Operator
Good day and thank you for standing by. Welcome to the C3AI Fiscal First Quarter 2027 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. Please be advised that today's conference is being recorded. And now I'd like to hand the call over to today's host, Amit Barry. Please go ahead.
Welcome to C3AI's earnings call for the first quarter of fiscal year 2027, which ended on July 31st, 2026. My name is Amit Barry, and I lead investor relations at C3AI. With me on the call today are Tom Siebel, Chairman and Chief Executive Officer, and Hitesh Latt, Chief Financial Officer. After the market closed today, we issued a press release with details regarding our first quarter results, which can be accessed through the Investor Relations section on 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 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 and 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 quality 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.
Good afternoon, everyone, and thank you for joining us. Three months ago, I returned as Chief Executive Officer with a mandate to turn this company around. I returned as CEO because the company was candidly underperforming despite every advantage. The product offerings are exceptional, the market is huge and rapidly growing, and the balance sheet is rock solid. None of that was the problem. The problem was execution. And one quarter into the turnaround, I believe the company is on track. In the past three months, we have restored fundamental management discipline to this business. We completely restructured the company. We restructured sales. we restructured products, we restructured services, we reset the cost structure, driving massive costs out of the business and implemented rigorous cost controls. We reinstated the fundamental management practices necessary to run a serious business, clear ownership, hard deadlines. We rebuilt the selling motion around disciplined account management and pipeline development rather than heroics. We now have experienced executives in charge of every aspect of the business in sales, in products, in services, in finance, in legal. This is the leadership team that will execute the turnaround. We refocused the product offerings on our agentic AI stack, our greatest technical strength, and the largest and most rapidly growing segment of the market. And this quarter showed meaningful progress. Revenue came in above our guidance. Bookings grew at 73%, and we took real costs out of the business to narrow our operating loss and generate free cash flow in the quarter. We closed 22 enterprise agreements in the quarter, including with Heidelberg Materials, Johnson & Johnson, Ford Motor Company, C-SPAN, Holson, the Department of War, the Defense Logistics Agency, and the U.S. Department of Agriculture. Federal business was particularly strong, with federal bookings growing 138% year over year. These results are early evidence that the turnaround is taking hold. The C3 Enchanted AI platform remains the starting point of every sales engagement. It reflects over 15 years of software development, in which we invested in excess of $3 billion. Last month, Forrester Research released a very significant study in which they evaluated the strengths of machine development, a pretty significant benchmark and really a hallmark due to the technology of G-Line. It builds machine learning models, it designs the user interface, and it got time.
It delivers a working enterprise AI application. to two point four million dollars was forty nine point two million dollars representing ninety four percent of services revenue but three point two million dollars of which one point eight million dollars was revenue from prioritized engineering services or PES our subscription and PES revenue combined was fifty point nine million dollars and accounted for ninety seven for the quarter was $26.1 million, and non-GAAP gross margin improved sequentially from 37% last quarter, primarily due to cost reduction actions we've taken over the last few months. Next quarter, as we make selective investments in a forward-deployed engineering organization, we expect our non-GAAP gross margin to moderate to mid-40s. Non-GAAP operating loss for the quarter was thirty six point two million dollars this was eight point three million dollars better than the midpoint of our guidance non-gap net loss for the quarter improved to thirty point seven million dollars and twenty cents per share our non-gap expenses for the quarter were eighty eight point five million dollars this reflects a reduction of almost forty million dollars as compared to the actual non-GAAP expenses of $128.1 million same quarter last year and a reduction of over $17 million as compared to the last quarter. Free cash flow for the quarter was positive $2.1 million as compared to negative $34.3 million same quarter last year and negative $54.8 million last quarter. This was due to a significant reduction in quarterly cash expenses as well as strong collections we continue to be very well capitalized and close the quarter with 651.1 million dollars in cash cash equivalents and marketable securities now a quick update on our restructuring plan our restructuring is almost complete and we have been able to achieve annualized cost savings of approximately 135 million dollars across our business this includes cost savings from approximately 40 percent headcount reduction across all organizations as well as from reduction in non-employee expenses as we said on the last quarter's earnings calls some of the cost savings will be fully realized starting with the second half of fiscal year 2027 with a substantially improved cost structure reorganized and focused sales services and products organizations we are well positioned to achieve revenue growth materially improve our operating efficiency and free cash flow and position the company for long-term success now i'll move on to our guidance for second quarter and fiscal year 2027. our revenue guidance for second quarter of fiscal year 27 is 51 million dollars to 55 million dollars Our guidance for non-GAAP loss from operations for second quarter is $34.5 million to $42.5 million. Our revenue guidance for fiscal year 27 is $210 million to $240 million. Our guidance for non-GAAP loss from operations for fiscal year 27 is $123 million to $155 million. For the remainder of Fiscal Year 27, we expect our fee cash flow to broadly align with our guidance range for non-GAAP law firm operations. Now, I'd like to turn the call over to the operator to begin the Q&A session. Operator?
Operator
Certainly. And our first question for today comes from the line of Patrick Wall-Ravens from Citizens. Your question, please.
Oh, great. Thank you. And, Tom, congratulations on the beginning of the turnaround here. I mean, with Federal up 138%, I think I have to start with that, which is what was sort of the biggest thing that you won? How did you win it? And what does the pipeline look like for more things like that in Federal?
The pipeline in Federal looks very good. And I would say, you know, there's an incumbent there that has a large market share with very high levels of dissatisfaction, both with their product and their business practices. So a lot of that dissatisfaction is spinning off now in opportunities for us. So in addition, I mean, you know, the government's spending a lot of money on these types of technologies, particularly in the intelligence and the defense sectors. I think the defense budget's about to go from a billion to 1.5 billion like this month or next month. So, there's a lot, I'm sorry, trillion, okay, 1 trillion to 1.5 trillion, thank you. So, there's a lot of spending there and we're getting a lot of traction.
Tom, you mentioned this in your remarks too. So, you're going to invest more in a forward-deployed engineering organization. What does that mean for C3, and did you have forward-deployed engineers before? You know, and it's not, what are you doing differently here?
We've always had, well, we've had forward-deployed engineers, I think, going back to about 2014. I could be wrong by a year or two. So, really, we've always had that function. And, you know, we need to be absolutely sure that each and every one of our customers are achieving what they need to achieve and so we're going to increase our investment in you know in people and i think that that investment people is going to be offset in the medium run by this c3 code product that you can learn development user interface without any programmers it is way cool so that so that's going to mitigate the need for forward deployed engineers in the medium and long run but in the short room run we're going to near term we're going to assure they continue to uh realize the return all right great thank you we did see it by the way we came in and did a demo and it was it was remarkable but that was uh six months ago so i'm sure it's evolved a lot since then but it was really it was pretty amazing thank you and our next question comes from the line of ready sultan from ubs your question please awesome yeah i i guess just to follow up on the fed opportunity i'm curious how much of that opportunity is in sort
displacing incumbents, like you mentioned, versus sort of greenfield work, and then what gives you confidence that you can displace that incumbent or those incumbents successfully?
Well, we've been doing it, you know, for a while, and I think it accelerated last quarter, and I think they're a fine company and they have a good product. There's people who want to replace them, and that creates an opportunity for us, I'd say, and then there's, you know, lots of greenfield opportunity where we, you know, compete with them and win. Federal just has been and remains a really good business sector for us.
Got it. And then just one quick follow-up. If we think about the high end of the full-year guide, it does imply a pretty steep acceleration if you hit that. And I guess like my question is fundamentally like what needs to happen, what needs to go right for you to hit that high end of the guide? And I guess like what gives you, you know, I guess like what gives you confidence that could happen?
You know, I'll be honest with you. I'm less interested in hitting the high end of that guide than I am making sure that we've built the pipeline and we have the a sales organization in place to demonstrate consistent quarter-over-quarter revenue growth from Q3 on into perpetuity. And I think that if we're able to demonstrate consistent revenue growth, if we're able to get to the point where we're running free cash flow operations and get the company non-cap profitability, I think it's highly likely this company will not be trading at a revenue multiple of like 3.5. They'll be trading at a revenue multiple of 10, 15, 20, or 25, and I think that will bode well for our investors.
Operator
And our next question comes from the line of Mike Lattimore from Northland Capital Markets. Your question, please.
Yeah, on the C3 code obviously sounds really interesting. Is that a meaningful part of the pipeline, or are you still kind of in early stages of marketing that?
Honestly, Mike, we're in the early stages of marketing that, but hold on to your socks because it doesn't have to be a multimillion-dollar acquisition. And so people would start small and then grow and grow. The initial customers who are using it just love it. And I used it here to replace a pretty substantial piece of enterprise software that we have in place that will remain unnamed. And these guys, and we pay a lot of money for this application. It's in the kind of HR management space. And these guys built an application in a day, okay, that replaces an enterprise application in a day. I mean, it's unbelievable.
Yeah, that's great. And, I mean, in the past, you've sort of promoted, you know, selling enterprise AI applications. It feels like you're maybe moving more towards a little bit of a platform strategy here, or is that the wrong interpretation?
Well, I think you nailed it, Mike, and we weren't that explicit about it. So, in the past, we have sold the AI platform, and then we have used the AI platform to build enterprise AI applications, which are kind of big applications that do things like predictive maintenance or demand forecasting or fraud detection or supply chain optimization. So going forward, all these applications have been broken down into their atomic particles, And the atomic particles are, if you will, are embedded in the AI platform. And if you want to build one of these applications for process optimization and oil refining, whatever it might be, you can assemble those atomic particles in real time that become that application. So it's not, they're just there and there are thousands of those elements that kind of reassemble on demand either because you asked them to do it or you did it through C3 code. So, it is, what's going forward is a little bit different. It's a good, very insightful what you caught there.
Great, thanks. And then just last on customer concentration, any kind of metric you can provide there? Do you have any customer, you know, over 5 or over 10% of revenue or, you know, what are your top 10 customers or percentage, anything like that?
Yeah, Mike, not a meaningful change from before. and we'll disclose that to the extent appropriate, and I thank you. We shall be out in a few days. I don't think there's any one in the classroom.
Operator
Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Mr. Siebel for any further remarks.
Thank you, everybody, for your time. We appreciate it, and, you know, keep your eye on the ball. We're, you know, we're very focused here. All of these executives have their eye on the ball, and I think if they continue to actually get their plans as they have been, this will bode well for C3 investors, and that's the game we're playing. So thank you for your interest.
Operator
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
