US Marine Corps. We have a really substantial growth opportunity in federal and we're laying the groundwork to seize it. We're getting strong traction with partners in this federal space, not the least of which is AWS. We've deployed our federal solutions on the AWS marketplace for the US intelligence community in June of last year, and we're basically on speed dial collaborating with AWS federal executives every day in the defense and intelligence communities. Additionally, and importantly, we entered into an enhanced partnership agreement with Paradyme. This is a high-end professional services organization in the federal sector, and we did this to increase our capacity for deploying appropriately cleared data scientists and application engineers into our classified government installations. We've aligned with Paradyme and our commitment to support the defense intelligence communities in their critical missions related to national security. Under the new agreement, Paradyme will significantly grow its number of dedicated C3 AI staff to accelerate joint selling and to accelerate the delivery of these secure, classified, and powerful AI applications, providing predictive insights into these federal agencies. I want to highlight the continued diversification in our go-to-market efforts. Our business continues to diversify across industries. In the last quarter, Q3, our bookings distribution by industry was 29% state and local government, 25% federal defense and aerospace, 16% manufacturing, 11% agribusiness, 8% chemicals, 7% professional services, 2% energy and service utilities, 1% food processing and consumer packaged goods, and 1% oil and gas. Now let's take a minute and this is important, so please pay attention and look at the evolution of our go-to-market model. I want to particularly talk about the transition to consumption-based pricing. You'll recall that six quarters ago, we changed our go-to-market model from leading with a subscription-based pricing model to leading with a consumption-based pricing model. The general idea being that rather than people licensing $10 million, $20 million, $30 million, $40 million, $50 million upfront, they would simply do a pilot project, for say, $0.5 million for six months, and we'll bring the predictive maintenance application, the supply chain optimization, the demand forecasting application, whatever it may be, into full production in six months and then the customer will offer $0.5 million, which is insignificant. If the customer likes it, they could keep it and they pay depending upon the volumes, usually $0.40 to $0.50 per BCP to run the application. Bring it live, if you like it, keep it. That was the idea. This clearly and substantially lowered the price barrier for companies to engage with us. And we've seen this now in the number of deals that we close each quarter, the size of the transaction that we're doing; it's been very effective. So this model has been and continues to be very successful in driving engagement. Our contract volume has grown as we expected. Now, that time we provided expectations of VCPU consumption ramps, pricing, and pilot conversion rates. Now we've compared this to the empirical data that we've realized over the past four quarters, and it turns out those initial assumptions have been proven to be quite accurate. Our estimates on VCPU usage and how that ramps over four, five, six, seven, eight quarters are pretty darn accurate. I would say that plus or minus 10% is about right. We assumed a pilot conversion rate of 70%, and what we're seeing appears to align with that. We're also pleased to share that the pricing on the converted pilots is pretty much in line with our expectations. When we began the transition, we assumed that virtually almost all pilots would convert to month-to-month pay-as-you-go consumption-based pricing. Counter-intuitively, it hasn't quite worked out that way, and the empirical data show that the majority of our customers are choosing to sign multi-year subscription contracts rather than opting for month-to-month pay-as-you-go. After pilot completion, many customers are electing to deploy multiple applications across multiple business units, and they're opting for a multi-year subscription, as it offers them a more predictable cost model at large scale. Note also it's not quite this simple; for those of you who are working on models, because that subscription agreement also involves a consumption runtime component. This is not going to be easy to model for those who are working on your spreadsheets. The good news is that our customers are making significant commitments to C3 AI, and our multi-year subscription agreements are a positive indicator of the depth of their commitment. Also, our data shows that over the term of the contract, the revenue from these subscription agreements is generally equal to the revenue from our consumption agreements. Whatever the customer chooses is fine with us because it's revenue neutral over, say, 10 to 12 quarters. Bottom line, our go-to-market transition is working, as evidenced by the growth of our opportunity pipeline, the increase in our customer engagements, and increased revenue. Now, let's talk about generative AI, as this is a very significant market development. The opportunity ahead of us in generative AI is enormous. C3 AI has been at the vanguard of enterprise AI innovation for now 15 years. We've spent 15 years building enterprise AI applications for manufacturing, supply chain, demand chain, finance, defense intelligence, smart grid, oil and gas. In all fairness, we largely established the enterprise AI category. Now, with the advent of generative AI, this is fundamentally changing the nature of the market. It's changing the nature of the human-computer interface. It's unlocking new use cases and creating breakthrough opportunities for non-obvious applications in new industries and enterprises that we would not have expected, and we're just in the earliest days of this. Gartner predicts that by 2026, over 80% of enterprises will be using generative AI, including the deployment of generative AI-enabled applications in their production environments. This is up from basically zero in 2022. For organizations, Gartner states that those that do not consistently manage AI risks are exponentially inclined to experience adverse outcomes such as security failures, financial and reputational loss, and social harm. We are leveraging our first-to-market advantage in scalable, trusted enterprise AI to bring secure, deterministic, hallucination-free, traceable, domain-specific generative AI solutions and generative AI-augmented applications to market. We're seeing a groundswell of interest in all of our generative AI offerings and remarkable uptake of the C3 generative AI suite. Our generative AI customer activity has ramped sharply since we introduced this product to market four quarters ago. We're now applying generative AI in areas where we wouldn't have expected, such as operator assistance in a major manufacturing facility, customer assistance at a global financial services company, and field technical support at a major multinational manufacturing group. DLA Piper is using generative AI to significantly reduce the labor associated with limited partner agreement due diligence. Another leading law firm is using the corpus of S1s contained on sec.gov to train a large language model to reduce attorney labor in generating first drafts of S1s for IPO candidates. Imagine training a large learning model on the corpus of S1s from sec.gov and generating your first draft of your S1, providing the name, address, finances, key risk factors, and hitting return to generate it. We’ve saved countless work hours for legal associates, enabling them to just edit and finalize the documents. Baker Hughes is using C3 generative AI in conjunction with Workday and ServiceNow to provide global employees with broad and immediate answers to questions about policies, benefits, compensation, and more. Riverside County in California is using C3 generative AI to assist staff in answering citizen inquiries about taxation, zoning, building codes, etc. We continue to be impressed by the broad range of applications to which this generative AI technology is applicable. In Q3, we closed 17 generative AI application pilots across various industries, including federal, defense, aerospace, agriculture, forestry, food processing, manufacturing, state and local government, chemicals, life sciences, and others. These generative AI pilots span Europe, Latin America, and North America. We continue to drive innovation in the generative AI market with our highly differentiated C3 generative AI solution. Our latest innovations include omni-modal data support. You've heard about multi-modal; however, multi-modal doesn’t cut it. It includes text and images but doesn't address enterprise data needs. Hence, we support omni-modal data, which includes ERP, CRM, OSI-PI data, telemetry, images, text, photos, voice, and more. For our solutions to be effective, they need to support omni-modal capabilities. Furthermore, we have advanced parsing and embedding capabilities to increase reasoning on tables and images within documents. We have the planning and execution of complex multi-step workflows, multilingual support, and the automatic invocation of advanced mathematics tooling. We do this in a manner that is virtually hallucination-free and LLM-agnostic. Our solution is unique and gaining traction; we are currently installed in some of the most secure installations on the planet. Earlier this year, when we announced in last quarter's conference call, we committed to accelerate our investments in generative AI to seize market share in this large and rapidly growing market opportunity. As a result of that investment last quarter, our webpage views are up 57% year-over-year in Q3. Our organic search traffic is up 68%. Our unique visitors to our website are up an astonishing 230%. This decision is already accelerating our business, stimulating product innovation, and driving broader market awareness of what we do in enterprise AI and generative AI. That being said, we expect to operate a positive free cash flow business in Q4, and for fiscal year '25, we anticipate positive free cash flow for the full year. Now, let’s talk about our International Users Group Conference, C3 Transform, which will be held in Boca Raton next week, March 5th through 7th. Over 500 customers and partners are registered to attend, including leaders from almost every industry sector. General sessions on March 5th and 6th will be substance-packed, including C3 AI product roadmaps, C3 AI customer success stories, best practices in enterprise AI from C3 AI customers and partners, AI innovation in defense and intelligence, and discussions from experts about the past and future of generative AI. I’m pleased to announce that the C3 Transform General Sessions will be simulcast to qualified investors and analysts. Those of you interested can register online beginning this Friday and tune in real-time to participate in any of the general sessions that you'd like. You'll find these substantive discussions quite worthwhile. In conclusion, business is good, prospects look bright, and C3 AI has returned to accelerating growth. I want to discuss guidance. Given current market conditions, we are increasing revenue guidance for Q4 and for this fiscal year, 2024. For Q4, we anticipate revenue in the range of $82 million to $86 million, and for the year, we're anticipating revenue in the range of $306 million to $310 million. Our non-GAAP loss from operations is expected to be in the range of $43.5 million to $51.5 million for the quarter. Our non-GAAP loss from operations for the year is expected to be in the range of $115 million to $123 million. Now let me turn the call over to my colleagues, Juho Parkkinen, the Chief Financial Officer, and Hitesh Lath, the Chief Accounting Officer for additional detail.

Thank you, Tom. I will now provide a recap of our Q3 financial results and some additional color on pilot activity. All figures are non-GAAP unless otherwise noted. Total revenue for the third quarter increased 17.6% year-over-year to $78.4 million. Subscription revenue increased 23.4% year-over-year to $70.4 million and represented 89.8% of total revenue. Professional services revenue was $8.0 million and represented 10.2% of total revenue. Gross profit for the third quarter was $54.7 million and gross margin was 69.7%. As a reminder, we continue to expect short-term pressure on our gross margins due to a higher mix of pilots which carry a greater cost of revenue during the pilot phase of the customer lifecycle. Also, as we discussed last quarter, we expect short-term pressure on an operating margin due to the investments we're making in generative AI and upgrading customers to our platform version 8.3. The operating loss for the quarter was negative $25.8 million compared to our guidance range of negative $40 million to negative $46 million. The improvement in operating loss versus guidance was driven by our team's ongoing focus on disciplined expense management, as well as the timing of additional investments we're making to capture market share. At the end of Q3, our accounts receivable balance was $173.5 million, including unbilled receivables of $102.6 million. The total allowance for bad debt remains low at $400,000, and we have no concerns regarding collections. The general health of our accounts receivable remains strong. Six quarters ago, we announced a transition from subscription-based pricing to consumption-based pricing, a standard in the industry. We anticipated and announced that this transition would have a short to medium-term negative effect on revenue growth and RPO, as the average sales price was significantly reduced and the contracts often lacked a certain multi-period commitment. As the transition progressed, we expected to return to revenue growth as customer engagements accelerate and customers expand their consumption. Reflecting our transition to a more consumption-based contract, we reported third quarter GAAP RPO of $186.9 million, which is down 28.8% from last year, and current GAAP RPO of $172 million, which is down 2.4% from last year. Free cash flow for the quarter was negative $45.1 million. We continue to be very well capitalized and closed the quarter with $723.3 million in cash, cash equivalents, and marketable securities. Now I'll provide some additional metrics for the third quarter. During the quarter, we started 29 pilots, a 71% increase from last year and down 19.4% from last quarter due to the timing of the sales activity. Ten industries were represented in our pilot starts. At quarter-end, we had cumulatively signed 138 pilots, of which 132 are still active, meaning they're still in their original three to six-month term, extended for some duration, converted to consumption or a license contract, or currently being negotiated for a production license. Our customer engagement count for the quarter was 445, an 80.2% increase from 247 a year ago. As a last item on our call today, I wanted to inform you that after three wonderful years at C3 AI, I will be stepping down as the company's CFO and assuming a role as VP of Finance. I have been at C3 AI for three amazing years and two of those as CFO. I'm grateful to Tom and the Board of Directors for the opportunity. It has been a privilege to work alongside Tom and the entire executive team in this role. As you all are aware, C3 AI is a unique hyper-performance technology company, 100% in the office, incredibly hard-working, fast-paced. You have to be on 150% all the time. For me personally, I need to take a break and step aside for a bit to spend more time with my family. I am pleased to inform you that my colleague Hitesh Lath is assuming the role as CFO. I hired Hitesh about three months ago as our Chief Accounting Officer. Hitesh comes to us from Ernst & Young, where he was a partner for over eight years and brings a total experience of 24 years spent serving large multinational technology clients. I've known Hitesh for over a decade, and in fact, when I was at Ernst & Young, I worked for him on some engagements. From day one, Hitesh jumped right in and was heavily involved in preparing the financials for this quarter, and I'm very excited to hand the finance team into Hitesh's capable hands and expect him to continue the progress we have made and take the team to new heights. I will remain a C3 AI employee, advising Hitesh and Tom and assisting the team as necessary to ensure our operations are smooth and our financial reports continue to be pristine. Hitesh, would you like to say something?

Thank you, Juho. I have been at C3 AI for about three months and I'm very excited to take on this role. These are great times for AI and for C3 AI. I look forward to working with Tom and the rest of the executive team and being a part of the growth story. With that, I'd like to hand it over to the operator for Q&A.

Thank you. Please stand by while we compile the Q&A roster. Our first question comes from Timothy Horan of Oppenheimer.

Thanks guys. Could you give us a little bit more metrics on the productivity improvements your customers are seeing or success stories, and where is generative AI adding the most value as you see it now? Thanks.

Timothy, hi, it's Tom. Thanks for the question. I would encourage you or one of your associates to dial in next week to our users group conference. Our customers will share the productivity increases they are achieving. Michelle has stated they're gaining $2 billion in economic benefit. The United States Air Force, who will be presenting, has indicated they're experiencing a 25% increase in aircraft availability from our predictive maintenance application that's deployed as a standard in the Air Force. Such a 25% increase in capability within the United States Air Force represents significant improvement. Now, generative AI can expand in ways we can't predict. It may sit on top of Workday, ServiceNow, SAP, Salesforce, or be involved in writing contracts for lawyers. The DLA Piper application is one notable example. They will showcase the RSO application, which is one of the largest AI applications globally, deployed at the United States Air Force. Currently, we are aggregating data from 22 weapon systems into a unified federated image, which includes telemetry from various devices. A B-1 bomber has approximately 42,000 sensors with telemetry at cycles of 8 hertz. So there is a vast amount of data. I believe it's around 100 terabytes of data. As with any application of this nature, it has a highly technical interface. By integrating generative AI, it now features a user interface similar to that of Google Browser. Anyone in the Air Force with appropriate authorization can ask any question about any weapon system and get an immediate answer, such as inquiries about levels for F-35 squadrons or cost management for the B1B program across the last five years. What are the major parts issues associated with the F-35 project? What I see is that by deploying these enterprise AI applications across organizations at scale, the user interface simplifies the change management process.

Thank you.

Thank you. One moment for our next question. Our next question comes from Sanjit Singh of Morgan Stanley.

Thank you for taking the questions. And sorry Juho to see you go and best of luck spending time with the family. Tom, I wanted to ask a little bit about retrieval of augmented generation. It seems like that's an AI access pattern that's getting really popular across enterprises and across AI companies. So, there's a lot of companies sort of pursuing this opportunity. I wanted to hear a little bit about how C3 is differentiated in terms of providing this capability to enterprises that differentiates RAG from C3 versus some of the other players that are trying to make this a reality for customers.

Sanjit, are you referring to enterprise AI in general or specifically generative AI?

Generative AI, but specifically about the retrieval of augmented generation, like RAG. It seems like one of these use cases is catching fire with enterprises, and I wanted to see how C3 is encouraging customers to pursue RAG use cases.

Okay. Well, RAG typically refers to a technology that ensures traceability of answers. When you ask a question, it specifies the source of the answer. Most large language models lack this capability. The C3 Generative AI, which combines 15 years of platform architecture with the large language model, allows us to address the generative AI equation in a highly differentiated way. The C3 AI generative AI solution is deterministic, meaning every time you ask the same question, you get the same answer. In contrast, platforms like Bard or ChatGPT generate varied responses. Furthermore, everything we do is traceable. This is where we use RAG technology; we clearly identify where an answer originated. Most large language models will not offer this feature. Our model is constructed to be LLM-agnostic, which means organizations can switch out the large language model weekly as innovations occur. Recent concerns around data exfiltration have hindered installations of these applications. Our structured framework mitigates data risk, ensuring the LLM has no data access, thus preventing exfiltration. Another issue is intellectual property (IP) liability, particularly in organizations relying on public internet training data. Our system uses only your available data for the large language model, eliminating the consequences of unbounded IP liability. Lastly, our solutions are LLM-agnostic, making them stand out compared to alternatives in the market. For these reasons, our systems are successfully implemented at clients like Goldman Sachs, Bank of America, Cargill, Morgan Stanley, and the CIA.

That's a super comprehensive answer, Tom. I'm really looking forward to watching some of those sessions at C3 Transform next week.

There will be a mention specifically on that with Nathaniel Christian, James Lawrence from RSO, and Rowan Curran from Forrester Research on that topic, at 9:15 on March 6th. I highly recommend it.

Perfect. I did have one follow-up regarding the customers coming out of the pilot phase and their choice to license going forward. With the increased preference for subscription contracts, what does that imply for quarterly revenue over the next couple of quarters? We have been considering potential headwinds as customers shift to consumption contracts, but now, with this mixed shift, how will that affect quarterly revenue moving forward?

I'm having trouble identifying any headwinds in this scenario. The essence of the matter is, if customers wish to license, they may choose month-to-month options, or, more frequently, they may prefer a longer multi-year subscription for cost predictability. Our revenue remains steady regardless of the choice. Therefore, it poses little to no impact on revenue modeling.

Great. I'll leave it there and allow others to ask questions. Thank you.

Thank you. One moment for our next question. Our next question comes from Pat Walravens of JMP Securities.

Oh, great. I'd like to start with one sort of financial question, and then Tom, I have a big picture question for you. Juho, maybe on your way out. I mean, this is your Q3, next quarter’s Q4, and then you're going to give us some guidance for fiscal '25 just to keep us all in check, you know, a quarter ahead of it. Can we just get some sense of what the boundaries should be in terms of fiscal '25?

Pat, thanks for that question. But we're still planning for FY'25. We think the opportunity is massive and we’re very excited about the generative AI opportunities, but it’s too early for us to provide guidance on FY'25 revenues. However, we are confident about achieving positive free cash flow for 2025.

Okay, that's helpful. Then Tom, my big question is about future demand for sovereign clouds by nation-states. I recently spoke with another executive in AI who noted that if you don't have committed access to AI in your country, you risk being left behind. Is he exaggerating, or do you see significant growth potential in this area?

As for data sovereignty, we're addressing it with our existing cloud provider relationships. For instance, France, Germany, and the UK are areas we have strong local partnerships with. However, I believe that an emerging trend is the resurgence of in-house data centers. Companies like HP are leading such initiatives, demonstrating that in-house models could become cost-effective. Although gaining access to GPUs remains a challenge, I think moving forward, power availability will become a more pressing issue.

Could you elaborate on your thoughts regarding the resurgence of in-house data centers?

I've gathered this from the market feedback, and even our engineers have suggested it. It seems feasible to build our own facilities. However, the key constraint is GPU availability. The more challenging factor is securing enough power, especially in regions like Northern Silicon Valley, where sourcing power for data centers poses difficulties.

Thank you. One moment for our next question. Our next question comes from Mike Cikos of Needham & Company.

Great. Thanks, guys. This is Matt on behalf of Mike Cikos over at Needham. Good to hear that the consumption transition is tracking in line with your initial target. On that note, could you provide insights into the size of your sales force, ramping of reps, and the average number of pilots per sales rep versus your expectations?

Hi Matt, this is Juho. We are actively hiring across our sales functions but not at the rate we had planned. Consequently, our sales force is currently not as large as we initially anticipated. We've previously indicated that new hires would likely require 1.5 to 2 quarters to close their first pilots. Once fully ramped up, we expect each sales rep to close at least one pilot a quarter.

Has there been any change in sales cycle length this quarter compared to previous quarters, especially considering management's comments on AI governance?

Overall, the sales cycle remains consistent, around 3.5 months.

Yes, it's approximately 3.5 months.

Thank you so much, guys.

Thank you. One moment for our next question. Our last question comes from Kingsley Crane of Canaccord Genuity.

Great, thank you for taking the question. The Q3 results were impressive and demonstrate strong momentum in the business. Regarding your comments on NVIDIA and Enterprise AI, we're trying to understand when NVIDIA's substantial growth in hardware will start benefiting the software layer. Are we talking about a one-year or five-year timeframe? We sense the wave coming, but timing is tricky.

This infrastructure is not being built for casual use. It's intended for enterprise AI applications, creating a robust foundation for our software solutions. The market interest in AI applications and specifically generative AI applications is evident, and we believe the corresponding infrastructure is crucial for facilitating the deployment of these projects.

Thank you for the insightful response. In light of significant domestic investment, how is C3 AI addressing international opportunities in regions like Europe and APAC?

Last quarter, I noted that our EMEA performance wasn't where we desired it to be, but we made organizational changes that have positively impacted our sales activity and customer engagement in both EMEA and South America. We are observing encouraging developments in that regard.

That's fantastic news, thank you. Juho, it's been great working with you, and I wish you the best of luck.

Thanks, Kingsley.

Thank you. I would now like to hand it back to Mr. Siebel for closing remarks.

Ladies and gentlemen, thank you for your time this afternoon. We appreciate the opportunity to update you on the state of our business. I can tell you that, for those of you who have visited us, this is a very unique place. We have the only full parking lot in Silicon Valley. There are 500 or 600 people working shoulder to shoulder here Monday through Friday. We have a very unique, high-performance corporate culture that I believe will serve as a competitive advantage in the long run. This organization is energized and I think for all of us involved, it's the professional experience of a lifetime. Thank you for your time, and we look forward to bringing you updates next quarter. I also encourage you to dial into C3 Transform next week because the professional presentations will be substantive and worthwhile. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.