Hello, thank you for standing by. Welcome to the C3.ai second quarter fiscal year earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. It is now my pleasure to introduce Relations Reuben Gallegos. Thank you, Andrew. Good afternoon and welcome to C3.ai's earnings call for the second quarter of fiscal year 2023, which ended on October 31st, 2022. My name is Reuben Gallegos, and I'm the Vice President of Investor Relations. With me on the call today is Tom Siebel, Chairman and Chief Executive Officer, and Juho Parkkinen, Chief Financial Officer. 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 our 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. 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 remarks, in response to your questions, we may discuss metrics that are incremental to our usual presentation to give greater insight to the dynamics of our business or 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. Thank you, Reuben. Hello, everyone. Thank you for joining us. I'm here with Juho Parkkinen, our Chief Financial Officer, and we are most pleased to share our results for second quarter of fiscal year 2023. Bottom line, it was a solid quarter in which we delivered our stated objectives and met expectations despite the rocky economic situation and the generally morose condition of the markets. In the last earnings call, we described two strategic initiatives to spur faster growth. One was to recompose our sales team with an emphasis on technical and domain expertise. The second was to shift our pricing model from a subscription-based pricing model to a consumption-based pricing model. I'm happy to report these initiatives have been successfully completed in the second quarter. I will explain these actions in some detail, but first I'll comment on the financial results and some of the successes that we achieved during the quarter. Writ large, the quarter was quite solid. Subscription revenue for the quarter was $59.5 million, an increase of 26% year-over-year. Operating loss improved 15 points year-over-year to 24%. We continue to maintain a healthy growth margin of 77%. Customer count grew 16% year-over-year to 236. Current RPO of $164.5 million was down slightly and consistent with our expectations as we transitioned to a consumption-based pricing model. We ended the quarter with cash reserves of approximately $860 million. The number of completed contracts in the quarter increased to 25, approximately a 100% increase year-over-year. Our average contract value in the second quarter was just over $800,000, down from $19 million a year earlier. This reduction in contract value was a direct result of our new pricing model. We believe the new pricing model will result in a substantially increased number of smaller transactions, providing greater forward visibility in both revenue and bookings. Our new consumption-based pricing model was well received by our customers, our prospects, our partners, and by our sales organization. We expect this new model to increase the number of customers with which we engage in Ambit in any given quarter by an order of magnitude. As these customers continually increase their usage over time, we expect the compound effect upon revenue growth to be quite significant. Our customers and prospects find the new consumption-based pricing easier to understand and easier to contract. Our market partners find this new pricing model well aligned with how they price their own services and one that facilitates their successfully selling C3 AI products. I'm happy to report that our transition to this new consumption-based pricing model is now complete. Simultaneously, last quarter we completed a transition of similar magnitude with the recomposition of our global sales team. We are now growing a team of highly qualified, well-trained, technologically expert sales professionals who are engaging with prospective customers in selling pilots and expanding production usage with existing customers. There is no question that there is pervasive economic uncertainty in the global business community that continues to provide bookings headwinds. This has been especially significant in the tech markets that are experiencing a bloodbath in equity prices, with significant layoffs at companies including Amazon, Meta, Salesforce, Google, Snap, and many others. I believe this is just the start of what will be a significant tech market correction. Layoffs at established companies will accelerate. The many Series A, B, C, and D companies that are hemorrhaging cash will simply not survive. Just like every other tech recession that we've seen, the human capital at the piece parts companies will be redistributed to those companies that survive. We are confident in our business outlook, especially with the nearly $600 billion addressable market opportunity that we have before us. We continue to invest in our products and in the talent required to meet our goal of building a cash positive, profitable business that will return to a growth rate of greater than 30% year-over-year within the next 18 months. Our employee base grew last quarter to over 850, a sequential increase of 83, and we continue to hire key engineers, data scientists, sales professionals, and other key roles across the organization. Turning to some of our customer successes in the quarter. Shell has continued to expand their use of our solutions in new areas and has successfully implemented C3 AI ESG for manufacturing at two of their key offshore platforms in the Gulf of Mexico. We also have successfully concluded an ESG trial with Shell that focused on leveraging NLP to generate targeted insights on the rapidly evolving ESG priorities of Shell's key stakeholders. Shell has already addressed and communicated that they are realizing massive economic value annually by deploying our C3 AI applications across the enterprise, upstream, downstream, midstream renewables. We're just getting started. There's a large and growing pipeline of enterprise AI applications that Shell is building, testing, and deploying using the C3 AI Platform, realizing the strategic value of our partnership and the fulfillment of the digital transformation of one of the largest and most iconic companies in the world. Cargill has continued to expand their use of our solutions in optimizing food production and distribution to meet the dynamic needs of the market and ensuring sustained food value chains in North America, Latin America, Europe, Africa, and Asia. This is a critical mission that has enormous humanitarian ramifications, and we are proud to participate with Cargill in this important mission. Lastly, we're proud to say that we've continued to expand our relationship with the United States Air Force, working closely with them to improve aircraft availability and efficiency of readiness programs of the entire fleet of over 3,700 aircraft. The AI capabilities that we are putting into operation today offer the potential to improve readiness rates by up to 20% and reduce the cost of maintenance by up to $4 billion per year. Let me address our partner ecosystem. In recent weeks, there's been something of a seismic shift in the enterprise AI software space. Traditionally, the primary competition to purchasing C3 AI enterprise applications was to license was for a company to license... The alternative of purchasing C3 AI was for a company to license a large number of tools from the hyperscalers, piece parts from providers like Cloudera, Pivotal, Databricks, DataRobot, and the many of the scores of other point solution providers, and then engage in a long and expensive science experiment in an attempt to build a custom Enterprise AI platform. No one, to our knowledge, ever succeeded with that. The market is truly changing, due to changing and demonstrating an increased desire for production, tried, tested, proven Enterprise AI solutions. All of the hyperscalers have acknowledged this within the last few months. Thomas Kurian at Google Cloud was the leader announcing that GCP would lead in the market, okay, not with piece parts, but with turnkey production enterprise applications from C3 AI. Last week, Adam Selipsky, CEO of AWS, announced that their customers were now demanding turnkey applications, not toolkits. This was followed the next day by Scott Guthrie, EVP of Microsoft Azure, announced that their customers were telling them that they no longer wanted toolkits to build applications. They now want functional turnkey AI applications that accrue immediate value. With a growing family of 42 production enterprise C3 AI applications in the market that serve the needs of financial services, utilities, health, manufacturing, defense, intelligence, and other industries, C3 AI is well-positioned to capitalize on this now clearly recognized market requirement. We sell with GCP, we sell with Azure, we sell with AWS, we sell with Baker Hughes, we sell with Booz Allen Hamilton, and we are well-positioned to help our partners to deliver to their customers the solutions they are demanding. C3 AI and Google Cloud are continuing to jointly invest in industry applications with the launch of two new enterprise AI applications last quarter optimized on GCP. Our sales teams are actively co-selling today to over 300 accounts around the world. Last quarter, we closed an expansion with a large transportation company, currently signed one of the top 50 retailers in the world to license our supply chain applications, and signed several new deals in the financial services and oil and gas industries. As a result, GCP is our fastest-growing install base. That being said, AWS remains C3 AI's largest install base, constituting about 56% of our customer base. C3 AI and Microsoft continue to close deals, particularly in the energy and manufacturing sectors. Azure remains our second-largest installed base, constituting approximately 27% of our customer base. We announced a number of new product enhancements here in the course of the quarter that I'm not gonna review in this call. We continue to invest in technology leadership, we continue to invest in R&D, and we continue to add to our industry-leading portfolio of enterprise AI applications and add greater depth and increased performance to these existing applications. Let me talk for a minute about human capital. C3 AI continues to be recognized as a great place to work. In the second quarter, we received over 23,000 job applications. We interviewed over 2,200 of these applicants, and we hired 90. One of the secular changes of this tech downturn is the increased availability of highly trained professionals who are willing to come into the office, roll up their sleeves, and get to work. We have never been more confident with the team that we have and with their ability to execute our strategy. Turning to guidance, our Q3 revenue is expected to be between $63 million and $65 million, and we are reaffirming our full year, fiscal year 2022 revenue guidance of $255 million to $270 million. For non-GAAP operating loss, we expect in Q3 between $25 million and $29 million, and for the full year, we expect an operating loss between $85 million and $98 million. We continue to operate at roughly an 80% non-GAAP gross profit margin. We have a clear path to top-line growth, non-GAAP profitability, and a cash positive operations by the end of fiscal year 2024. At this time, we do not see our cash balances falling below $700 million before that inflection. Final comments on the big picture. C3 AI is addressing a $600 billion addressable AI software market. If not the largest, we are one of the largest providers of these applications globally. Our business is exactly on track with what we have communicated to you. Our goal remains to establish and maintain the global leadership position in enterprise AI software. In the short run, we believe tech companies and tech equities will continue to face headwinds as long as the Fed keeps its foot on the brake. The collateral damage, I think, is gonna be more significant than people think. That being said, when the Fed takes its foot off the brake, be that in 2023 or 2024, C3 AI will be bigger, stronger, cash positive, profitable, a clear market leader, and well-positioned to benefit from the inevitable equity market surge that will ensue. Now let me turn the call over to our CFO, Juho Parkkinen, for a summary of our financials and additional commentary. Juho. Thank you, Tom. Now I will provide a recap of our financial results, add some color to the drivers of our financials for the back half of the year, and conclude with some additional color related to the consumption-based revenue model we introduced on our last call. As Tom mentioned, we ended the quarter with revenue of $62.4 million, which represents 7% year-over-year growth. Subscription revenue increased by a solid 26% and was 95% of total revenues. Gross profit increased 5% to $47.8 million, and gross margin decreased 122 basis points to 76.6%. The decline is primarily due to a higher mix of trials and pilots, which carry a higher cost required to ensure customer success during this early phase of engagement. Operating loss of $15 million improved $7.6 million year-over-year. Operating loss margin also improved from 39% in the prior year to 24% in Q2. Our customer count increased by 16% year-over-year to 236. We closed 25 deals during the quarter. It's noteworthy that deals under $1 million grew 167% year-over-year in Q2. Now turning to RPO and bookings. We reported RPO of $417.3 million, which met our expectations as we continue to convert to consumption-based deals. Current RPO was $164.5 million, down 8% from last year. We continue to see positive trends in bookings diversity outside of oil and gas, particularly in the federal, aero, and defense sectors, which grew sequentially and year-over-year. Turning to cash flow. Free cash flow for the quarter was an outflow of $77 million. Breaking this down, $23.7 million was for the build-out of our new headquarters. As I have mentioned previously, this will be amortized over the term of the lease and will not have a meaningful impact on our path to profitability. Normalizing for this payment, our adjusted free cash flow was an outflow of $54.3 million. Turning to guidance-related assumptions, as Tom mentioned, we have completed our transition from a subscription-based pricing model to a consumption-based pricing model and are now focused on ramping revenue from consumption-based deals. With respect to gross margin, as the number of pilots ramp in the coming quarters and as the proportion of period revenue is more weighted towards pilots, we expect gross margin percentage to decline. However, consistent with the financial model we shared with you as part of the prior quarter earnings call, we expect the gross margin to increase to historical levels by the same time we expect to reach our initial non-GAAP profitability. Operating margin model and guidance includes our expectations for revenue growth and gross margin impact. Looking at our cash reserves, we have sufficient capacity to execute our plan to invest for growth in the coming quarters. We are well capitalized, having approximately $860 million available. With the planned expenditures related to the build-out of our new headquarters and investments in our business, we expect our cash investment balance to bottom out in fiscal 2024 before we see improving free cash flow and improving cash balances thereafter. As a reminder, one of our most significant cash usages has been for the build-out of our new headquarters, which unlike many high-tech companies, we actually occupy. We are on track to achieve positive non-GAAP operating margin in the fourth quarter of the next fiscal year, driven by accelerating revenue growth and improving gross margin. Regarding the transition to consumption-based pricing, as a reminder, we do not require existing customers to move to a consumption-based arrangement. Our customers have been satisfied and are expected to remain in their current contract terms. As such, we expect RPO to decline as our new deals will not require a significant upfront non-cancelable arrangement, but rather a consumption-based usage arrangement. The assumptions we provided last quarter for modeling the consumption-based business remain unchanged. In summary, we are focused on delivering profitable growth to our shareholders, and we continue to expect achieving non-GAAP profitability in the fourth quarter of fiscal 2024 while growing the top line in excess of 30%. With these remarks, I would like to open the call up for questions. Operator? Thank you. As a reminder, ladies and gentlemen, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Brad Zelnick with Deutsche Bank. Well, thanks so much, guys. I really appreciate you taking my questions. I guess my first one is either for you, Tom, or for Juho. You know, as we think about the plan that you've laid out, and it's nice to see the progress relative to what you told us last quarter, but traditional metrics obviously don't tell the full story. What's the right metric for us to track the progress quarter to quarter that you're making? What are the milestones that we should be looking for? Maybe can you tell us what metrics do you measure yourselves against internally and hold the sales force accountable to and incentivize them on so we can just get a sense quarter to quarter? In addition to customers, obviously, they eventually translate to dollars, but any insight there is helpful. I've got a follow-up. Thanks. Hey, Brad. Hi, Brad. It's Tom. I mean, I think the bottom line is when we go to this model, we're looking at number of customers, okay? How many new pilots are we closing every quarter? We'd expect in the outer quarters, I mean, this should be an order of magnitude larger than we're doing now. Yep. I think we did, what, 13 or 15 last quarter in roughly half a quarter because, I mean, we announced the transition to this model about halfway through the quarter, and we did 15 in about a half quarter. So it's basically We're really looking at number of customers, Brad, and then we're looking at how far we, you know, how rapidly their grow the use of their products. If in fact we get an order of magnitude more customers, and they continue to grow their use as our customers have in the past, you know we've modeled this very carefully. I mean, we get out there three, four, five quarters, this revenue line should accelerate pretty dramatically. Right. Brad, just one thing to add to that. We guided in our original model for the analyst community to expect five pilots for the quarter. We actually closed 13, which was a combination of trials and pilots. We're quite excited about how this started this kicked off. Thank you for that, Juho. That's helpful. And maybe just one follow-up. Appreciating the accelerated path to profitability and naturally, just given what's going on in the world, you guys, you know, are in a pretty interesting position for sure. What would need to happen to get you to positive free cash flow ahead of the fiscal 2024 expectation? Maybe can you just clarify for us, is that an exit rate? Is that for the full year? How do we measure that? What circumstances would maybe cause you to accelerate that? Not that you need to, you got plenty of cash, but, I mean, this is clearly the discipline that the world wants to see. Brad, it's simple. We can throw this to be cash positive and profitable, you know, honestly, within 90 days. All I gotta do is lay off about 40% of the workforce, okay? Now, I don't think. I mean, that might make some analysts happy, and it might make some shareholder happy, but it's absolutely not in the best interest of the shareholders, the employees or the customers. I mean, it's all we have to do is basically stop all marketing expenses and lay off 40% of the people. It's, you know, I don't know whether it's 40% or 50% or 35%, but, you know, it's, I mean, hard stop, it's cash positive and profitable like next quarter. I, you know, I don't think that would be responsible, and I don't think it's anybody's interest. You asked the question, we gave you the answer. Juho, you have any further light on that? Only a thing, Brad, that the way that we've modeled our path to profitability, we feel confident on that and we stick to that. Got it. Just to clarify the expectation, though, it's for the full year. Is it an exit rate when you say fiscal 2024? Oh, it's an exit rate at Q4 and at 2024. Awesome. Gentlemen, thank you so much. Truly appreciate you taking the questions. Thank you, sir. Thank you. Our next question comes from the line of Mike Cikos with Needham & Company. Hey, guys. Thanks for getting me on here. I did want to circle up on some of the customer counts dynamics, just because I know that is going to be one of the metrics we're looking at while you guys are going through this transition. I think you guys had cited 236, up from 228 last quarter, right? I just wanted to see what has the customer behavior been like since you guys announced this transition. What I really would be interested in hearing, I know you guys are not forcing your customers to migrate down to the consumption model, but curious to hear, have you seen customers trade down to the consumption model since you announced this transition? The second question there is, have you seen any changes in customer behavior from a churn perspective? Hi, Mike, it's Tom. No customer, existing customer has requested to convert to the consumption-based pricing model. Understand that these customers are huge. I mean, you get into Shell, you get into Coke, Baker Hughes. I mean, these are very, very large relationships now. You can imagine their licensing terms are pretty favorable and unique to them. Have we seen any significant change in customer churn? No. Appreciate the color there. For the follow-up, I did wanna, I guess, look back at what we had spoken about last quarter with deals getting pushed out, just given the current environment. Specifically, you guys had called out 66 deals last quarter getting pushed. Have you closed any of those deals in the interim? Do we still see a similar order of magnitude for deals getting pushed? Given that you guys have made this transition, are you helping streamline the adoption process for those customers and accelerating those sales cycles? Hi, Mike, it's Juho. We did close some of those deals that were pushed out of last quarter. Like we expected from our revenue guidance, the macroeconomic climate was tougher for the second after Q1, but it has stabilized. In particular, with our new consumption-based pricing, I think, our customers and potential new customers are reacting well to that strategy. Got it. It makes a ton of sense, especially when I think about that average contract value declining from call it $19 million to less than $1 million this quarter. Thanks a lot, guys. I'll step back into the queue. Thank you. Thank you. Our next question comes from the line of Pinjalim Bora with JP Morgan. Pardon me, Pinjalim, your line is now open. Please check your mute button. Oh, I was talking to myself. Hey guys, thank you for taking the question. I want to ask about the subscription revenue outperformance. Seems like a big outperformance in the quarter. Was that largely because of the outperformance in the number of pilots that you're doing? Because even if you have closed some of the deals that got pushed, I wouldn't have thought that you'd recognize a ton of revenue from those, so help me understand that. Well, I think you kinda got it. There were some previous transactions that were not based on consumption-based pricing that did close in the quarter that did contribute to that. I think you called it accurately, Pinjalim Bora. Okay. It was because of the deals that closed. Okay. Tom, on a high, high level, maybe help us understand what are you hearing from CIOs in terms of IT budgets for next year. You kind of called out, obviously the headwinds on macro, but are you hearing people kind of resetting their budgets for next year, next calendar year? What are you hearing? I think it, you know, it's a really good question, and it varies from company to company. I mean, there are a lot of companies that see this as a... organizations in the federal government. By the way, I didn't comment on our federal business, but our federal business is really strong. Okay? You know, particularly in the defense sector. You know, if you saw the defense budget, it, well, it's flying through today. It increased, I think, almost, you know, $200 million, over... I'm sorry, $200 billion over last year, if I'm not mistaken. You know, that's a big business. You know, I think there's kinda two categories. There's companies that are like bearing down and using these technologies to figure out how to save money. That would include Shell, that would include the United States Air Force. Okay? Okay. Then there's companies that, whose name I will not mention, that are just absolutely going to the mat and slashing expenses on everything. They're going into the bunkers, they're going into recession mode, we will see some customer churn from that. Okay, hard stop. Okay. They're just cutting to the bone. There's kind of two classes of companies out there, those who are investing in savings and those who are just kind of going into a knee-jerk, perfectly rational response to a, you know, impending significant recession, they're just slashing all costs. We see both. I don't know how long this lasts. You know, you guys are the pros at this, whether it's 12 or 24 months. You know, when it's over, we're gonna still be here, you know, plugging away at it. It's, you know, it's, you know, you cannot deny that it's, you know. I mean, it is rocky out there. Yep. Understood. Thank you, so much for the insight. Thank you. Our next question comes from the line of Patrick Walravens with JMP Securities. Oh, great. Thank you. I wanna do a couple sort of financial ones to start with, if that's okay. Gross margin, if I'm looking at it right, non-GAAP was 77%, down from 81% last quarter. Is there anything, worth noting there? Hi, Patrick. You know, the only thing to call out there is that, Hang on. when the trials and pilots, as Tom mentioned on the opening remarks, there is more, higher cost in those than the ongoing subscriptions. As we see increase of pilots and trials even in the coming quarters, we are expecting some pressure on gross margin before it climbs back up to historical levels. Okay. As I look forward, should I be around this $77 level? I think you should expect a little bit more of a pressure as we increase the pilots as proportion of total deals. By the time we're back at Q4 FY 2024, we should be back at these rates and higher. Okay. The subscription beat, but services missed at least my number by a lot and went down sequentially by a lot. What's to note there? Only thing is that it's the services is a direct result of our transition to these pilots in our new consumption-based pricing model. There are minimal upfront, big professional services deals associated with these. As the pilots convert to ongoing license arrangements, we do expect the services component to increase as well. In the second half of this fiscal year, we actually are expecting services to return back to the 10%-20% of our total revenues. Oh, for Q3, it would be 10%-20% of total revenue? I'm saying the full back half of the year, so it could be- Yeah. somewhere in the range for Q3 and higher or lower in Q4. Okay. Then, if you look at the subscription revenue of $59 million and change, the footnote says 32% of that is from related parties. Do you mind just explaining that for people? Because I do get that question quite a bit. It's just the related parties relating to Baker Hughes. Baker Hughes is our, of course, still a significant shareholder of C3 AI, and any revenues that we interact with Baker Hughes' direct purchases, we call them out in the financials. Yeah. Tom, the bear case would be that in some way is a lower quality revenue. What would your response be to that? Oh, boy. Yeah, I'm sure. I'm sure you have one, but... I don't know how to respond, Pat. I mean, we're gonna be doing a lot more deals with a lot more customers. We're gonna convert a lot more of them into production, and they're gonna grow just like Shell, Baker Hughes, Coke, and everybody else has grown. you know, there's, you know. Right now things are looking pretty promising. I think we're right on track. Great. Last one, this one is probably for you, Tom. You signed... It's been a year since you signed that $500 million production, other transaction agreement with the Department of Defense. How would you say it's going so far versus your original expectations? DoD is really big. I think the year-over-year, DoD grew by what percent? Is that? 100%. Well, nearly. Roughly 100%. A 100% in terms of bookings. DoD is a real bright point, Pat. You're talking specifically on MDA. The MDA agreement applies to all of DoD, by the way, okay? Mm-hmm. We have another $100 million agreement with RSO. We'll announce, we announced in this release, but tomorrow morning there should be an announcement about a big partnership that we're doing with Booz Allen Hamilton, okay? In all of the federal government, particularly DoD. That business is looking strong. All right, great. Thank you very much. Thank you. Thank you. Our next question, Sanjit Singh with Morgan Stanley. Excellent. Thank you. This is Theo Thun on for Sanjit. I really just want to touch on sort of the consumption growth that you're seeing, especially with the Ex Machina product. Just if you can sort of provide any color on, one, how you see consumption trending with those customers? And then how you expect that going forward? And maybe sort of related to this environment, how are customers using it maybe differently than they have before? Ok. Great. This is Tom. And I would say, of the various products that we have in the marketplace today, Ok, of which we have, I think, 42 production products, Ex Machina being one of them? We are underperforming on the execution of Ex Machina sales. It is a dramatically superior product to other products that are out there in the marketplace. That big set, it's kind of order of $1,000 thing, in terms of the unit? And we really haven't put the sales motion together to do that at scale. Now we've taken the objectives to get after it, but I cannot look you in the eye and say, that we're hitting that ball over the left field fast, because we're not? And it's a great product. Our customers love it. We have somebody, we have three customers that have much greater consumption whether- Baker Hughes and Con Edison almost 300% increase. 300% increase there. But can I look you in and tell you that we're killing, that we're realizing the potential of that product, that product could be an entire separate company? Our CRM product could be an entire separate company, our ESG product could be an entire separate company, stand-alone company. And in all three of those, I think we really need to get focused and get going, and we haven't done that yet. OK. That's helpful. I mean, your commentary sounds worse than the 270% consumption increase that you're seeing there. Any color sort of on what's enabling that increase in consumption? And then two, how are you -- in your other products, like trying to enable similar consumption rates, is there anything sort of to highlight that you're doing differently there to get to those kind of trends that you're seeing in this product, although you're not highlighting it specifically? Do you want to focus on Ex Machina or is it about Ex Machina or is this about overall products? This is more broadly More broadly. Go ahead, Juho. Let me just kind of add on to that. For Ex Machina, just what Tom said, we're still very early stages on that. Yes, we see those key customers that started early with us, massive increase in consumption. Yes, we're excited about that. The entire, that entire product is completely in its infancy, and we have high expectations on it. With the other point on other consumption, remember again, we start these pilots. The consumption deals start with a six-month pilot, and then it moves into consumption. We started this quarter, we're not really seeing any consumption until the initial six-month phases are complete. That question, and as we start talking about consumption under the all the other deals that we do, we'll start reporting and discussing that more detailed, probably in Q1 next year. Okay, got it. Thank you. Thank you. Thank you. Our next question comes from the line of Kingsley Crane with Canaccord Genuity. Hi. Thanks for fitting me in. For Tom, looks like there's strong traction in Department of Defense, new and expanded deals with numerous agencies. Imagine the AI Defense Forum with a helpful touchpoint to close these. How would you characterize momentum in this sector? Are these companies embracing the new consumption model, or are they preferring to commit more upfront in the legacy model? I'm showing our next question comes from the line of Kingsley Crane. Please go ahead. Yeah, this was Kingsley. Kingsley, hi. Yeah, could you hear me? No. Please, one more time, please. Oh, okay. Right. For Tom, looks like there was really strong traction in Department of Defense, expanded deals with numerous agencies. How would you characterize momentum in this sector compared to a few years ago? Are these companies looking at the consumption model or are they primarily sticking to the current model? Great question. You know, it takes some time to really get traction in DoD, okay? We've been working on that since, you know, 2014, okay? You know, at the level of the Secretary of the Army and the Secretary of the Air Force and the Joint Chiefs. I mean, we've really been working hard. I think we have 12 projects, all delivered on time, on budget to spec. Really what we're, what we're finding here is the consumption model there is really, really well received. They like it, okay? You know, they're kinda used to seeing these, you know, multi-billion dollar juggernaut projects from the Lockheed Martins of the world or other providers. We're coming in where, hey, we're bringing the project live for half a million dollars, and after that, $0.55 per CPU hour. It's like, where do I sign? There, it, you know, it's being very well received in that market. Okay. Thank you. That's really great to hear. For you, Ho, just wanna touch again on the services revenue. You know, understandable that it would be lower given some of the trial activity. Since we expect trials to continue in the new consumption model, just trying to get a better handle on how quickly services should ramp back up to that 10%-20%. Well, again, there's a component of the ongoing relations with our existing customers and potential services engagements with them, and then our expectation of services engagements as these pilot deals convert to consumption deals. What I was referring to earlier to Pat's question, we are expecting services activity in the second half of this year. Separately in the long-term models, you should expect that as the pilots convert to consumption, there are services deals associated with those as well. Okay. Thanks, very helpful. Thank you. Our next question comes from the line of Arsenije Matovic with Wolfe Research. Hi, this is Arsenije on for Gal. I think on the call you said there were 13 consumption pilot wins in the quarter, and maybe that was maybe better than you initially expected. Is that a run rate you're comfortable with going into the end of the fiscal year, the back half? Any particular call outs for sectors where the consumption model is maybe getting better traction than you initially expected? Thank you. Sorry, the second half of your question, it was a bit unclear, but let me address the first one. Yes, well, we're excited on the beginning of this. We did 13 pilots and trials, so there's still a combination of some of the trials in there, but we do expect them to convert to a consumption-based arrangement at the end of the trial period. I do not, we would not want to increase any of our assumptions in the model we shared with you last quarter. Even though we said five this quarter and we came in at 13, I want to keep the model as it was that we provided last quarter. Great. Just a brief follow-up. In terms of stock-based compensation, I think it's the second consecutive quarter where stock-based compensation as a percentage of sales is above 85%. I think in Q1 we talked about maybe that was a lot to do with share refreshes, and I wanted to see what dynamic was that happened in Q2 and what level of stock-based compensation should investors become comfortable with moving forward? Yeah. Thank you. I think, I think broadly speaking, you see this across the industry, but stock-based compensation under GAAP is stock with the grant date fair value of the underlying equity instrument. As, as you obviously know, the history of the entire tech sector and C3.ai in the last year and a half, we are carrying significant stock-based compensation costs for awards that were granted when the share price was much higher than it is today. Unfortunately, there's nothing we can do about that unless, you know, the underlying employee decides to seek for other opportunities. For now, until the end of these vesting terms for these awards, we are gonna be carrying these pretty high stock-based compensation costs. Thank you. for values that will never be realized by the person who was granted the stock option. Yeah. Not, I don't know, never, but you know. Yeah. No time soon. Yeah. Thank you. Thank you. Thank you. One moment please for our next question. Our next question comes from the line of Adam [Bergere] from Bank of America. Hey, great. This is Adam on for Brad. Thanks for taking our question. Juho, for you, can you talk a bit about the shape of the revenue curve for next year? I guess naturally we expect it to kind of increase sequentially every quarter given the new consumption model. Is there a chance there's still some lumpiness in that as, you know, certain, you know, larger customers may renew on kind of like the non-consumption license? Yes. Yes. I think the short answer to that is yes. What we guided last quarter, we beat it for this quarter. Our guidance for next quarter, you see sequential increase, and it does have the Q4 as an increase to that with respect to the implied guidance. The revenue curve is flattening as a result of the consumption-based pricing business model. As we enter into. In the short term. In the short term, and as we enter into FY 2024 and especially the second half of FY 2024, you should start seeing the graph to get steeper and steeper, in line with the presentation we showed last quarter. Okay, that's helpful. Again, on just like the gross margin, could you kind of call out when that might trough out and what kinda like the level of that might be? I think it was at like 77% for this quarter. Is it fair to assume that that's kind of like the trough level for that? Thanks. Thank you for the question. I think the more important thing is that we assumed there would be a pressure in the gross margin when we provided the operating margin and operating profit guide and our path to profitability. We are expecting pressure on it, but it doesn't change our path to profitability one bit. I cannot tell you exactly where I think it will dip down to, but I think in your models as you prepare the business back when we hit FY 2024 Q4, we should be back at 77%+ gross margin. It may go down in the interim, and then it climbs back up as we enter profitability. Okay. That's super helpful. Thank you. Thank you. Thank you. Our next question comes from the line of Arvind Ramnani with Piper Sandler. Hi. Thanks for taking my question. You know, I had a question on some of your kind of partnerships or alliances to help drive sales. You know, are you able to kind of dimension how much of your kind of new sales or bookings come from your, you know, in-house sales teams versus your partners? I'm sure it's probably pretty difficult to kind of bifurcate the two, but if you're able to do that'd be great. On the same topic of partnerships, you know, are the margins higher or lower on sales that are brought in by some of your partners? Arvind, hi. Hi, it's Tom. Virtually all of our sales today, we're selling with a partner, not through a partner. Okay? That would be 100% where we're selling with them. They may introduce us to the account. They may bring the executive team over here, as Google has, as Booz Allen. I'm sorry, as Baker Hughes has, as Microsoft has in the past, like many, many times. We're actively engaged, okay, in the sales process. We are just now, you know, putting our products on the marketplaces of the various hyperscalers. That dynamic might change going forward. There's no margin difference 'cause there's virtually no case where they're selling independently of us. Perfect. Thank you. Thank you. Our next question, and our last question, comes from the line of Michael Turits with KeyBanc Capital Markets. Hi, this is Michael Vidovic on for Michael Turits, and thanks for taking my question. Could you just talk about linearity in the quarter and then trends you're seeing to start out November for fiscal 3Q? Linearity, are you talking about like deal velocity in the quarter or what are you, what are you asking about? Yeah, Was it, you know, month-to-month, you know, how did deals trend? Was it a constant uptick to reach throughout the quarter or was it stronger, you know, back end of the quarter or the beginning of the quarter? Well, we see activity all throughout the quarter, but it's not unusual in this business where as you approach quarter ends you have slightly more activity. Okay. Then just a quick follow-up on a vertical standpoint, particularly energy, have you seen like an uptick in deals in that area? I guess which areas besides Federal are you seeing particular strength in at this time? Thanks. If your question is relating to the diversification of industries, we see continued diversification, which we're very excited about. Yes, there's deals in energy, but defense, as we discussed, is really exciting for us as many other industries as well. We continue to expect more diversification with the consumption-based pricing and scores of new customers. Okay. I guess that was our last question. Gentlemen, thank you for your thoughtful questions and we appreciate the courtesy of your participating in our call, and we thank you all very much for your time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.