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C3 AI under pressure this morning after reporting weaker than expected subscription revenue in the first quarter. The company's profit miss was less than expected, and revenue met expectations. Not enough to boost investor sentiment, shares moving lower right now by about 13%. At least four firms also cutting their price targets on the stock after earnings. Here with more and the earnings reaction, we've got Tom Seebel, who's the chairman and CEO of C3 AI. Tom, it's always a pleasure to get your perspective, your view on what took place during the quarter and and what the street is trying to price in as well right now. Where where do you believe that the street and investors may be indexing or giving more weights to these results?

Uh, Brad, by any standards, it was a great quarter. Made at 21% top line year-over-year growth. We're one of the fastest growing public software companies in the software universe. Uh, I think that our deal volume increased 122%. Okay, we're we're, you know, cash positive for the quarter. We were, uh, I mean, there was nothing that wasn't good about the quarter. I think that what people don't understand, I think that people are overreacting to the fact that our professional services were a little bit uh, larger than they thought, but we don't understand there so I think $13.8 million in professional services, 10 million of that was actually software. This was compiled code delivered to our customers as a core component of the product. Uh, and the um, and that they pay for over the terms of their agreement. Now, looks like software, smells like software, is software, but under an accounting change that took place, a technical change that took place in 2019 or 2020 called ASC 606, you need to recognize that $10 million as as professional services. It is software.

Tom, uh, it wasn't a great quarter. Uh, and that's why we're seeing the stock down, uh, higher than it's been since May of 2023. I'm curious from your perspective, it seems like one of the issues for that subscription revenue was companies being a little bit more cautious on their AI spend. What are you hearing from clients about their AI CAPEX appetite and the degree to which they're hoping to kind of hoping to kind of dilute the amount of AI CAPEX that they have to protect their own balance sheets moving forward?

The top line revenue grew 21%, exceeded our guidance, exceeded the software exceeded consensus. I think we're one of the top 10 fastest growing companies in the software universe.

But the decline in subscription revenue seems to be a sticking point. So I'm curious what you saw throughout the quarter that drove that.

But people are thinking about in subscription, they're really looking at licenses versus professional services. Professional services are things like what Palantir does or what Accenture does. These are custom projects, okay? But we delivered that what what we delivered $10, $10 million of what we characterized as professional services due to accounting rules was in fact software. And this is at, you know, 93% gross margin. So this is this is this is software. That's what and and, you know, but for a technical accounting change, it would have been its software. It was a great quarter.

Tom, all these things considered, looking out from here, I think the street is looking for more expansion in the generative AI categories specifically and the capabilities there and and even more traction it seems or ability to um, entrench yourself more in the federal sector. Where where are you seeing some of those efforts play out right now? What is the lead time for that to come to fruition?

I think that the federal, as I recall, was 30% of our bookings. That was very, that was very healthy. The expansion that we're seeing in generative AI, uh, in state and local, in manufacturing, okay, in federal, okay, and, you know, across the board, law firms, you name it, generative AI and state and local are amongst our fastest growing businesses. Uh, I think federal was 30% of our 30% of our I'm not sure with 30% of our bookings or 30% of our revenue, but very healthy. So, I mean, those those businesses are looking pretty good.

Just a quick follow on that. A lot of the scrutiny that we've seen from investors over the course of this earnings season has been the amount of capital expenditures, the amount of investments that companies are continuing to put forward in the name of generative AI and and hoping that they're not underinvesting at this juncture. What is that return on investment profile that you're looking at at C3 AI and and when investors can expect that to show up in the financial performance on a more outsized level?

The generative AI applications that we're delivering across the board are delivering, you know, value going very quickly. I think, you know, full production applications deployed in, you know, you know, three, four, five months. So this is a very fast return, very rapidly growing market, and it's unknowingly unknowingly large.

Uh, Tom, I want to end on the Baker Hughes partnership. We understand that that is a large percent of your revenue, but Dan Brennan, who oversaw the C3 Baker Hughes partnership, has left the company. What does that mean about the status of that partnership?

Uh, Dan Brennan was a he was a, you know, close friend and a great professional. I enjoyed working with him. There are, you know, thousands of professionals at Baker Hughes. We work with their entire senior management team. I think I'm certain that we're coordinating with them on a daily basis. They're a great customer, they're a great partner, and we continue to enjoy a close and productive relationship.

So is I know the deal is set to expire in April of 2025. Any plans for it to expire early?

Uh, there's no plans for it to expire early, and as you know, Madison, I think that deal has been extended now three or four times. So it uh, uh, I think originally it was three years, and then four years, and then five years, and it might have been extended even after that. So, it, you know, there's some uh, history of it being extended in the past.

Tom, thanks so much for taking the time here with us, diving into some of these results. Tom Seebel, chairman and CEO of C3 AI. Good to see you, Tom.

Thank you, Brad.