Q3 2025 Earnings Summary
- C3.ai's strong partnerships with industry giants like Microsoft, AWS, and McKinsey QuantumBlack are driving significant growth opportunities. The company is involved in over 600 joint engagements with Microsoft alone, across various regions and industries, demonstrating the substantial potential of these co-selling arrangements.
- Quick conversion of engagements into revenue, with 28 agreements already closed with Microsoft in the last quarter, indicates effective execution of these partnerships and a positive impact on the company's revenue growth.
- Professional services revenue has seen a notable uptick, outperforming expectations by $4 million relative to the first half of the year, driven by increased demand for consulting services, paid implementation services, and training services.
- The company expects a decline in Remaining Performance Obligations (RPO) in the near term, which may signal slower future revenue growth.
- The CEO, Thomas Siebel, disclosed significant health issues, including vision impairment due to an autoimmune disease, which may impact his ability to effectively lead the company.
- Despite over 600 engagements with Microsoft, only 28 agreements have been closed, indicating potential challenges in converting pipeline opportunities into revenue.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +26% (from $78.4M to $98.782M) | Revenue growth was driven by strong gains across its business segments—subscription revenue (+22%) and a dramatic rise in professional services (+64%), combined with the introduction of new revenue streams; this builds on prior period momentum from its consumption‑based pricing model. |
Subscription Revenue | +22% (from $70.4M to $85.679M) | Subscription revenue increased due to enhanced customer acquisition and engagement, reflecting continued benefits of the consumption-based pricing model and increased usage compared to previous periods where efforts had started yielding positive engagement. |
Professional Services Revenue | +64% (from $8.0M to $13.103M) | A significant boost in professional services revenue came from increased demand for high‑margin services—particularly accelerated engineering services and service fees—building upon earlier shifts that improved service mix and generated stronger client adoption. |
New Revenue Streams | New introduction: Prioritized Engineering ($5.698M) and Service Fees ($7.405M) | New revenue streams were introduced in Q3 2025, diversifying revenue by capturing demand for specialized services such as prioritized engineering and service fees that did not exist in Q3 2024, reflecting an expansion of the company’s monetization strategy. |
Geographic Performance (North America) | +28% (from $68.36M to $87.29M) | North America led growth thanks to strong customer engagements, federal revenue increases, and strategic alliances, which built on previous successes in the region and further leveraged key customer expansions and partner ecosystem efforts. |
Geographic Performance (U.S.) | +27% (from $67.42M to $85.95M) | U.S. performance improved alongside North America, driven by robust domestic demand and new enterprise and federal agreements, reflecting ongoing expansion in this core market compared to prior periods. |
Profitability (Net Loss) | +10% widening (from $(72,927)K to $(80,201)K) | Although revenue increased, net loss widened due to higher operating expenses and increased investments in scaling growth; this reflects short-term trade‑offs as the company supports strategic initiatives and further integration of its expanded service offerings. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue Guidance | Q4 2025 | no prior guidance | $103.6 million to $113.6 million | no prior guidance |
Non-GAAP Loss from Operations | Q4 2025 | no prior guidance | $30 million to $40 million | no prior guidance |
Free Cash Flow | Q4 2025 | free cash flow positive | free cash flow positive | no change |
Revenue Guidance | FY 2025 | $378 million to $398 million | $383.9 million to $393.9 million | raised |
Non-GAAP Operating Loss Guidance | FY 2025 | $105 million to $135 million | $87 million to $97 million | lowered |
Free Cash Flow | FY 2025 | no prior guidance | free cash flow negative | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Strategic Partnerships & Alliances | Across Q4 2024, Q1 2025 and Q2 2025, partnerships with Microsoft, AWS, Google Cloud, and Baker Hughes were emphasized—with transformative Microsoft and hyperscaler deals and a broad partner ecosystem highlighted. | In Q3 2025, in addition to the longstanding alliances, the call detailed a new McKinsey QuantumBlack partnership along with robust Microsoft engagement (e.g. 28 agreements, 450% QoQ increase) and maintained emphasis on AWS and Google Cloud partnerships. | Consistent focus that has strengthened over time with the addition of new strategic partners (e.g. McKinsey) and record partnership metrics, suggesting an expanding partner ecosystem impacting revenue growth. |
Pipeline Conversion & Pilot Engagement Performance | Q4 2024, Q1 and Q2 2025 consistently discussed pilot programs—including signing new pilots, conversion rates (about 70%), and cumulative active pilots—with examples of production conversions and evolving pricing transitions. | Q3 2025 emphasized converting over 600 active engagements with Microsoft, signing 50 new pilots (cumulative 310 pilots with 245 active), and noted quick conversion rates bolstered by the partner ecosystem. | A steady and growing emphasis on converting pilots to revenue with increasing pilot numbers and partnerships accelerating conversion, highlighting enhanced operational momentum and market validation. |
Financial Performance Challenges | Q4 2024, Q1 and Q2 2025 mentioned challenges around complex revenue recognition models, free cash flow volatility (with some periods being positive and others negative), and short-term gross margin pressure from a higher pilot mix. | Q3 2025 continued to cite negative free cash flow (improving from prior levels) and declining gross margins due to investment in pilots and expansion, along with reliance on demonstration licenses tied to ASC 606, reinforcing the cost of growth. | Persistent challenges with modest improvement in FCF metrics, but ongoing margin pressures driven by investment in growth and a high mix of pilots; the issues remain a near-term trade‐off for long‐term expansion. |
Federal & Defense Sector AI Demand | Previous earnings calls (Q4 2024, Q1 and Q2 2025) consistently covered significant federal and defense activity—with strong deals in aerospace, DoD, Navy and Air Force, and federal bookings reportedly contributing a substantial portion of overall deals. | Q3 2025 reiterated strong federal sector engagement by closing agreements with key agencies (DoD, Air Force, Navy, Missile Defense Agency) and launching generative AI pilots in high-security applications, reinforcing the critical role of government spending. | **Steady and robust demand; now with additional generative AI use cases in secure environments, indicating maturation of federal business and continued strategic importance for long-term growth. |
Emergence of Generative AI Product Demand & Differentiation | Q4 2024 saw record inquiry volumes (nearly 50,000 inquiries) and broad pilot initiatives; Q1 and Q2 2025 highlighted early pilot conversions and differentiation via secure, IP‐sensitive solutions. | Q3 2025 focused on safely integrating generative AI with solutions addressing hallucination, data fusion, and IP concerns, while also deploying 20 new generative AI pilots and introducing enhanced models (e.g. time series embedding) to differentiate its offerings. | Accelerating demand coupled with advanced product differentiation—from massive inquiry volumes in Q4 to robust, safety‐focused AI solutions in Q3—demonstrating a maturing and expanding generative AI strategy across industries. |
Operational Scalability & Capacity Constraints | Q4 2024 explicitly mentioned capacity constraints in sales and service delivery (e.g. handling up to 90,000 inquiries), while Q1 and Q2 2025 alluded to scaling operations through increased hiring and partner leverage. | Q3 2025 reiterated the need to expand operational capacity, highlighting challenges in sales and service delivery while leveraging an enlarged partner ecosystem (e.g. over 600 joint engagements with Microsoft) to manage rapid growth. | An emerging and intensifying issue, where initial warnings about capacity constraints are evolving into a focus on organizational scalability as demand surges, necessitating increased investments in sales, services, and partner enablement. |
Management & Leadership Risks | Q1 and Q4 2024 did not mention such risks explicitly, while Q2 2025 touched on challenges with complex financial modeling in the AI space without broader leadership concerns. | Q3 2025 introduced explicit discussion of CEO health issues (giant cell arteritis) and the use of a generative AI model for financial reporting—raising new concerns over leadership and communication uncertainties. | A new focus emerging in Q3 2025: Whereas earlier periods did not detail leadership risks, the current period introduces both CEO health challenges and nontraditional financial presentations, indicating growing investor scrutiny of management resilience. |
Contractual Renewal Uncertainty | Q2 2025 discussed uncertainty around the Baker Hughes exclusive agreement renewal (set to expire in June 2025), noting a gradual decline in Baker Hughes revenue contribution. | Q3 2025 did not explicitly mention any contractual renewal issues or concerns regarding exclusive agreements like Baker Hughes. | A topic that seems to have receded in the current period; previously raised concerns about contractual renewal uncertainty are no longer mentioned, possibly indicating resolution or deprioritization of the issue as revenue diversification progresses. |
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Microsoft Engagements Converting to Revenue
Q: When will the 600 Microsoft engagements convert to revenue?
A: The engagements are already converting to revenue; we closed 28 agreements with Microsoft last quarter, which happened quickly after signing the partnership on September 30. -
RPO Trends
Q: What are the trends in remaining performance obligations?
A: The total RPO at the end of the quarter was around $208 million. However, RPO is not a leading indicator for our business, and we expect some decline in RPO in the near term. -
CEO Health and Business Impact
Q: What is the health setback and steps taken in running the business?
A: The CEO experienced flu-like symptoms after Christmas, leading to a diagnosis of giant cell arteritis, affecting his vision. Despite this, he remains fully engaged in managing the business daily, with accommodations such as someone reading emails to him. Travel is limited, and Jim Snabe, a distinguished director, has assumed the role of special assistant to the CEO to handle events he cannot attend. The CEO's health is excellent aside from vision impairment. -
Professional Services Revenue Growth
Q: What drove services outperformance this quarter?
A: We saw an uptick in revenue from consulting services, paid implementation services, and training services during the quarter, leading to strong performance in professional services revenue. -
Demonstration Licenses Revenue Increase
Q: Why is demonstration licenses revenue outperforming, and what's driving it?
A: Partnerships with Azure and AWS expanded our salesforce by tens of thousands. To equip them effectively, we provided demonstration software, recognized as revenue upon delivery under ASC 606. This strategic move resulted in increased revenue from demonstration licenses.