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C3.ai, Inc. (AI)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 revenue was $98.8M, up 26% YoY, with non-GAAP gross margin at 69%; GAAP EPS was $(0.62) and non-GAAP EPS was $(0.12) .
  • Results tracked within prior revenue guidance ($95.5–$100.5M) and materially beat non-GAAP operating loss guidance with $(23.1)M vs guided $(38.6)–$(46.6)M, driven by expense discipline and mix; management expects near-term margin moderation due to a higher pilot mix .
  • Go-to-market acceleration via Microsoft, AWS, and McKinsey: 28 agreements closed with Microsoft, 621 joint campaigns, and sales cycles shortened ~20%, expanding the qualified pipeline 244% YoY .
  • Free cash flow improved YoY to $(22.4)M in Q3 (from $(45.1)M), with management on track for positive FCF in Q4; cash and marketable securities were $724.3M .
  • S&P Global Wall Street consensus data was unavailable at time of retrieval (API limit exceeded), so we cannot formally assess beats/misses vs Street estimates; comparisons below rely on company guidance and reported results [functions.GetEstimates errors: Daily Request Limit Exceeded].

What Went Well and What Went Wrong

What Went Well

  • 26% YoY revenue growth to $98.8M and 69% non-GAAP gross margin underscored scaling subscriptions ($85.7M; 87% of revenue) and efficient delivery .
  • Strategic partner momentum: 28 Microsoft agreements across nine industries, 621 joint campaigns, ~20% shorter sales cycles, and 244% YoY surge in joint qualified pipeline .
  • CFO highlighted $28.6M in demonstration license revenue enabling partner-led selling at scale and 43% YoY growth in non–Baker Hughes revenue; Q3 non-GAAP operating loss of $(23.1)M was much better than guidance .

What Went Wrong

  • GAAP net loss widened YoY to $(80.2)M and GAAP EPS to $(0.62), reflecting continued investment intensity and stock-based comp; free cash flow remained negative at $(22.4)M for Q3 (though improved YoY) .
  • Management expects near-term gross margin moderation due to a higher mix of pilots that carry greater cost during pilot phases, and operating margin moderation due to investments in sales, partners, support, and R&D .
  • Remaining performance obligations were ~$208M with an expected near-term decline, limiting RPO’s usefulness as a leading indicator and potentially raising questions on visibility .

Financial Results

Headline P&L and Margins (Quarterly)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$87.2 $94.3 $98.8
GAAP EPS ($)$(0.50) $(0.52) $(0.62)
Non-GAAP EPS ($)$(0.05) $(0.06) $(0.12)
GAAP Gross Margin (%)60% 61% 59%
Non-GAAP Gross Margin (%)70% 70% 69%

YoY Comparison (Q3)

MetricQ3 2024Q3 2025
Revenue ($USD Millions)$78.4 $98.8
Subscription Revenue ($USD Millions)$70.4 $85.7
Professional Services Revenue ($USD Millions)$8.0 $13.1
GAAP Gross Profit ($USD Millions)$45.3 $58.3
GAAP EPS ($)$(0.60) $(0.62)
Non-GAAP EPS ($)$(0.13) $(0.12)

Segment Revenue and Mix

MetricQ1 2025Q2 2025Q3 2025
Subscription Revenue ($USD Millions)$73.5 $81.2 $85.7
Subscription as % of Total84% 86% 87%
Professional Services ($USD Millions)$13.8 $13.2 $13.1

Professional Services Detail

MetricQ2 2025Q3 2025
Prioritized Engineering Services ($USD Thousands)$9,661 $5,698
Service Fees ($USD Thousands)$3,515 $7,405
Total Professional Services ($USD Thousands)$13,176 $13,103

Cash Flow and Liquidity

MetricQ1 2025Q2 2025Q3 2025
Cash & Marketable Securities ($USD Millions)$762.5 $730.4 $724.3
Free Cash Flow ($USD Millions)$7.1 $(39.5) $(22.4)

KPIs and Operating Metrics

KPIQ1 2025Q2 2025Q3 2025
Agreements Closed (#)71 58 66
Pilots Closed (#)52 36 50
Partner-Driven Agreements (%)72% 62% N/A
Agreements via Partner Network (#)N/AN/A47
RPO ($USD Millions)N/AN/A~$208
Demo License Revenue ($USD Millions)N/AN/A$28.6
Accounts Receivable ($USD Millions)$140.1 $160.0 $180.4
Unbilled Receivables ($USD Millions)N/AN/A$89.8

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q3 FY25$95.5–$100.5 Actual: $98.8 Met guidance (mid-upper range)
Non-GAAP Loss from Operations ($USD Millions)Q3 FY25$(38.6)–$(46.6) Actual: $(23.1) Raised vs guidance (better loss)
Revenue ($USD Millions)Q4 FY25N/A$103.6–$113.6 New
Non-GAAP Loss from Operations ($USD Millions)Q4 FY25N/A$(30.0)–$(40.0) New
Revenue ($USD Millions)FY25$378.0–$398.0 $383.9–$393.9 Narrowed; midpoint raised
Non-GAAP Loss from Operations ($USD Millions)FY25$(105.0)–$(135.0) $(87.0)–$(97.0) Raised; materially improved range

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Microsoft AllianceNew global alliance; C3 AI on Azure price list, marketplace; Azure sales compensation; pilot subsidies; sales cycle shortening anticipated 28 agreements; 621 joint campaigns; ~20% shorter sales cycles; 244% YoY qualified pipeline; coordinated joint motion Strong acceleration
Partner Ecosystem (AWS, Google, Capgemini)Capgemini expanded practice; Google Cloud 20 agreements; 62% of agreements via partners AWS expanded alliance; McKinsey QuantumBlack new strategic alliance; 47 agreements closed via partner network Broadening reach
Generative/Agentic AIQ1/Q2: multiple pilots, accelerator program, patent awarded for generative AI agents 20 generative AI pilots; time series embedding model; agentic orchestration over multimodal data; secure deployments in defense and industrials Product leadership advancing
Public Sector MomentumQ1/Q2: Army, Air Force RSO, DLA expansions; SLG momentum (24 agreements) 21 SLG agreements across multiple states; DoD, Air Force, Navy, MDA deals Sustained growth
Financial DisciplineQ1/Q2: accelerating revenue growth; non-GAAP operating loss improving Non-GAAP op loss $(23.1)M vs guided worse; reduced marketing spend to fund sales/partners; expect near-term margin moderation due to pilot mix Better-than-guided; investment continues

Management Commentary

  • “In the third quarter, C3 AI achieved significant milestones — expanding our global distribution network, advancing our leadership in agentic and generative AI, and delivering total revenue reaching $98.8 million, up 26% year-over-year.” — Thomas M. Siebel, CEO .
  • “Our non-GAAP operating loss was substantially better than guidance due to continued focus on expense management... we elected to reduce our marketing spend... and focus on expanding the sales organization and dramatically expanding our strategic partner ecosystem.” — Hitesh Lath, CFO .
  • “We now have a legion of experienced enterprise cloud sales and service professionals at Microsoft, AWS, McKinsey and Google Cloud distributing and servicing our solutions globally. This inflection point for C3 AI is a growth accelerator.” — Thomas M. Siebel .
  • “Revenue from sale of software licenses that are demonstration versions of C3 AI applications was $28.6 million during the quarter.” — Hitesh Lath .

Q&A Highlights

  • Microsoft co-sell traction: >600 joint selling engagements, 28 agreements closed quickly post-Alliance; expectation that these relationships are a “genuine big deal” for growth .
  • Demonstration licenses: $28.6M recognized in-period under ASC 606 to enable partner-led demos; critical to scale Azure/AWS sales force effectiveness .
  • RPO: ~$208M at quarter end; management reiterated RPO is not a leading indicator and guided for continued near-term decline .
  • Professional services: Services fees outperformed on increased consulting, paid implementation, and training activity .

Estimates Context

  • S&P Global consensus data retrieval failed due to daily request limit, so beats/misses vs Wall Street consensus cannot be assessed at this time; where available, we anchor estimate comparisons on S&P Global data. Values would be retrieved from S&P Global, but are currently unavailable due to API limits [functions.GetEstimates errors: Daily Request Limit Exceeded].
  • Context: Relative to company guidance, Q3 revenue landed mid-to-upper range while non-GAAP operating loss materially beat guidance; FY25 revenue and non-GAAP operating loss guidance ranges were raised and narrowed .

Key Takeaways for Investors

  • Growth engine is increasingly partner-led: Microsoft/AWS/McKinsey distribution materially expands reach and shortens sales cycles, with 28 Microsoft agreements and 621 joint campaigns; this should support pipeline conversion and revenue scaling over time .
  • Mix effects matter: Higher pilot activity supports land-and-expand but can pressure near-term gross margins and operating margins; CFO flagged moderation as pilots weigh on cost of revenue during pilot phases .
  • Quality of revenue and AR: Demo licenses bolster revenue recognition and field effectiveness; AR sits at $180.4M with $89.8M unbilled, and allowance < $650K with no collection concerns per CFO commentary .
  • Cash and FCF trajectory: While Q3 FCF was negative $(22.4)M, it improved YoY; management guides to positive FCF in Q4, supported by disciplined spend and partner leverage .
  • FY25 guidance raised: Revenue range narrowed to $383.9–$393.9 and non-GAAP operating loss improved to $(87.0)–$(97.0), indicating better operating performance vs prior outlook; Q4 revenue guided to $103.6–$113.6 .
  • Narrative catalysts: Continued partner momentum, agentic AI product advances (time series embeddings), and secure deployments in defense/industrial verticals can drive sentiment; watch margins as mix shifts and pilot conversion cadence .
  • Monitoring items: RPO decline near-term (limited leading value), pilot-to-production conversion rates, and persistence of demo-license contribution to revenue; S&P consensus comparison pending data access .